The federal government has vowed to take a hands off approach to legal marijuana, but its position has not stopped the Internal Revenue Service (IRS) from kicking down the doors of the cannabis industry, specifically those operations dealing in large cash transactions, in an apparent attempt to take down Colorado cannabis entrepreneurs on money laundering charges.
Since the sale of marijuana is not considered legitimate commerce by the federal government, pot operations in legal states have been forced to conduct themselves on a cash-only basis because financial institutions have refused to get involved with the industry for fear of a DEA shakedown. Even those members of the cannabis trade that have managed to secure a bank account through a little clever finagling, providing the IRS with detailed paper trail of all transactions, these businesses can sometimes have their accounts closed unexpectedly the moment the bank discovers the money came from selling weed.
What’s more is the federal government has done nothing to put more concrete rules into place that protect banks and credit card companies willing to work with members of the cannabis industry. Despite a great deal of pressure on Congress this year to fix the problem, none of the proposals aimed at making marijuana banking legal have seen the light of day. As it stands, the only protection in place is a flimsy set of guidelines issued a couple of years ago by the Obama Administration, giving banks pseudo permission to work with the cannabis industry.
Therefore, it would seem the IRS is using this shaky financial purgatory to lead a full-blown assault on the cannabis industry – perhaps picking up the slack of the DEA’s inability to crack down on pot businesses in compliance with state law. Up to this point, the IRS has never leaned on Form 8300 when it comes to policing the income of businesses involved in marijuana, but now around 30 pot companies in Colorado have been hit with 8300 audits – a trend that is expected to expand into other states.
At the core of the industry’s concerns of this new IRS examination is a list of interview questions that dig into some chilling specifics on how pot businesses account for their cash, including an inquiry regarding the number of plants grown and the frequency of harvest.
“What the IRS agents are telling us is that this is strictly civil, and that it’s educational,” Colorado tax attorney Jim Thorburn, who handles a number of the businesses being audited, told MBD. “If you take them on their word, on the surface, then it would be civil. The question is, are they being completely candid with us? And we just don’t know. And when we see a lot of these questions that are being asked, it raises more questions. Is this going criminal? I don’t know.”Although some tax attorneys are concerned that these 8300 audits could result in federal money laundering charges, an offense that carries a penalty of up to 20 years in prison and fines reaching $500,000 for each offense, others argue hundreds of dollars in late fees is the worst-case scenario. Most tax experts believe the audits are really just a way for the IRS to collect information on the cannabis industry – an investigation that will allow them to compile a list of standards that currently does not exist.