IRS opens audit of Denver medical-marijuana dispensary

[mendel]

http://www.denverpost.com/news/marijuana/ci_17927752

IRS opens audit of Denver medical-marijuana dispensary

The Internal Revenue Service has opened an audit of a Denver medical-marijuana dispensary, the latest action in what one observer calls a "guerrilla campaign" by the federal government to push back against the cannabis industry.

The audit is believed to be the first of its kind in Colorado and follows audits of numerous medical-marijuana dispensaries in California and other states.

Investigators are examining whether it was unlawful for the dispensaries — which are illegal enterprises under federal law — to deduct business expenses from their federal taxes, said Jim Marty, a Denver accountant who represents the Colorado dispensary.

Marty declined to name the dispensary or say where it is located. Marty said the dispensary was notified of the audit earlier this month.

"So far," he said, "the IRS has been pretty cooperative. . . . The client had good records."

Marty said he expects the IRS to look broadly at dispensaries in Colorado. If so, that would mirror what the agency has done in California, where tax attorney Henry Wykowski said the IRS has undertaken at least 30 audits of dispensaries.

The audits are also part of a bigger series of events in which the federal government appears to be more actively asserting itself in state-legal marijuana businesses.

In recent months, U.S. attorneys in Washington state and California have sent letters to state officials there warning them that efforts to regulate medical-marijuana businesses will not change the federal government's disapproval of those businesses.

In one letter, U.S. attorneys in Washington warn Gov. Christine Gregoire that state employees who regulate the businesses "would not be immune from liability."

In addition to the IRS audits, the federal government has asserted its authority by raiding medical-marijuana dispensaries. Last month, federal agents served 26 criminal search warrants in Montana during a drug-trafficking investigation that focused on dispensaries. The agents allege the dispensaries were also engaged in other illegal activities.

Because federal law enforcement resources are so limited, Robert Mikos, a Vanderbilt University law professor who has studied medical-marijuana laws, said the government has had to be selective in how it targets medical marijuana, conducting more of a "guerrilla campaign" than a frontal assault.

Colorado Attorney General John Suthers believes the recent crackdown should be a warning to Colorado medical-marijuana providers and state lawmakers alike.

But so far — the recent IRS audit aside — Colorado has seen relatively little federal enforcement against cannabis businesses, despite having the most well-codified medical-marijuana regulatory system in the nation. Dan Hartman, who oversees medical-marijuana industry regulation in Colorado, said state officials have met repeatedly with federal authorities to keep them apprised of the state's evolving regulations. That has included providing limited, public information about dispensaries if the federal agents request it.

Hartman said federal officials, during the meetings, have remained firm that they see medical-marijuana businesses as illegal.

But Hartman thinks the dialogue has helped prevent public blowups. "We started out in the beginning to make sure we have a transparent business."

Still, Allen St. Pierre, the executive director of the National Organization for the Reform of Marijuana Laws, told an audience at his group's annual convention in Denver last week that recent events are a reminder the medical marijuana industry remains a perilous business.

"One cannot whistle by the graveyard when it comes to medical cannabis," he said.

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[Seamaiden]

First Harborside, now this outfit. Get ready boys, it's coming!

 

[kolah]

Start reading about Ron Paul and then support him for the Prez run 2012. He will end the fed completely....unless they blow his head off like they did to JFK.

The IRS are the worlds worse mafia thugs.

The IRS = THEirs

 

[Seamaiden]

:giggle You're telling me about Ron Paul? (J/K)

We supported him in '08, including donating to his campaign. He pissed me off this year when he came out in favor of DoMA, but I do have to agree with my husband that he's still the best candidate by far. I disagree with Dave that Paul is more electable this year. My stance is he's still completely fucking goofy and still too strongly and closely associated with whack-jobs by Joe America (the Joe who Votes, of course) to have a snowball's chance in hell.

To be electable as president in America first you have to look good on tv, then you have to appeal to the masses in a mass way. The Truther, what has now become the Tea Party and Birthers do Ron Paul absolutely no favors by aligning themselves with him in the manner they do.

Add to that the fact that big corporations absolutely will NOT support him via PACs (political action committee, this is how corporations donate to politicians and not violate campaign donation laws) and he's guaranteed to fail. I need to find the link that shows how closely political success is tied to advertising. We are a Nation of Zombies, Amnesiac Zombies.

But, Dave thinks that by him getting better press that can all be put aside and he very well may succeed. He just might have more faith in people than I do at that point.

And don't get me started on the IRS. The people who insist they would never show up at someone's home armed to the teeth are living in a Faery Tale World. They have no concept, no concept at all.

 

[Bud Spleefman]

The Corporations run America. The sooner we start stripping them of the power, the sooner we get the country back... Supreme Court rulings like Citizens United kill us regular people. Why do coporations get lobbyists? Corporations don't vote, why do their representatives get to hang out in Congress? There are way more lobbyists in DC than Senators or Representatives... it's just wrong.

I'm not sure if Ron Paul is worth wasting a vote on, though... may as well use it on someone who might win.

 

[mrdizzle]

nothing like the IRS to push cannabis back underground

 

[sky high]

The times, they are a changin'.....

again.

Look for even more cities/towns/counties to revist the "business' side of this equation and limit it even further as the news of the shredding of the Holder/Ogden memo and a possible >personal liability< falls into place for Gov't workers/officials etc....

I'm gonna guess that letters will soon go out to CO property owners threatening forfieture if they rent to MMJ businesses. It's how they started the down turn in CA. a few years ago, IMO. Easy...effective....holds up in court. "Cease and Desist"...or BAM. End of story.

between the 3.... the "untouchable" industry here could very well take a huge hit.

wot a mess....

s h

 

[GreenThumbBill]

Boo Hoo. Whatever happened to those predictions that 80% of the dispensaries were going to close due to HB 1284's 70/30 rule? Is that still on the horizon when the DOR gets more actively involved?

 

[SoCoMMJ]

Boo Hoo. Whatever happened to those predictions that 80% of the dispensaries were going to close due to HB 1284's 70/30 rule? Is that still on the horizon when the DOR gets more actively involved?

It will be interesting to see how many licenses are actually issued once the regulation shit quits hitting the fan. The fan is pretty nasty and spinning off balance at this point.
:anim_09:

 

[chickenman]

Boo Hoo. Whatever happened to those predictions that 80% of the dispensaries were going to close due to HB 1284's 70/30 rule? Is that still on the horizon when the DOR gets more actively involved?

The way things are nowa days they'll do anything and everything to control this and other aspects of our lives.

 

[rockymtnbuds]

It will be interesting to see how many licenses are actually issued once the regulation shit quits hitting the fan. The fan is pretty nasty and spinning off balance at this point.
:anim_09:

It seems strange that after all the pressure to have paperwork and checks submitted by a certain date that something like 8 months later and not one single license has been issued. What other industry has ever had to operate in such a twilight zone? I think they'll drag their feet as long as possible then chicken out and not issue any.

Back to this audit. If the IRS is auditing a business that the Federal Government has declared illegal, isn't that sort of legitimizing said businesss? This is getting awfully confusing.

 

[DoobyScoo]

Problem is, they already spent the money...
Know they tapped you (disps) dry...

And, now, where do we go?

Like a crackhead on Colfax, looking for that next score.

 

[Darth Fader]

The way things are nowa days they'll do anything and everything to control this and other aspects of our lives.

Puritan: one who hates the idea that someone, somewhere, might be enjoying themselves.

 

[Seamaiden]

It seems strange that after all the pressure to have paperwork and checks submitted by a certain date that something like 8 months later and not one single license has been issued. What other industry has ever had to operate in such a twilight zone? I think they'll drag their feet as long as possible then chicken out and not issue any.

Back to this audit. If the IRS is auditing a business that the Federal Government has declared illegal, isn't that sort of legitimizing said businesss? This is getting awfully confusing.

BINGO! That's why I would love some news on what's ended up happening with Harborside out here. Were they 'legitimized' through the audit?

 

[kolah]

I cannot believe people who run MMC's signed away their Constitutional rights here in CO. CO is the ONLY state where mmj is legal AND it's written right into the CO Constitution.

IMO, these folks are at quite the risk.

 

[chickenman]

I grew up in the 60s and 70s. Even though still a kid I witnessed and participated in anti war protests,the civil right movement, fuck the man we were united.Was living in Sf Bay Area lots was happening. My point is what have we learned from our past? Our Govt is so out of control but I dont see the same kinda of uproar as I did back then. Protests like the Democratic convention in Chicago where we took it to the streets got asses kicked but it showed the world a lot. Our Gvt. is so far from doing whats right for we the people who for some reason just seem to bend over and slowly, little by little continue to get screwed.

 

[Bud Spleefman]

BINGO! That's why I would love some news on what's ended up happening with Harborside out here. Were they 'legitimized' through the audit?

No, they were denied their deductions, and given a bill for back taxes, and they paid them. End of story. Or at least, that will be the end.... that's what happens in an audit, I've been threw a few with some other businesses I've been involved in.

The deal with the Dispensaries is they don't get to take deductions, period. If they do, they get audited... it's a slam dunk. Then accountant we worked with told us that from the get go..............

 

[Bud Spleefman]

To put it in perspective, if you own an Internet Gambling site, or a Whore House in Nevada, it might be legal in whatever country you are hosting the site, or whatever state the whorehouse is in, but as fas as the IRS is concerned it's not a legal business, and therefore, no deductions.

 

[IVIars]

..........but as fas as the IRS is concerned it's not a legal business, and therefore, no deductions.

Not a legal business, but still taxed, wtf?

 

[RMCG]

Not a legal business, but still taxed, wtf?

You are still required to report and pay taxes on 'ill-gotten' gains.


Income

In James v. United States,[3] the Supreme Court held that an embezzler was required to include his ill-gotten gains in his "gross income" for Federal income tax purposes. In reaching this decision, the Court looked to the seminal case setting forth the tax code’s definition of gross income, Commissioner of Internal Revenue v. Glenshaw Glass Co.[4], in which the Supreme Court held that a taxpayer has gross income when he has "an accession to wealth, clearly realized, and over which the taxpayers have complete dominion".[5] At the time the embezzler acquired the funds, he did not have a consensual obligation to repay, or any restriction as to his disposition of the funds.[6] If he had acquired the funds under the same circumstances legally, there would have been no question as to whether he should have gross income. Therefore, the embezzler had gross income under the tax code, even though the application of another body of law would later force him to return the money.
[edit] Deductible expenses in illegal activity – the general rule

While embezzlers, thieves, and the like are forced to report their ill-gotten gains as income for tax purposes, they may also take deductions for costs relating to criminal activity. For example, in Commissioner v. Tellier, a taxpayer was found guilty of engaging in business activities that violated the Securities Act of 1933.[7] The taxpayer subsequently tried to deduct from his gross income the legal fees he spent while defending himself.[8] The Supreme Court held that the taxpayer was allowed to deduct the legal fees from his gross income because they meet the requirements of §162(a).[9], which allows the taxpayer to deduct all the “ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business.”[10] The Court reasoned (and the Internal Revenue Service did not contest the point) that it was ordinary and necessary for a person engaged in a business to expect to have legal fees associated with that business, even though such things may only happen once in a lifetime.[11] Therefore, the taxpayer in Tellier was allowed to deduct his legal fees from his gross income, even though he incurred the fees because of his crime. The Tellier court reiterated that the purpose of the tax code was to tax net income, not punish unlawful behavior.[12] The Court suggested that if this was not the case, Congress would change the tax code to include special tax rules for illegal conduct.[13]
[edit] Expenses that are not deductible

Deductions relating to unlawful conduct may be disallowed when to allow them would sharply frustrate a national or state policy prohibiting such conduct.[14]
Congress may impose specific provisions that prohibit deductions in connection with illegal activity or other violations of law. No deduction is allowed for fines or similar penalties paid to a government for the violation of any law.[15] Internal Revenue Code section 280E specifically denies a deduction or credit for any expense in a business consisting of trafficking in illegal drugs "prohibited by Federal law or the law of any State in which such trade or business is conducted."[16] Similarly, no business deduction is allowed "for any payment made, directly or indirectly, to an official or employee of any government [ . . . ] if the payment constitutes an illegal bribe or kickback or, if the payment is to an official or employee of a foreign government, the payment is unlawful under the Foreign Corrupt Practices Act of 1977."[17] Similarly, tax deductions and credits are denied where for illegal bribes, illegal kickbacks, or other illegal payments under any Federal law, or under a State if such State law is generally enforced, if the law "subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business."[18] No deduction is allowed for kickbacks, rebates, or bribes made by those who furnish items or services for which payment may be made under the Social Security Act.[19]