IRS Rule May Target Drug Policy Reform Organization

By Lindsey Weedston 03/25/19

Some expressed concerns that the rule was designed to hinder the growing presence of medical and recreational marijuana businesses.

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IRS agent

An IRS rule adopted in January 2018 could be blocking drug policy reform and advocacy non-profits from receiving tax-exempt status, in what some are calling a violation of the First Amendment due to the fact that it would specifically target cannabis-related businesses.

In an IRS bulletin, the rule reads that “the Service will not issue a determination letter when the request concerns an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.”

The “determination letter” refers to a confirmation of tax-exempt status that the IRS issues to eligible non-profits.

Multiple cannabis-focused publications, including Leafly and Cannabis Now, expressed concerns that this rule was designed to hinder the growing presence of medical and recreational marijuana businesses, noting that on a federal level, cannabis is still a Schedule I controlled substance.

California accountant Jerry Chin told Marijuana Business Daily in March 2018 that the IRS rule means “if your trade association’s main purpose is the advocacy of a Schedule I substance, then we’re going to deny your application for that fact alone.”

According to the publication, the New Jersey Cannabis Industry Association (NJCIA) was one of the first organizations to be denied tax-exempt status under this rule after it was announced while the association was in the middle of seeking this exemption.

“At the 11th hour, we were informed, ‘Sorry, there’s been a procedural rule change, we’re not giving these types of letters to your type of company,’” said NJCIA President Hugh O’Beirne. “And that happened within a week of when this procedural rule change was announced.”

The NJCIA’s stated mission is to advance the legalization of cannabis.

There were fears that existing cannabis-related non-profits, such as the National Cannabis Industry Association, would lose their status under this rule change. However, the NCIA appears to have retained non-profit status.

Jacob Sullum of Reason believes this rule could be a violation of the First Amendment, citing a 2015 D.C. Circuit case which ruled that the IRS “may not discriminate on the basis of viewpoint” in the administration of its tax code. This, however, was in reference to whether hate groups could receive tax-exempt status rather than those involved with controlled substances.

The IRS appeared to widely decline to comment on the new rule throughout 2018. As of January 2, 2019, the policy still stands.

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Lindsey Weedston is a Seattle area writer focused on mental health and addiction, politics, human rights, and various social issues. Her work has appeared in The Establishment, Ravishly, ThinkProgress, Little Things, Yes! Magazine, and others. You can find her daily writings at NotSorryFeminism.com. Twitter: https://twitter.com/LindseyWeedston

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