IRS Hits Pot Shop With $2.4M Tax Bill

Taxes Wednesday, October 5th, 2011

By AP, MyFOXNY

SAN FRANCISCO – The federal government has found a new weapon in its war on marijuana — the tax man.

A San Francisco Bay area medical marijuana dispensary that promotes itself as the world’s largest has been hit with a $2.4 million tax bill following an audit by the Internal Revenue Service, the dispensary founder said Tuesday.

The back taxes, penalties and interest levied against Harborside Health Center came after the IRS examined its returns for 2007 and 2008 and determined a 1982 tax code prohibiting cost deductions for businesses that traffic in illegal drugs applies to the dispensary.

Harborside is a spa-like fixture on Oakland’s waterfront with 94,114 registered customers and 84 full-time employees that offers an average of 30 varieties of medical marijuana every day and has $22 million in annual sales.

“What kind of drug trafficking organization actually files a tax return? None of them do,” said Harborside CEO Steve DeAngelo, who gave his auditor a personal tour of his posh apothecary. “The very fact that we filed a tax return and told the IRS all the details of what we are doing proves we are not a drug trafficking organization.”

The IRS said the agency does not comment on individual audits.

DeAngelo, the subject of an upcoming Discovery Channel reality show, said the write-offs disallowed by the IRS included standard operating costs such as rent, payroll, employee health insurance and licensing fees.

Government auditors did not dispute, however, that Harborside had properly deducted its biggest expense — the millions of dollars it spent buying pot to sell to people who use it under California’s medical marijuana law.

To read more, visit:  http://www.myfoxny.com/dpps/news/irs-hits-oakland-pot-shop-with-24m-tax-bill-dpgapx-km-20111004_15331274

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