New DOJ Marijuana Policy Won't Fly With IRS

http://www.forbes.com/sites/robertwood/2013/09/04/new-doj-marijuana-policy-wont-fly-with-irs/

http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf

But now, one might say finally—the U.S. Department of Justice (DOJ) issued this response suggesting for the first time that it will lay off the raids and prosecutions. But there is a big condition. The feds will lay off only if the states create “a tightly regulated market” with rules that address federal “enforcement priorities” such as preventing interstate smuggling, diversion to minors, and “adverse public health consequences.”

Those may be key phrases, but they seem imbued with considerable discretion. This memo to U.S. attorneys makes that point clear. In it, Deputy Attorney General James Cole says that the DOJ can still prosecute growers and sellers if Colorado and Washington fail to adequately address federal concerns.

As nice as it is to see some movement in the right direction, this new era is unlikely to make growers and sellers (in any state) entirely comfortable. After all, it appears to allow the DOJ wide discretion what to do. Plus, it can presumably be changed at any time.

On top of this, it is worth asking how the IRS will react to this. The tax problems of the industry are notorious and one of the major impediments facing the industry. Unfortunately, there has been no IRS announcement on the heels of the DOJ and we should not expect much. The IRS is unlikely to lay off the tax attack it has mounted against marijuana income.

The reason is that even legal dispensaries are drug traffickers to the feds. See Voters Say Yes To Marijuana, IRS Says No. And the main culprit is Congress, not the IRS. Section 280E of the tax code denies even legal dispensaries tax deductions. In the past the IRS has said it has no choice but to enforce the tax code passed by Congress.