Federal agencies have stepped up efforts to crack down on medical marijuana, and while high-profile ATF raids may be more immediately shocking, there is a less direct tactic being used that could spell the death of medical marijuana across the country, according to its opponents. Federal agencies have stepped up efforts to crack down on medical marijuana, and while high-profile ATF raids may be more immediately shocking, there is a less direct tactic being used that could spell the death of medical marijuana across the country, according to its opponents.

In the last several months, the IRS has begun targeting medical marijuana dispensaries in California, declaring that some owe millions in back taxes as a result of a section of U.S. tax code that the IRS is now applying to medical marijuana dispensaries.

This isn’t the first time the IRS has attempted to use this clause to go after medical marijuana dispensaries. In 2007, the agency assessed that San Francisco-based dispensary Californians Helping to Alleviate Medical Problems (CHAMP) owed nearly half a million dollars in back taxes. The IRS argued at the time that Section 280E of the U.S. Tax Code, created in the early ‘80s to prevent drug dealers from writing off “business” expenses, meant that because CHAMP’s business was built on a drug that is illegal under federal law, the business deductions it made that year were invalid. CHARM took its case to U.S. Tax Court and won, cutting its payments from $426,000 to $4,905.

So if there’s already a court precedent for the IRS losing a case just like this, why are they suddenly, vigorously pursuing it again? That’s not entirely clear — and the IRS refuses to comment on any audits it undertakes. And yet, Steve Fox, lobbyist for theNational Cannabis Industry Association (NCIA), says that he’s heard that up to a dozen dispensaries throughout California have been put through the audit process (and there could be untold dozens more who haven’t made it known outside of their organizations). Just three have gone public with their audits: the Harborside Health Center in Oakland,The Farmacy in Los Angeles and the much smaller Marin Alliance for Medical Marijuana (MAMM) in the northern town of Fairfax, which has the distinction of being the longest-standing licensed medical marijuana dispensary in the country, according to founder and director Lynette Shaw.

Shaw says that her dispensary is also the first in the country to be handed a “final determination” demanding back taxes from the IRS. The final determination, handed down earlier this month, rules that MAMM owes nearly $800,000 from 2009 alone because its businesses deductions are now considered invalid. Shaw has been filing tax returns with business deductions since MAMM’s foundation in 1997, but this is the first year that the IRS has taken issue with them. If the IRS goes back and audits MAMM’s books dating back to ’97, the dispensary would owe millions — millions Shaw says neither she nor her organization has.