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Tuesday, February 7, 2012

Tea Party Warrior: Report Medical Marijuana Clubs to the IRS and Get Rich

Posted By on Tue, Feb 7, 2012 at 8:10 AM

  • Paul Chabot Wants YOU to Call the IRS on Pot Clubs

For Paul Chabot, the War on Drugs is personal indeed: Before he became a Navy man, a campus cop, and a former National Drug Control Policy staffer, he was in drug rehab for alcohol and marijuana addiction himself -- at the young age of 12, according to his online bio.

In his latest tactical maneuver in the marijuana war, however, San Bernardino County's Chabot is aiming not at the children or our lapsed morals -- he's going right for our checkbooks.

Californians -- and "every dad, mom and other citizen who has been affected by pot stores and drug legalization tactics" should become "IRS Pot Store Whistle-blowers," according to an e-mail Chabot sent Monday to the Coalition for a Drug Free California's e-mail list. The e-mail came under the subject line: "Call the IRS and you could earn millions!"

"By simply reporting a pot store to the IRS, average citizens who are fed up with these domestic marijuana cartels can now fill out a very simple form," wrote the proud Tea Partier. He added that, since California has "10,000 pot stores," the pickings are far from slim.

"If the IRS takes action and fines the pot store, the Whistle-blower, by law is entitled to a 30% cash award," he said.

There's a lot to chew on here, from a Tea Partier

advocating big government and taxation, to a Ph.D.-holder overstating

the number of pot clubs in California by a factor of 10. But all that,

and the morals of reporting one's neighbors to higher authority as a

common practice aside, there's a serious glitch in Chabot's scheme: It

doesn't work.

While he mentions neither the dispensary, nor the wrinkle in the tax code by name, Chabot refers to Oakland's Harborside Health Center and its ongoing battle with the IRS. The short-version is that the dispensary wants to claim the cost of its goods -- in this case, medical marijuana -- as a business expense on its federal tax forms and thus not be subject to taxation (just as any other widget-seller would do). the cost of staff salaries, medical care, and other services.

The IRS cited section 280E of the tax code, in which sales of illegal drugs cannot be deducted as a business expense, when it slapped Harborside with a $2.4 million overdue tax bill. While several members of Congress have moved to ensure 280E is not used on medical marijuana dispensaries, this case is currently in the courts.

Meanwhile, Chabot wants you to ponder the opportunities 280E has for the unwashed masses. Just think what would happen if YOU were the Johnny Citizen who informed the feds of Harborside's misdeeds! "If this was a whistle-blower case, the whistle-blower would get 30% of the 2.4 million which is roughly $700,000 in your pocket," he wrote.

Or not at all. Even if a private citizen were to eventually succeed in collecting a payment from the IRS as a "thank you" for corraling a tax scofflaw -- which would be a feat in itself -- it would take much, much more than a phone call informing the taxman that a pot store exists to qualify for a whistle-blower reward, according to Henry Wykowski, a former U.S. attorney who headed the Northern District of California's efforts to prosecute tax evaders.

"If this is true, I should be on the phone every day, calling the IRS and reporting every small business up and down the street in the hopes that they audit them," Wykowski said. "[Chabot] misstates the basics of the [whistleblower] program.... You have to go to the IRS with credible information."

A whistleblower needs to present the IRS with actual information, such as ledgers, receipts, or other information that the IRS can use to instigate a successful investigation, Wykowski said. In other words, a phone call or a letter informing the IRS of the existence of a business -- a business that pays its taxes -- won't cut it. All the less so considering that these are businesses that file unchallenged tax returns -- it's the tax law itself that's at issue, not medical marijuana dispensaries' returns.

Chabot did not immediately respond to our multiple e-mails or telephone calls left Monday, but we'll let you know if we hear back.

There's also the issue of his faulty math. Prior to the federal government's months-long coordinated shutdown of state-legal medical marijuana dispensaries across California, there were roughly 1,000 dispensaries in operation, according to Kris Hermes, a spokesman for Americans for Safe Access. Figures provided by the Board of Equalization, which collects sales taxes from dispensaries, are similar -- so how Chabot arrived at the notion that there are 10,000 dispensaries "in California alone" is a mystery.

"We're concerned that people like Chabot would act with such venom and disdain against the state's most vulnerable -- our sick," Hermes said. "Where are the patients who cannot grow medical marijuana themselves, or find someone skilled to grow it for them supposed to safely and legally obtain it?"

This use of big government to eradicate otherwise legal businesses would also put Chabot at odds with at least one other California politician who identifies with the Tea Party: San Francisco's own John Dennis, whose small government bent leans libertarian.

"It's such a cynical thing," Wykowski added. "'Snitch off your neighbors, and get a reward?' Fascism, I think it's called."

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About The Author

Chris Roberts

Chris Roberts has spent most of his adult life working in San Francisco news media, which is to say he's still a teenager in Middle American years. He has covered marijuana, drug policy, and politics for SF Weekly since 2009.


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