The owner of a California medical marijuana dispensary was found to have underreported income.
Moreover, he was precluded from deducting most of the expenses he claimed because the business consisted of trafficking in controlled substances.
Martin Olive operated the Vapor Room Herbal Center as a sole proprietorship in San Francisco. The Vapor Room’s principal business is the retail sale of medical marijuana under California law. The IRS found deficiencies in Olive’s income tax for 2004 and 2005, respectively, after determining that he failed to substantiate any costs of goods sold or expenses reported.
The Tax Court, in Olive v. Commissioner, 139 T.C. No. 2, agreed with the IRS that Olive underreported gross receipts, and that he could not deduct his claimed expenses. While his business was legitimate under California law, Section 280E of the Tax Code precludes a deduction of any amount for a trade or business where the “trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances … which is prohibited by federal law.”
Olive claimed this provision was inapplicable. The Vapor Room’s business did not consist of the illegal trafficking in a controlled substance, he contended, because it was legitimate under California law. However, the Tax Court noted it has previously held that a California medical marijuana dispensary’s dispensing of medical marijuana pursuant to the California law constituted “trafficking” within the meaning of the Internal Revenue Code.
5 Comments
The 420 connections can be very tricky. Yes, the various States allow for certain deductions, however, the Federal Government has a different set of rules for deductible expenses. You need to be careful when answering the questions. Do some research on prior cases and that should give you a good baseline for deductability. Work with an accountant that will be VERY conservative on your returns.
Posted by: shnorth5 | August 7, 2012 11:32 AM
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The government has always used a "false morality", false since the wealthy and connected have always been excused from obeying these so called laws. For one, Abortion has always been available for these individuals, and still is even in the States fighting it.
Gambling losses are deductible, not only against winnings, which could be justified, but also only as an itemized deduction which screws the low earner, especially retirees, who do not itemize deductions.
To force the State Legal Marijuana operators to report income, and not be allowed to deduct expenses, is essentially putting them out of business, and filing criminal tax evasion charges, with out having the balls to admit that they are criminalizing a legal State activity, without a typically ball-less Congress actually passing a law.
Of course, as the previous comments indicate, the Gang market is thriving with the Law receiving pay-offs, and the bankers washing the profits. Maybe we should change our motto to "In the Devil we Trust." As we continue to make a mockery of our so called "belief in god."
Posted by: tego@verizon.net | August 6, 2012 1:49 PM
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I agree with the comment regarding the government putting the control with the gangs by keeping marijuana illegal, let's also look at the fact that the state of California is allowed to "set the legal limits" for the medical marijuan industry operating in it's state...unless of course the IRS decides otherwise. The federal government needs to get on the same page and, once an for all, legalize this substance and stop wasting drug prevention funds and missed revenue. Seriously, how long is it going to take for them to see the light?!? Signed, a non marijuana user.
Posted by: merrysylvia | August 6, 2012 12:53 PM
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Instead of Making Marijuana operation similar to a liquor store (see Broadwalk Empire - Prohibition cuased crime not alcohol) that will one day drive the criminal element /(gangs out) the government will drive these operations out of business, solidfying the "Gangs" hold on drugs.
http://www.lp.org/
Posted by: neparms | August 6, 2012 10:02 AM
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Instead of Making Marijuana operation similar to a liquor store (see Broadwalk Empire - Prohibition cuased crime not alcohol) that will one drive the criminal element /(gangs out) the government will drive these operations out of business, solidfying the "Gangs" hold on drugs.
http://www.lp.org/
Posted by: neparms | August 6, 2012 10:01 AM
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