IRS Hosts Marijuana And Cryptocurrency Tax Event That Highlights Legalization Support
The Internal Revenue Service (IRS) on Wednesday hosted a forum dedicated to tax policy for marijuana businesses and cryptocurrency.
The seminar, which was presented by a representative of the National Association of Tax Professionals (NATP), examined issues such as allowable tax deductions while cannabis remains federally illegal and how different states approach taxing marijuana. It also covered issues related to paying taxes on earnings in Bitcoin and other forms of digital currency.
During the IRS Nationwide Tax Forum panel, there was also discussion about the growing public support for cannabis legalization and the prospects of federal reform.
#TaxPros, it’s Week 5 of the 2021 #IRS Nationwide Tax Forum. See this week’s schedule for Virtual Currency, Cannabis, and Compliance Reporting and more: https://t.co/Ex9h8RuLra #IRSTaxForum pic.twitter.com/Wu6puGyB1q
— IRS Tax Pros (@IRStaxpros) August 16, 2021
A description of the event states that attendees would learn how to “prepare a tax return for illegal activities” and “identify when virtual currency needs to be reported as taxable income.”
The presentation, which was aimed at tax professionals interested in learning about the crypto and cannabis spaces, provided a high-level overview of some of the financial issues that are unique to the marijuana industry under the umbrella of federal prohibition.
While the vast majority of states have legalized cannabis in some form, its illicit status under the Controlled Substances Act means that marijuana businesses can not deduct standard expenses like in other traditional markets under a provision known as 280E, the presenter explained.
He emphasized, however, that even if the business activity is considered illegal, cannabis companies must still pay federal taxes. And he pointed out that there is an opportunity for limited deductions when it comes to reporting the cost of goods for retailers and producers.
One slide from the federally hosted presentation noted polling that shows a majority of Americans support ending prohibition, and it also provided an overview of the economic potential of the marijuana market.
The accountant who led the NATP panel further discussed efforts by Senate Majority Leader Chuck Schumer (D-NY) and colleagues to pass legalization legislation, a draft version of which was released last month.
“I think this is a very active item—and in doing so, I believe that is becoming more and more mainstream,” he said. “Right now, if we get legislation to regulate—the question is if they’re going to legalize it—then my presentation next year will be very different.”
While IRS hasn’t advocated for a federal cannabis policy change, it has stood out as an agency that understands the complications created by prohibition—and it’s taken steps to provide clarity to taxpayers and financial professionals to navigate the space.
Earlier this year, IRS Commissioner Charles Rettig told Congress that the agency would “prefer” for state-legal marijuana businesses to be able to pay taxes electronically, as the current largely cash-based system under federal cannabis prohibition is onerous and presents risks to workers.
Former Treasury Secretary Steven Mnuchin said in 2019 that he’d like to see Congress approve legislation resolving the cannabis banking issue and he pointed to the fact that IRS has had to build “cash rooms” to deposit taxes from those businesses as an example of the problem.
IRS released updated guidance on tax policy for the marijuana industry last year, including instructions on how cannabis businesses that don’t have access to bank accounts can pay their tax bills using large amounts of cash.
The update appears to be responsive to a Treasury Department internal watchdog report that was released last year. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize guidance specific to the marijuana industry.”
The IRS’s commissioner of the Small Business/Self Employed Division participated in a cannabis-focused event in December in which he noted the legalization movement’s continued momentum, saying that it will potentially succeed in ending prohibition in “all states.”
View the IRS/NATP presentation on marijuana and cryptocurrency below:
Virtual Currency Cannabis a… by Marijuana Moment
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