States that have legalized the growing and sales of marijuana products are still subject to prosecution by the Federal government. There are currently 20 marijuana legal states. Even though marijuana has been used widely for medical purposes, and there are fees involved to cultivate it, the federal government isn’t budging on its stance to recognize states rights in the matter. It feels the “pot trade” must be exclusively under federal control and pot is still classified as a controlled substance. Banks have made it difficult, if not impossible to open business accounts for state approved marijuana businesses.
The DOJ (Department of Justice) is now saying that it will ease up on raids and prosecutions if states regulate the market and enforce rules such as interstate smuggling, sales to minors, and address adverse public health concerns. If marijuana growers and sellers in a state such as Colorado, for example, fail to comply, the Federal Government and IRS will prosecute them.
Even legal dispensaries may be subject to IRS prosecution. The main reason for this is Congress and not the IRS itself. Congress has denied dispensaries deductions. The IRS, in turn, has had to enforce the tax code on dispensary establishments because of this. This is causing many marijuana related businesses to go underground. Dispensaries have been deducting expenses from “other businesses” not related to marijuana such as care-giving for medical patients. If only 10% of the premises is used to dispense marijuana, and the rest for care-giving, owners may deduct most of the rent for the premises.
It’s essential for any business in the marijuana trade to keep detailed records. Other options to offset expense deductions would be to obtain non- profit status as a social welfare organization, become a cooperative or collective.
Interestingly enough, Harvard Law School is now offering tax planning courses for marijuana dealers.
The Marijuana Tax Equity Act, introduced by Congressmen Jared Polis (D-CO) and Earl Blumenauer (D-OR) proposes to end federal prohibition on marijuana and allow it to be taxable. Marijuana would be removed from the Controlled Substances Act. If it passes, marijuana growers and sellers would not be in violation of Federal law. The bill will also impose an excise tax on marijuana sales and an annual occupational tax on workers in that industry.
CPA Kevin Thompson says:
“The IRS says it has no choice but to enforce the laws established by Congress as the States, the DOJ and even Harvard has tried to show the federal government the error of its ways.”
For tax help and information please contact Kevin Thompson CPA at
firstname.lastname@example.org or call him @ (310) 450-4625.