IRS Clarifies Cash Reporting For Marijuana Businesses, Reveals No Automatic 'Suspicious Activity'

The Internal Revenue Service (IRS) recently cleared up confusion for cannabis businesses regarding cash transactions and tax reporting.

The agency issued a memo emphasizing that involvement in the federally prohibited marijuana industry should not automatically trigger suspicion when reporting large cash payments.

This guidance comes in response to inquiries about Form 8300 which businesses must file when they receive cash payments of $10,000 or more.

"The memorandum provides guidance on many of these issues in a question-and-answer format," said Charles Hall, special counsel with IRS, wrote Marijuana Moment's Kyle Jaeger on Tuesday. "We are working on additional guidance on questions related to cash couriers/armored cars who transport cash between growers/manufacturers and dispensaries/sellers."

Read Also: Cannabis Industry Paid $1.8B In Excess Taxes In 2022, Refund Checks Anyone?

The document offers advice on various compliance issues, including how to identify the recipient of the cash payment. Businesses can disclose their connection to cannabis though alternative categories, like general agricultural products, are also acceptable options.

This important conversation around cannabis taxation without much representation will be in the air and discussed on panels at the upcoming Benzinga Cannabis Capital Conference in Florida this April 16-17, 2024.

While the Financial Crimes Enforcement Network (FinCEN) requires financial institutions to file suspicious activity reports (SARs) for cannabis clients, the IRS clarifies that businesses should not automatically check the “suspicious activity” box on Form 8300 simply because they operate in the marijuana industry.

The memo highlights the misuse of this box, noting that marking it defensively because of the industry – not due to any specific suspicious activity – is an abuse of the system that could result in penalties for inaccurate forms. The IRS noted that decisions about suspicious activity depend on the specific facts and circumstances of each case.

The guidance, dated Jan. 22 though only recently made public, includes hypothetical scenarios to illustrate Form 8300 filing for cannabis businesses. For example, the memo clarifies that a separate legal entity distributing products for a marijuana manufacturer would need to file a Form 8300 if a cash payment exceeds $10,000.

While the memo does not represent a policy change and explicitly states it cannot be cited as precedent, it underscores the ongoing challenges created by the federal-state marijuana law conflict.

Despite federal prohibition, tax laws still require reporting and paying taxes on income derived from marijuana sales, including income from state-licensed dispensaries or the unregulated market. Under IRS code 280E, marijuana businesses are prohibited from deducting business expenses from their taxable income, regardless of legal state licensing. The IRS clarified this policy for medical cannabis businesses in 2022.

Want to know more about taxation and how marijuana companies deal with them amid valuations, earnings, and investment opportunities? Join us at the upcoming Benzinga Cannabis Capital Conference in Florida at the new Hollywood venue on April 16 and 17, 2024. The two-day event at The Diplomat Beach Resort will be a chance for entrepreneurs, both large and small, to network, learn, and grow. Renowned for its trendsetting abilities and influence on the future of cannabis, mark your calendars – this conference is the go-to event of the year for the cannabis world. Get your tickets now on bzcannabis.com – Prices will increase very soon!

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