Sacramento Dispensary Challenging IRS

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Sacramento’s Canna Care dispensary is battling the Internal Revenue Service over the agency’s controversial 280E tax code, which has become a major thorn in the side of cannabis businesses.

According to the IRS, Canna Care owes $873,167 in back taxes for 2006, 2007 and 2008. The hefty tax bill comes after the IRS refused to accept $2.6 million in deductions for salaries, rent and other costs the dispensary claimed over that time period.

The agency tied its decision to 280E, which denies a host of common tax deductions for businesses that trade in illegal drugs.

The dispensary’s owners said the IRS offered to accept a settlement fee of $100,000 to end the case. But they decided not to pay the fee and instead will argue their case before a U.S. Tax Court in San Francisco on Feb. 24, saying they hope to raise awareness about the plight of cannabis businesses.

The dispensary’s attorney, Spencer Malysiak, argues that the IRS is violating the Equal Protection Clause of the U.S. Constitution.

Canna Care reportedly generates $2 million a year in cannabis sales, and the dispensary operates as a non-profit.

Its owners take home a combined $175,000 each year in salaries, and they pay their 12 employees between $30,000 and $40,000 a year. Employees also receive health benefits.