Olive v. Comm'r
United States Court of Appeals for the Ninth Circuit
April 16, 2015, Argued and Submitted, San Francisco, California; July 9, 2015, Filed
[*1147] GRABER, Circuit Judge:
Petitioner Martin Olive appeals the Tax Court's decision assessing deficiencies and penalties for tax years 2004 and 2005, which arise from Petitioner's operation of the Vapor Room Herbal Center ("Vapor Room"), a medical marijuana dispensary in San Francisco. The Tax Court held, among other things, that 26 U.S.C. (I.R.C.) § 280E precluded Petitioner from deducting any amount of ordinary or necessary business expenses associated with operation of the Vapor Room because the Vapor Room is a "trade or business . . . consist[ing] of trafficking in controlled substances . . . prohibited by Federal law." I.R.C. § 280E. ] Reviewing that legal conclusion de novo, DHL Corp. v. Comm'r, 285 F.3d 1210, 1216 (9th Cir. 2002), we agree and, therefore, affirm the Tax Court's decision.
[*1148] Established in 2004, the Vapor Room provides its patrons a place where they can socialize, purchase medical marijuana, and consume it using the Vapor Room's vaporizers. The Vapor Room sells medical marijuana in three forms: dried marijuana leaves, edibles, and a concentrated version of THC. Customers who purchase marijuana at the Vapor Room pay varying costs, depending on the quantity and quality of the product [**3] and on the individual customer's ability to pay.
The Vapor Room is set up much like a community center, with couches, chairs, and tables located throughout the establishment. Games, books, and art supplies are available for patrons' general use. The Vapor Room also offers services such as yoga, movies, and massage therapy. Customers can drink complimentary tea or water during their visits, or they can eat complimentary snacks, including pizza and sandwiches. The Vapor Room offers these activities and amenities for free.
Each of the Vapor Room's staff members is permitted under California law to receive and consume medical marijuana. Petitioner purchases, for cash, the Vapor Room's inventory from licensed medical marijuana suppliers. Patrons who visit the Vapor Room can buy marijuana and use the vaporizers at no charge, or they can use the vaporizers (again, at no charge) with marijuana that they bought elsewhere. Sometimes, staff members or patrons sample Vapor Room inventory for free. When staff members [**4] interact with customers, occasionally one-on-one, they discuss illnesses; provide counseling on various personal, legal, or political matters related to medical marijuana; and educate patrons on how to use the vaporizers and consume medical marijuana responsibly. All these services are provided to patrons at no charge.Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.
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792 F.3d 1146 *; 2015 U.S. App. LEXIS 11812 **; 2015-2 U.S. Tax Cas. (CCH) P50,377; 116 A.F.T.R.2d (RIA) 2015-5150; 2015 WL 4113811
MARTIN OLIVE, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Prior History: [**1] Appeal from a Decision of the United States Tax Court. Tax Ct. No. 14406-08. Diane Kroupa, Tax Court Judge, Presiding.
Vapor, medical marijuana, deducting, consists, sells, marijuana, patrons, federal law, expenses, controlled substance, dispensaries, trafficking, Bookstore, Customers
Tax Law, Individuals, Business Deductions, General Overview, Civil Procedure, Appeals, Standards of Review, De Novo Review, Tax Court, De Novo Standard of Review, Criminal Law & Procedure, Controlled Substances, Delivery, Distribution & Sale, Governments, Legislation, Interpretation, Deductibility Requirements, Healthcare Law, Medical Treatment