Any effort to track government waste, fraud and abuse is bound to take ample notice of the federal Internal Revenue Service. As we have noted, the IRS targeted non-profit groups favoring smaller government and lower taxes. Then IRS bosses tried to pass this off as “horrible customer service,” even as they doled out huge bonuses and paid people for doing essentially nothing. We also noted that the IRS does a poor job of fighting actual tax fraud, costing taxpayers billions. But with this outfit there’s always more.

As Jack Healy observes in the New York Times, the IRS is now punishing legal growers of marijuana by denying them the tax deductions used by other legal businesses. They do this under a 1982 law aimed at illegal trafficking in drugs, but they apply that measure in Colorado and other states where the cultivation of marijuana is legal.

As Healy notes, the IRS prevents growers “from deducting their rent, employee salaries or utility bills, forcing them to pay taxes on a far larger amount of income than non-marijuana businesses with the same earnings and costs.” Healy cites the case of Bruce Nassau, operator of five Colorado marijuana shops, who wound up writing a check for the taxman that amounted $275,000. John Davis, owner of a medical marijuana dispensary in Seattle, earned $53,369 in profits and wound up owing $46,340 in taxes.

Rachel Gillette, a lawyer who represents the National Organization for the Reform of Marijuana Laws, told Healy, “We’re talking about legal businesses, licensed businesses. There’s no reason that they should be taxed out of existence by the federal government.” Rep. Earl Blumenthal, an Oregon Democrat, told the Times that the IRS actions are crippling thousands of businesses by doubling, tripling and quadrupling their taxes. Blumenthal and Sen. Ron Wyden have introduced legislation to allow business that follow state laws to take regular deductions. That legislation will bear watching, but in the meantime the IRS is effectively punishing people for following the law. That is both wrong and counterproductive. Crippled businesses won’t be hiring new workers and contributing millions of dollars to state budgets.