Oakland pot dispensary gets $2.5 million IRS bill

[megayields]

(10-04) 18:12 PDT Oakland -- A leading Oakland marijuana dispensary was hit with a $2.5 million tax bill this week which may force its closure, dispensary staff said Tuesday.

Harborside Health Center owes the Internal Revenue Service back-taxes for 2007 and 2008, based on a federal law prohibiting marijuana dispensaries - unlike other businesses - from deducting payroll, insurance, rent, workers' compensation and other operating costs from its revenues.

"We think this assessment is unfair and inaccurate. We have no choice but to fight this," said Harborside executive director Steve DeAngelo. "I'm profoundly concerned on behalf of our patients."

IRS spokesman Jesse Weller had no comment on the case.

Harborside, one of the largest marijuana dispensaries in the world,
has 94,000 clients and last year posted $22 million in revenues.

In 2007 and 2008, the years under scrutiny by the IRS, Harborside
earned about $7 million and $12 million, respectively, DeAngelo said.

Other large dispensaries, including the Marin Alliance for Medical
Marijuana, have also been slammed with large tax bills.

The IRS also plans to audit Harborside's tax returns for 2009 and
2010, DeAngelo said.

"This is not an effort to tax us. We're happy to pay our taxes," he
said. "This is an effort to shut us down."

Personal comment;I met Steve in 2009, he's a douche and was only
in it for the money BUT I thought he was smarter than this, they are
(were?) making phat paper, paying the tax should have been a no-
brainer??

 

[BiG H3rB Tr3E]

got to jump in here before the fingerpointers and the shit slingers get on this thread:::

harborside does alot of sales and im sure pulls a nice profit... but remember that 22million is NO WHERE NEAR what the take home is. i cant even imagine what the overhead is on a place like that...

 

[MIway]

and u'v got to figure he did pay taxes, and likely with a cpa or tax attny. it's an issue of normal business deductions... irs is saying no way, so they are taxing all of their operating expenses... in addition to the profits, which were likely paid. it's hitting them from the past with something that goes against the generally accepted accounting principles. wonder if he's still going to do that reality show? this should've been the the end to season one, prepping season two with the irs audit & dea smash & grab.

 

[mr.haze420]

the irs got the bootleggers during prohibition and now they will get the mmj too :-((

 

[BigDawg]

lawyer uP

 

[wantaknow]

thats kinda funny ,last timed i checked it was a federal crime to grow pot ,so it would only conclude it would be a federal crime to profit from it in tax revinue ?this is how the busted al capone back in the day ,but that federal law would be esly turned over today ,you simply cant have it both ways ,i am shure this is in retaliation to ron pauls push to decrimilize federally this week

 

[BigDawg]

weed wars

 

[dddaver]

I'm sorry, to me this is just hilarious. Does anyone else see the irony? And to me it just reads like the Keystone Cops with EVERYONE just running around banging into each other. HILARIOUS!

 

[Headbandf1]

All the big trimmers who have been providing HS with the best smoke on the commercial market better start watching their back. Steve, His brother, WD Dave, all have questionable pasts with accepting responsibility.

It wouldn't surprise me to find that HS has/will turn over all those documents that shows they paid 4000+ per pound for their product coming in and sick the IRS on all the Florida Boy crew and others. The IRS has found the loose thread and will unravel them in quick time. What about all the kick backs from sales they get from clubs their partners with like San Jose and SAC and near petalumia. and like it said in the report this is just the bill for 2007 and 08, when no one knew about HS - The 2009 -10 tax bill will be a multiplier of that.

anyone remember that cute asianish Bud-tender covered in all the tattoos who use to dress up in all those outfits and looked like a pin up Girl?

 

[Headbandf1]

http://www.theatlantic.com/politics...l-marijuana/246142/?google_editors_picks=true




The IRS has told California's largest provider of cannabis that it doesn't qualify for normal deductions, but a U.S. congressman is trying to change that



The slick video above is a testament to the professionalism and savvy of the folks at the Harborside Health Center, the largest medical marijuana dispensary on the West Coast. They're popular in their community, Oakland, among both their 83,000 members and city officials who appreciate the $1,081,450 tax bill the nonprofit organization recently paid into municipal coffers. But Luigi Zamarra, Harborside's chief financial officer, says that a tax problem with the IRS may force the operation to shut its doors if the federal agency's current ruling stands.

At issue is whether Harborside should be able to write off expenses as any other business would, or if selling marijuana changes everything. The Bay Citizen explains the specifics in its coverage. "The IRS insists that medical marijuana dispensaries must obey a section of tax code that prohibits companies from deducting most expenses if they are 'trafficking in controlled substances.' The section, 280e, was designed as a tool for fighting drug trafficking," writes reporter Zusha Elinson. "Zamarra said that the IRS letter states that Harborside can't deduct rent, payroll, health insurance or worker's compensation insurance -- deductions that are standard for many other industries. The only two things the IRS says the dispensary can deduct are the cost of buying marijuana and the cost of alternative health care services such as yoga, he said."

Isn't that odd? The product, marijuana, is legal in California. It's illegal under federal law, but IRS rules permit the cost of the product itself to be deducted anyway. What isn't permitted is selling marijuana and making standard deductions. It's a story about the clash between federal and state drug laws, but as much an instance of nonsensical tax laws that Congresses pass and that the IRS then enforces, becoming hated in the process when really lawmakers are to blame.

The Bay Citizen identifies the obvious solution: "East Bay Congressman Pete Stark introduced a bill this spring that would change the federal tax code to allow medical marijuana dispensaries to make the same deductions as normal businesses." It goes on to note that "with the federal opposition to marijuana dispensaries, it's unclear whether the president would sign the bill."

If you're pondering where you stand on the issue, it's worth thinking through what will happen if there is no fix and the dispensary closes. Suddenly 83,000 people, or a substantial fraction at the very least, will start obtaining medical marijuana either from a less scrupulous dispensary (Harborside is known even at the IRS for keeping accurate books) or one of the East Bay's many marijuana dealers. They'll no longer know the potency of what they're getting or its origin. The City of Oakland and the United States government will each take in a lot less tax revenue. And the decades-long, obviously unwinnable War on Drugs won't be any closer to being won. That doesn't seem like an optimal outcome from a policy perspective, does it? If only the federal government would stop trying to regulate intrastate commerce in this area we'd all be better off.

 

[supermanlives]

the man wants his cash sucker.

 

[Bi0hazard]

IRS ruling strikes fear in medical marijuana industry. Unfair taxing on dispensaries,

IRS ruling strikes fear in medical marijuana industry. Unfair taxing on dispensaries,

Full Article: http://bottomline.msnbc.msn.com/_ne...ng-strikes-fear-in-medical-marijuana-industry

IRS ruling strikes fear in medical marijuana industry

John Brecher / msnbc.com
Steve DeAngelo of Harborside Health Center


By Al Olson
In a potentially crushing blow to the burgeoning medical marijuana industry, the IRS has ruled that dispensaries cannot deduct standard business expenses such as payroll, security or rent.
Harborside Health Center, one of the nation's largest medical marijuana dispensaries and considered a model for the industry, is on the hook for $2.5 million in taxes from 2007 and 2008. That is $2 million more than the Oakland, Calif.-based company paid for those tax years.
“I see only two outcomes here,” said Steve DeAngelo, director and chief executive of Harborside. “Either this IRS assessment has to change or we go out of business. There really isn’t a middle ground for us.”
DeAngelo says the ruling will likely be appealed. He has 90 days to respond to the ruling.
The IRS ruling is based on an obscure portion of the tax code -- section 280E -- passed into law by Congress in 1982, at the height of Reagan administration’s “war on drugs.” The law, originally targeted at drug kingpins and cartels, bans any tax deductions related to "trafficking in controlled substances."
Although 16 states and the District of Columbia have passed laws allowing medical use of marijuana, the federal government still considers it a Schedule I drug, the most restrictive category with the harshest penalties.
The Internal Revenue Service refused to comment on the specific case, but letters sent from Andrew Keyso, IRS deputy associate chief counsel, to some members of Congress spell out the official position:

“Section 280E of the Code disallows deductions incurred in the trade or business of trafficking in controlled substances that federal law or the law of any state in which the taxpayer conducts the business prohibits. For this purpose, the term “controlled substances” has the meaning provided in the Controlled Substances Act. Marijuana falls within the Controlled Substances Act.”
​

The news has spread rapidly through the cannabis community and is likely to have a chilling effect on businesses.
“We are all a bit nervous and frustrated,” said Ken Estes, owner of Patient To Patient Group Collective in San Jose, Calif. “We have tried to comply with every city, state and federal law. We ask for input from all the agencies. But we are still being punished for operating a legitimate business.”
Harborside, which celebrated its fifth anniversary Monday, serves 94,000 patients with 84 full-time employees and brings in about $22 million in annual revenue. According to DeAngelo, the center, set up as a not-for-profit business, pays about $1.1 million in taxes to the city of Oakland, $2 million to the state of California and $500,000 to the federal government.
advertisement




“We have no complaint about the taxes we pay," DeAngelo said. "We are doing our part. All we ask is that we be treated like any other business enterprise. To treat us like criminals is simply wrong. Drug kingpins and cartels don’t file taxes. We do. But no business, including ours, can survive if it is taxed on its gross revenue. The IRS is trying to tax us out of existence.”
Keith Stroup, legal counsel and founder of NORML, the nation’s largest marijuana advocacy group, says the IRS ruling is likely to stifle the quasi-legal industry and force people back onto the black market.
“You know, Al Capone was taken down by the IRS, not by the FBI or the police. And I can assure you that Steve DeAngelo is no Al Capone,” Stroup said.
Stroup believes the move also could make it more difficult for the medical marijuana industry to capture significant capital investment. Medical marijuana is now a $1.7 billion market, according to a report released this year by See Change Strategy, an independent financial analysis firm that specializes in new and unique markets. The figure represents estimated sales of marijuana through dispensaries in states with medical marijuana laws.
Although the IRS declined comment, Stoup says NORML has received e-mails from other dispensaries that are currently being audited and will likely receive similar rulings. “Harborside is one of the biggest, so that is why the IRS targeted them first,” Stroup said. “But there are other dispensaries that will suffer the same fate unless Congress acts.”
Some members of Congress have taken up the cause.
Reps. Pete Stark, D-Calif., Barney Frank, D-Mass., and Jared Polis, D-Colo., have introduced legislation to ensure the medical marijuana industry is treated like any other business.
Two Republican presidential candidates — Ron Paul and Gary Johnson — also support the legislation.
Stark’s bill, the Small Business Tax Equity Act, authorizes medical marijuana dispensaries to take the full range of business expense deductions.
“You’d think that a time of record budget deficits that the IRS would be happy that a legal business is doing the right thing and paying its taxes," Polis said. "Instead, the IRS seems intent on destroying a successful and legal business that creates jobs and strengthens our economy."
The confused legal situation is “an un-American loop of nonsense,” says Jerome Handley, a tax attorney in Oakland who has more than 100 clients in the medical marijuana industry. “My advice to my clients is simple: Document everything … and stay out of the spotlight.”
William Panzer, an Oakland tax attorney who helped author California’s medical marijuana law, Proposition 215, also successfully fought the IRS in a similar case in 2007.
advertisement




In that case, U.S. Tax Court Judge David Laro declared that Californians Helping to Alleviate Medical Problems (CHAMP), a medical marijuana provider, could deduct the majority of employee costs as caregiving expenses. The IRS sought $426,000 in back taxes and penalties, but CHAMP ended up paying a tax assessment of less than $5,000.
“This law is not about protecting citizens from criminals. It is a concerted effort by the federal government to crack down on a legitimate business,” Panzer said.
DeAngelo points out the apparent craziness of the law. “The IRS allows me to deduct my cost of purchasing cannabis, which is the controlled substance they say is illegal. But I can’t deduct my payroll or my rent? That, clearly, defies logic and common sense.
"Besides," DeAngelo added, "have you ever heard of a drug trafficker that actually files a tax return? Me neither."

 

[Treetops]

IRS ruling strikes fear in medical marijuana industry

IRS ruling strikes fear in medical marijuana industry

http://bottomline.msnbc.msn.com/_news/2011/10/04/8153459-irs-ruling-strikes-fear-in-medical-marijuana-industry

By Al Olson
In a potentially crushing blow to the burgeoning medical marijuana industry, the IRS has ruled that dispensaries cannot deduct standard business expenses such as payroll, security or rent.

Harborside Health Center, one of the nation's largest medical marijuana dispensaries and considered a model for the industry, is on the hook for $2.5 million in taxes from 2007 and 2008. That is $2 million more than the Oakland, Calif.-based company paid for those tax years.

“I see only two outcomes here,” said Steve DeAngelo, director and chief executive of Harborside. “Either this IRS assessment has to change or we go out of business. There really isn’t a middle ground for us.”

DeAngelo says the ruling will likely be appealed. He has 90 days to respond to the ruling.

The IRS ruling is based on an obscure portion of the tax code -- section 280E -- passed into law by Congress in 1982, at the height of Reagan administration’s “war on drugs.” The law, originally targeted at drug kingpins and cartels, bans any tax deductions related to "trafficking in controlled substances."

Although 16 states and the District of Columbia have passed laws allowing medical use of marijuana, the federal government still considers it a Schedule I drug, the most restrictive category with the harshest penalties.

The Internal Revenue Service refused to comment on the specific case, but letters sent from Andrew Keyso, IRS deputy associate chief counsel, to some members of Congress spell out the official position:

“Section 280E of the Code disallows deductions incurred in the trade or business of trafficking in controlled substances that federal law or the law of any state in which the taxpayer conducts the business prohibits. For this purpose, the term “controlled substances” has the meaning provided in the Controlled Substances Act. Marijuana falls within the Controlled Substances Act.”

The news has spread rapidly through the cannabis community and is likely to have a chilling effect on businesses.

“We are all a bit nervous and frustrated,” said Ken Estes, owner of Patient To Patient Group Collective in San Jose, Calif. “We have tried to comply with every city, state and federal law. We ask for input from all the agencies. But we are still being punished for operating a legitimate business.”

Harborside, which celebrated its fifth anniversary Monday, serves 94,000 patients with 84 full-time employees and brings in about $22 million in annual revenue. According to DeAngelo, the center, set up as a not-for-profit business, pays about $1.1 million in taxes to the city of Oakland, $2 million to the state of California and $500,000 to the federal government.

advertisement“We have no complaint about the taxes we pay," DeAngelo said. "We are doing our part. All we ask is that we be treated like any other business enterprise. To treat us like criminals is simply wrong. Drug kingpins and cartels don’t file taxes. We do. But no business, including ours, can survive if it is taxed on its gross revenue. The IRS is trying to tax us out of existence.”

Keith Stroup, legal counsel and founder of NORML, the nation’s largest marijuana advocacy group, says the IRS ruling is likely to stifle the quasi-legal industry and force people back onto the black market.

“You know, Al Capone was taken down by the IRS, not by the FBI or the police. And I can assure you that Steve DeAngelo is no Al Capone,” Stroup said.

Stroup believes the move also could make it more difficult for the medical marijuana industry to capture significant capital investment. Medical marijuana is now a $1.7 billion market, according to a report released this year by See Change Strategy, an independent financial analysis firm that specializes in new and unique markets. The figure represents estimated sales of marijuana through dispensaries in states with medical marijuana laws.

Although the IRS declined comment, Stoup says NORML has received e-mails from other dispensaries that are currently being audited and will likely receive similar rulings. “Harborside is one of the biggest, so that is why the IRS targeted them first,” Stroup said. “But there are other dispensaries that will suffer the same fate unless Congress acts.”

Some members of Congress have taken up the cause.

Reps. Pete Stark, D-Calif., Barney Frank, D-Mass., and Jared Polis, D-Colo., have introduced legislation to ensure the medical marijuana industry is treated like any other business.

Two Republican presidential candidates — Ron Paul and Gary Johnson — also support the legislation.

Stark’s bill, the Small Business Tax Equity Act, authorizes medical marijuana dispensaries to take the full range of business expense deductions.

“You’d think that a time of record budget deficits that the IRS would be happy that a legal business is doing the right thing and paying its taxes," Polis said. "Instead, the IRS seems intent on destroying a successful and legal business that creates jobs and strengthens our economy."

The confused legal situation is “an un-American loop of nonsense,” says Jerome Handley, a tax attorney in Oakland who has more than 100 clients in the medical marijuana industry. “My advice to my clients is simple: Document everything … and stay out of the spotlight.”

William Panzer, an Oakland tax attorney who helped author California’s medical marijuana law, Proposition 215, also successfully fought the IRS in a similar case in 2007.

advertisementIn that case, U.S. Tax Court Judge David Laro declared that Californians Helping to Alleviate Medical Problems (CHAMP), a medical marijuana provider, could deduct the majority of employee costs as caregiving expenses. The IRS sought $426,000 in back taxes and penalties, but CHAMP ended up paying a tax assessment of less than $5,000.

“This law is not about protecting citizens from criminals. It is a concerted effort by the federal government to crack down on a legitimate business,” Panzer said.

DeAngelo points out the apparent craziness of the law. “The IRS allows me to deduct my cost of purchasing cannabis, which is the controlled substance they say is illegal. But I can’t deduct my payroll or my rent? That, clearly, defies logic and common sense.

"Besides," DeAngelo added, "have you ever heard of a drug trafficker that actually files a tax return? Me neither."
.

 

[City Twin]

Let’s see. I suspect 280E can readily be traced back to claimed legislative authority of the Commerce Clause. This authority would properly be restricted to international - interstate trade.

I suggest the Cannabis materials proffered can be shown to be of domestic California production and not items of interstate trade subject to Federal Regulation.

 

[Headbandf1]

we need to flip the script,................................... a new Paradigm.

 

[Hash Zeppelin]

This will just drive prices back up. It is good for Cali technically, but bad for patients; either that or I guess people should start opening hydro shops cause when people cant afford to buy it they might just grow their own, and they need to buy gear.

 

[BiG H3rB Tr3E]

Only democrats backing dispensaries.... So why are there so many tea baggers (republicans) on this site??? Don't they realize 99.9% of their party want them in jail for using smoking selling or growing herb?

 

[stickey fingers]

Only democrats backing dispensaries.... So why are there so many tea baggers (republicans) on this site??? Don't they realize 99.9% of their party want them in jail for using smoking selling or growing herb?

you are not talking about me and RON PAUL !!! on this site beacause you would be wrong...how about all of the
brain washed sheeple on this site touting UNCLE TOM not
my NIGA and certainly not a ******FUCK O HOUSER !!!

 

[mrwags]

This will just drive prices back up. It is good for Cali technically, but bad for patients; either that or I guess people should start opening hydro shops cause when people cant afford to buy it they might just grow their own, and they need to buy gear.

How many of you have been here long enough to see a friend of a friend branch off and start a seed business.

GREED GREED GREED is what soon follows and months of bickering on the boards since Congress owns that particular board I see them running out the locals and setting up Government Weed Marts in the coming years.

Our generation will be screwed just like we will when we try to cash in our current 401k's. You see by that time Social Security will be broke and them taxing the shit out of our 401's is where the money to pay it will come from. I have said this for years now and everyday that reality gets closer and closer.

Until THEY make ALL the money FIRST we will always be in hiding fighting over the scraps. That why some of us grow our own.


My Penny
Mr.Wags

 

[BiG H3rB Tr3E]

you are not talking about me and RON PAUL !!! on this site beacause you would be wrong...how about all of the
brain washed sheeple on this site touting UNCLE TOM not
my NIGA and certainly not a ******FUCK O HOUSER !!!

ron paul is a PATRIOT, i have a hard time calling him a republican when you look at all the clowns around him