The Internal Revenue Service, also known as the IRS can’t do much on its lonesome to resolve the one-of-a-kind economic hurdles that cannabis companies endure as a consequence of federal cannabis prohibition—despite this, the IRS wants to make transparent that it’s here to sustain cannabis companies with tax obedience nevertheless.
De Lon Harris, commissioner of examination at the Internal Revenue Service Small Business/Self Employed (SB/SE) Branch, talked about tax-related hurdles in state-legal cannabis enterprises in a webinar released today by PBC Conference. While cannabis stays federally blacklisted, businesses that work in controlled substances must still submit federal taxes, and the Internal Revenue Service is here to assist.
“It’s our duty at the IRS—not just with cannabis and cannabis businesses, but with all taxpayers—to encourage voluntary adherence,” Harris stated. “When most citizens think of the IRS, they think of reviews or audits, and they think that’s the only form that we engage or try to encourage voluntary compliance with citizens, but we provide our fair share of outreach and education also.”
To be certain, Harris also furnished tips for cannabis businesses on tax obedience in a blog post posted earlier this summer. Additionally, the IRS separately hosted a conference centered around tax policy for cannabis corporations and cryptocurrency.
“Concerning the cannabis enterprise, we created a strategy that we hope will expand voluntary compliance and recognize and manage non-compliance when it’s there,” Harris stated at the PBC conference. “Our mission is to simply impact filing and producing and documenting compliance on the part of all cannabis companies to keep audits and reviews to a minimum.”
Part of the IRS strategy applies training revenue administrators and auditors “so that the auditors can come to conduct an audit that is a quality exam” and also “granting our examiners with the professional aids to perform quality audits.”
“We also work with external stakeholders like we’re doing now,” he stated. “We hope that the more we are supporters with those in the private cannabis industry, the better possibility there is for compliance for the cannabis businesses that they portray.”
A cannabis company might not be federally legal, but “however, it’s a business in every sense of the phrase” as far as IRS is interested.
Harris also exemplified that while cannabis companies can’t produce conventional tax deductions or be granted credits due to the tax statute known as 280E, that “doesn’t restrict the participant in the cannabis industry from consolidating their gross receipts by appropriately calculating the cost of goods provided.”
Another top IRS big wig who’s since left the IRS also partook in a PBC Conference web-based seminar last year. He provided similar advice to cannabis businesses while also acknowledging that the legalization movement will potentially prevail, ending cannabis prohibition in “all states.”
There’s a budding distinction within the financial sector and among regulators that the federal-state cannabis policy battle is untenable.
Last week, the secretary of the U.S. Treasury Department stated that liberating banks to work with state-legal cannabis companies would “of course” make the IRS job of collecting taxes a breeze.
Steven Mnuchin, the Treasury secretary during the Trump administration, frequently addressed the issue, saying the existing policy conflict creates “major problems” for IRS and financial controllers. It “creates significant danger in the neighborhoods for collecting this amount of cash. It’s disturbing,” he stated.
At a different PBC Conference event held earlier this summer, former National Credit Union Administration Chairman Rodney Hood condemned Congress for failing to push cannabis reform and discussed about the necessity for federal financial controllers to take a “principles-based method to cannabis banking reform” and “deliver a prior regulatory system that we all can utilize with other regulators and members of Congress who convey our concern about handling these issues.”