IRS Cites 1982 Tax Code, Charges Pot Shop $2.5M

Bummer news for an Oakland marijuana dispensary that calls itself the world's largest: IRS auditors say it owes $2.5 million in back taxes for 2007 and 2008, a figure so high it may force Harborside Health Center to close its doors, reports the San Francisco Chronicle. Here's the twist: The IRS came up with the figure after citing a 1982 tax code related to businesses that traffic in illegal drugs—which it says applies to Harborside, reports the AP. As such, the dispensary is prohibited from deducting rent, payroll, insurance, and other common costs.

"What kind of drug trafficking organization actually files a tax return? None of them do," stated a Harborside exec. "This is not an effort to tax us. We're happy to pay our taxes. This is an effort to shut us down." The Chronicle notes that other dispensaries have been hit with similar large tax bills. But for Harborside, which posted earnings of $22 million last year and claims 94,000 clients, the bad trip is not over: The IRS also plans to audit 2009 and 2010 returns. (More medical marijuana stories.)