internal revenue service

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Washington: Seattle IRS Agent Charged With Bribing Marijuana Store Owner


By Steve Elliott
Hemp News

A Seattle-based Internal Revenue Service agent was charged on Monday with soliciting a bribe and accepting payment from a local recreational-marijuana business owner.

Paul Hurley, 42, allegedly asked for $20,000 cash from the I-502 store owner in exchange for giving lenience in a tax audit, according to the U.S. Attorney's Office, reports Jessica Lee at The Seattle Times. Hurley was charged in U.S. District Court.

The owner of the marijuana store reportedly did not ask for leniency.

Hurley presented the business owner with a tax bill for 2013 and 2014 totaling more than $290,000, but claimed he had saved the businessman more than $1 million, according to prosecutors. The agent then asked for $20,000 in exchange for the "help," according to a news release from the U.S. Attorney's Office.

Photo of Paul Hurley: LinkedIn

Business deductions aren't allowed on federal tax returns for marijuana business, and the gross revenue is taxable because cannabis is a Schedule I controlled substance under federal law.

The businessman contacted law enforcement, who witnessed two money exchanges between the man and the IRS agent. Hurley, who has been with the IRS since 2009, according to the news release, was arrested after the second money exchange on Monday.

U.S.: Federal Appeals Court Says Marijuana Businesses Cannot Deduct Expenses


By Steve Elliott
Hemp News

In a huge blow to the newly legal marijuana industry, the IRS has convinced the Ninth Circuit Court of Appeals that marijuana dispensaries can't deduct business expenses, and must pay taxes on 100 percent of their gross income, reports Robert W. Wood at Forbes.

Almost every business in the United States pays taxes only on net profits, after expenses. But marijuana businesses are different -- they must pay taxes on gross profits, according to a Ninth Circuit federal court decision on Thursday, reports Paul L. Caron at the TaxProf Blog.

The court affirmed than the Internal Revenue Service's Section 280E prevents a San Francisco medical marijuana dispensary from deducting ordinary or necessary business expenses because its Vapor Room is a "trade or business ... consist[ing] of trafficking in controlled substances ... prohibited by Federal law." [Olive v. Commissioner, No. 13-70510 (July 9, 2015)

Washington: Legal Marijuana Stores Having Trouble Matching Black Market Prices


By Steve Elliott
Hemp News

Due to the onerous nature of Washington state's regulations on the legal marijuana industry, including an overbearing tax scheme, the legal marijuana stores which have opened as the badly written I-502 is implemented are reportedly having trouble turning a profit -- even at $30 a gram.

Despite brining in more than $440,000 in sales since July, Station 420 in Union Gap is still in the red financially, according to owner Adam Markus, reports Mike Fault at the Yakima Herald-Republic.

"We have yet to make a profit here," Markus said. "And there are a lot of other people who got into this just thinking they were going to be millionaires in a year, and now they're having a hard time."

Washington state had $15.6 million in marijuana sales in November, more than double the figures from August, and pot shop owners say prices have come down by as much as half since July as supplies have increased.

But then there's the pesky fact that the prices of legal weed are still roughly double to triple those on the black market. Consumers aren't morons, and if the "guy you know down the street" is selling righteous pot for $10 a gram (a typical price both on the street and in the medical marijuana community), who wants to pay $30 a gram for the "privilege" of buying the stuff in a legal store?

California: Owner of Marijuana Dispensaries Sentenced To 21 Years


By Steve Elliott
Hemp News

An Orange County, California man who ran a string of what law enforcement described as illegal medical marijuana dispensaries was sentenced on Monday to more than 21 years in prison and ordered to pay more than $4.2 million in restitution.

John "Pops" Walker, 56, of San Clemente, pleaded guilty in an April plea agreement to drug trafficking, tax evasion and owning weapons as part of the drug trafficking, reports Joseph Serna at the Los Angeles Times.

He was indicted by a federal grand jury last fall along with 13 codefendants. As the alleged head of the "drug ring," Walker operated at least nine marijuana dispensaries in Los Angeles and Orange counties. He admitted to prosecutors that he made more than $25 million over a period of six years, and that he paid taxes on only a fraction of it.

Walker on Monday was ordered to pay $2.4 million to the Internal Revenue Service and $1.8 million to the California Board of Equalization. Government agents also seized $25 million in income, his luxurious home in San Clemente, several mobile homes in Mammoth Lakes, a property in Long Beach and his stake in two strip clubs.

He was sentenced to 262 months in federal prison, which is 21 years and 10 months.

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