The IRS says it is following the law by not allowing the 2,500 medical marijuana dispensaries in the country, who pay taxes to local, state and federal governments, the same federal tax breaks that other small businesses can claim.

Although 20 states and D.C. have legalized medical marijuana, the IRS still applies federal tax code 280E to pot shops operating legally under state law.   Because of 280E, a tax code enacted over thirty years ago to prevent tax write-offs for illegal drug activity, the effective tax rate for many marijuana businesses is 50% or more and creates very thin profit margins for dispensary owners.

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