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Colorado Medical Dispensary in Court Over Internal Revenue Code

Harborside Health Center is challenging the Internal Revenue Service in court over how marijuana-related sales were interpreted.

The health center is the largest medical dispensary in Colorado, and it has taken the matter to court with regards to how the IRS applied Section 280E of the Internal Revenue Code. The Drug Enforcement Agency classifies marijuana as a Schedule I drug, meaning it falls under the same category as other hard drugs such as ecstasy, heroin, cocaine and methamphetamine, among others. Drugs in this category are considered dangerous and are most likely to be abused. Such drugs should therefore not be accepted for medical treatment.

So far, the District of Columbia and 25 states have already set in place laws that give marijuana legal status for medical or recreational purposes, but the federal government has not yet change the marijuana classification. Congress has done very little about the matter and Harborside Health Center believes that something should be done. Otherwise, marijuana prescriptions will remain illegal in the eyes of the federal government.

The situation also brings up a lot of contrast because state governments have been implementing changes, yet the federal government maintains its stance, thus showing disunity in the matter. Despite the situation, the federal government still expects individuals and businesses to report all incomes for tax purposes regardless of where the income was generated. This implies that income should be reported even from “illegal” activities. The IRS uses the Illegal Source Financial Program to enforce a tax on illegal activities, meaning marijuana businesses only need to pay taxes to ensure legality according to Harborside. The IRS disagreed based on Section 280E.

Harborside intends to push the government to make the law clear on whether the marijuana dispensaries given legal status by the state governments should, therefore, be treated as illegal businesses. The dispensary decided to take the matter to court after it was issued a $2.4 million tax bill and an audit for the business dealings over the past two years.

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