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IRS Rejects Watchdog Recommendation To Provide Marijuana Business Tax Guidance

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A new Treasury Department internal watchdog report criticizes the Internal Revenue Service (IRS) for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws.

In its review of IRS policy with respect to cannabis businesses, the Treasury Inspector General for Tax Administration (TIGTA) found that IRS is missing millions of dollars in tax assessments in state-legal markets and that taxpayers experience a significant impact due to an federal tax code known as 280E that prevents marijuana companies from making business deductions that are available to other industries.

Part of the solution, TIGTA said, should be for IRS to “develop and publicize guidance specific to the marijuana industry.”

“Such guidance would improve awareness of tax filing requirements for taxpayers in this industry, such as the correct application of” the policy, “which would reduce the burden of tracking inventory for certain small businesses,” the report, which was released on Monday, states.

280E has long been a source of intense hardship and frustration for the industry. First enacted in the 1980s as a way to block cartel kingpins from writing off yachts and fancy cars, it stipulates that businesses are ineligible for certain deductions if their income is derived from an illegal drug that falls under Schedule I or II of the Controlled Substances Act. While they may qualify for state-level deductions, the federal restriction ultimately means that marijuana businesses are subject to a significantly higher taxable income, increasing their effective tax rate up to around 70 percent.

“Guidance from the IRS would be greatly appreciated. For years, the vast majority of state-legal cannabis businesses have done their best to comply with Section 280E, consulting with tax professionals to get the best guidance possible,” Steve Fox, a strategic adviser with the Cannabis Trade Federation (CTF), told Marijuana Moment. “But the lack of guidance and consistency from the agency has made the process challenging.”

TIGTA’s audit considered the impact of this unique situation in three legal cannabis states in fiscal year 2016. About 60 percent of tax returns for cannabis businesses that were reviewed had likely had adjustments under 280E, which means IRS had about $48.5 million in unassessed taxes. That estimate, of course, is a notably smaller figure than the full impact of confusion surrounding 280E, as more than 30 states allow recreational and/or medical marijuana businesses and this report evaluated firms in only three of them.

Additionally for those three states, TIGTA estimated that the tax impact (i.e. costs associated with filing) for taxpayers to comply with 280E was $95 million, “or $475.1 million when forecasted over five years.”

Finally, the agency took a “statistically random sample of 90 marijuana businesses” that filed state tax returns in Washington State in 2016 to “determine whether these taxpayers were reporting all of their income.” Twenty-six percent of those companies likely had adjustments related to “underreported income or nonfiling of tax returns” for federal purposes.

“When projected over the population for Washington, the IRS missed the opportunity to address $3.9 million of potential assessments for Tax Year 2016, or $19.3 million when forecasted over five years,” the audit states.

“Given the transparency problems caused by lack of banking access—a fact which the IG recognizes—we should probably be a little skeptical of claims of widespread non-compliance,” Morgan Fox, media relations director of the National Cannabis Industry Association, told Marijuana Moment. “It is tough to say why the IRS would resist providing clarity, especially since that could theoretically result in more tax revenue in the short term.”

“However, the industry doesn’t need clarity on how to comply with unfair policies as much as it needs them to get fixed,” he added. “Cannabis banking and 280E reform would increase transparency and accountability, and greatly simplify the tax process for cannabis businesses. In short order, it would almost certainly result in more federal tax revenue as companies facing less onerous tax burdens become increasingly able to compete with the illicit market and drive more taxable sales.”

Fox of CTF said that the new report “is an acknowledgement that state-legal cannabis businesses are paying hundreds of millions of dollars in corporate taxes to the federal government every year.”

“While the focus of this report is on whether they are fully complying with the absurd 280E tax penalty, the real focus should be on the fact that they are legitimate tax-paying businesses,” he said. “It is time for Congress to fix 280E so that cannabis businesses are treated like every other business in this country.”

TIGTA made six recommendations to ensure compliance and provide needed clarity to taxpayers in the cannabis industry. IRS pushed back on several, including the agency’s request that it create specific guidance.

Recommendation 1: The IRS Small Business/Self-Employed (SB/SE) Division Commissioner should “develop a comprehensive compliance approach… for this industry and leverage State marijuana business lists to identify noncompliant taxpayers.”

IRS response: IRS said it depends on its available resources. It will continue to use its existing methods to identify noncompliance, and if it determines that additional measures are needed, it will “prioritize them based on resources available.”

Recommendation 2: The commissioner should “direct all examination areas to use Aging Reason Codes to track non-[compliance initiative project] marijuana business examination results.”

IRS response: The agency said it will “provide guidance to examiners to apply the appropriate code(s) to cases to track marijuana examinations.”

Recommendation 3: IRS should “develop guidance specific to the marijuana industry such as a Frequently Asked Questions document” and post it on the agency’s site to “improve awareness of the tax filing requirements for taxpayers in this industry, such as the application of 280E.”

IRS response: The agency said it already has an audit technique guide for cash-intensive businesses that could be useful to cannabis companies. However, it said it would “provide additional information” as needed.

Recommendation 4: TIGTA said the IRS chief counsel should work with the SB/SE commissioner to “develop and distribute, internally and externally, specific guidance on the application of” 280E compliance “for taxpayers that report Schedule I related activities on Federal tax returns.”

IRS response: The IRS chief counsel replied that it disagrees with the recommendation and stressed that it has other priorities it needs to fulfill before committing resources to developing that specific guidance.

Recommendation 5: The commissioner should “leverage publicly available State tax information and expand use of [federal/state] agreements to identify nonfilers and unreported income in the marijuana industry.”

IRS response: The agency said that “depends upon IRS priorities and availability of resources,” though it will review the current status of its agreements and use of publicly available state data.

Recommendation 6: The commissioner should “increase educational outreach towards unbanked taxpayers making cash deposits regarding the unbanked relief policies available.”

IRS response: IRS said it will “expand the penalty relief information currently available” on its website.

Although IRS said it doesn’t plan to issue guidance to the industry per the IG’s recommendation, that doesn’t necessarily mean it doesn’t appreciate the challenges that cannabis businesses and tax regulators face due to conflicting state and federal laws.

“Cash intensive businesses, particularly those that are illegal under federal law, create additional challenges for the IRS and the taxpayer,” IRS said in response to TIGTA’s findings. “The marijuana industry is largely unbanked due to the illegal status of marijuana at the federal level.”

“The taxpayer’s inability to utilize a bank for these businesses creates concerns of public safety, transparency, and accountability. It also hinders our enforcement efforts as it could minimize the types of third-party information documents available (e.g., Form 1099-K),” it continued. “The lack of available banking services creates an additional burden to the taxpayer, subjecting them to failure to deposit penalties. Legislative changes could address the challenges encountered with Internal Revenue Code (IRC) §280E, banking policies, and public safety.”

Though IRS officials didn’t cite specific legislation, it’s a point that TIGTA also picked up on, and the internal watchdog noted that the Secure and Fair Enforcement (SAFE) Banking Act or the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act are examples of bills that could help resolve the conflict and normalize the industry. The House passed the SAFE Banking Act along largely bipartisan lines last year but it has stalled in the Senate.

IRS emphasized that it’s stretched thin due to budget cuts and hiring freezes in recent years, and that accounts for why it said it must be deliberate in how it prioritizes objectives.

Treasury Secretary Steve Mnuchin has on several occasions recognized issues related to the lack of access to financial services among marijuana businesses. For example, he’s said, IRS has had to build “cash rooms” to store tax payments from these companies because so many are forced to conduct business exclusively in hard currency.

That said, Mnuchin stressed that it’s not a problem that can be solved administratively, and he’s agued that Congress should take up the issue legislatively.

Congresswoman Wants Recreational Marijuana Stores Open To Serve Veterans Amid Coronavirus Outbreak

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.

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California Senator Seeks Federal Clarification On Medical Marijuana Use In Hospitals

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A California senator is asking the head of the U.S. Department of Health and Human Services (HHS) to provide clarification on whether hospitals and other healthcare facilities in legal marijuana states can allow terminally ill patients to use medical cannabis without jeopardizing federal funding.

State Sen. Ben Hueso (D) on Thursday sent a letter to HHS Secretary Xavier Becerra and Centers for Medicare and Medicaid Services (CMS) Administrator Chiquita Brooks-LaSure inquiring about the policy. Confusion about possible implications for permitting marijuana consumption in health facilities led pro-legalization Gov. Gavin Newsom (D) to veto a bill meant to address the issue in 2019.

Hueso refiled a nearly identical version of the legislation for this session, and it’s already passed the full Senate and one Assembly committee. It’s now awaiting action on the Assembly floor before potentially being sent to Newsom’s desk.

“Ryan’s Law would require that hospitals and certain types of healthcare facilities in the State of California allow a terminally-ill patient to use medical cannabis for treatment and/or pain relief,” the senator wrote in the letter to the federal officials, with whom he is asking to meet to discuss the issue. “Currently, whether or not medical cannabis is permitted is left up to hospital policy, and this creates issues for patients and their families who seek alternative, more natural medication options in their final days.”

Hospitals that receive CMS accreditation are generally expected to comply with local, state and federal laws in order to qualify for certain reimbursements. And so because marijuana remains federally illegal, “many healthcare facilities have adopted policies prohibiting cannabis on their grounds out of a perceived risk of losing federal funding if they were to allow it.”

But Hueso said that his office received a letter from CMS several months ago stating that there are no specific federal regulations in place that specifically address this issue and that it isn’t aware of any cases where funding has been pulled because a hospital allows patients to use medical cannabis.


Marijuana Moment is already tracking more than 1,200 cannabis, psychedelics and drug policy bills in state legislatures and Congress this year. Patreon supporters pledging at least $25/month get access to our interactive maps, charts and hearing calendar so they don’t miss any developments.

Learn more about our marijuana bill tracker and become a supporter on Patreon to get access.

Additionally, because the Justice Department has been barred under annually renewed spending legislation from using its funds to interfere in the implementation of state-level medical marijuana programs, the senator said, “we believe the risk of federal intervention is little to none.”

“This confirmation from CMS been quite a breakthrough and we are optimistic it will alleviate the Governor’s concerns,” the letter continues. “However, I want to underscore that, prior to receiving this response, even the Governor of California was under the impression that CMS rules prohibited hospitals and healthcare facilities from allowing medical cannabis use.”

“Undoubtedly other states are struggling with this issue, too,” it says. “As more states decriminalize cannabis and even create recreational markets, we must not forget to also update the books for the most important consumers of all—patients.”

“While ideally the federal government will remove cannabis from its Schedule I designation, I appreciate that this is a lengthy and complex process. In the interim, it would be extremely helpful if you could provide clarification that assures Medicare/Medicaid providers that they will not lose reimbursements for allowing medical cannabis use on their premises. This clarification would go a long way to help hospital staff, security, above all, patients.”

Becerra, while previously serving as California attorney general and as a member of Congress, demonstrated a track record of supporting marijuana law reform.

Meanwhile, there are efforts in both chambers of Congress to end federal marijuana prohibition.

Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) are currently soliciting feedback on draft legalization legislation they introduced this month.

Meanwhile, a separate House bill to federally legalize marijuana and promote social equity in the industry was reintroduced in May.

The legislation, sponsored by Judiciary Committee Chairman Jerrold Nadler (D-NY), was filed with a number of changes compared to the version that was approved by the chamber last year.

Read the letter from the California senator to Becerra below: 

Marijuana hospital letter t… by Marijuana Moment

Rhode Island House Speaker Says ‘No Consensus’ On Marijuana Legalization, But It’s ‘Workable’

Photo courtesy of Mike Latimer.

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Rhode Island House Speaker Says ‘No Consensus’ On Marijuana Legalization, But It’s ‘Workable’

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A top Rhode Island lawmaker says that while there’s not yet a consensus among legislators and the governor on a bill to legalize marijuana, it’s still a “workable” issue and would be prioritized if a special session is convened this fall.

House Speaker Joe Shekarchi (D) told The Public’s Radio that it’s “possible” that a special session will be held later in the year after lawmakers failed to reach a deal on competing reform proposals.

“It really depends if we can come to some kind of resolution of consensus on a couple of major bills,” he said, referring to cannabis and a handful of other issues. “If we can, we certainly would come back.” But if not, members will continue to discuss the proposals and prepare to take them up at the start of the next session in January.

“Unfairly, sometimes I have or the House gets blamed for stopping the legalization of recreational use of marijuana, when in reality there is no consensus,” he said. “If we can come to some closeness, in the several different proposals, then we’ll move some kind of legislation. But if not, it just needs more work—and it’s very workable, so it’s very much something that can happen, we just have to put the effort in and make it happen.”

Listen to the speaker discuss the marijuana legalization plan, about 1:00 into the audio  below: 

Shekarchi similarly told Marijuana Moment in an email earlier this week that he’s “not opposed to the legalization of recreational marijuana,” but “there have been very divergent proposals offered by Representative Scott Slater, the Senate, the governor and various advocacy groups.”

“As I have done with other issues, my role will be to bring the parties together and see if we can reach a consensus,” he said. “I will be working on the issue this summer and fall, and if an agreement can be reached, it is possible that one piece of legislation will be brought before the legislature for future consideration. But there is a lot of work to be done to reach consensus.”

Shekarchi and other top lawmakers have previously said they will work this summer to try to reach a compromise on the differing provisions of the competing legalization plans.

Senate President Dominick Ruggerio (D) said earlier this month that he’s not disappointed the House hasn’t advanced legalization legislation yet and that “what we really wanted to do was send it over and have them take a look at it” when his chamber passed a cannabis reform measure last month.

Shekarchi previously said that he feels reform is “inevitable.”


Marijuana Moment is already tracking more than 1,200 cannabis, psychedelics and drug policy bills in state legislatures and Congress this year. Patreon supporters pledging at least $25/month get access to our interactive maps, charts and hearing calendar so they don’t miss any developments.

Learn more about our marijuana bill tracker and become a supporter on Patreon to get access.

A key disagreement between the House, Senate and governor’s office concerns who should have regulatory authority over marijuana. Ruggerio was pressed on the issue during the recent interview and said members of his chamber agree that “a separate commission is the way to go with respect to this.”

The House and Gov. Dan McKee (D), on the other hand, want the program to be managed by the state Department of Business Regulation (DBR). Ruggerio noted that “it was difficult to negotiate on a bill when the House bill really didn’t come until late in the session.”

Asked whether he felt the legislature and governor could come to an agreement despite the differences, Senate Majority Leader Mike McCaffrey (D) said this month that “that’s what our goal is.”

“Obviously there’s some issues that different people have relative to different categories of licenses and things like that and how we’re rolling them out,” he said. “Are we going to limit them? what type of equity are you going to give to the different people in different communities so that they can get into the business? And social equity and things of that nature.”

McCaffrey was also asked about provisions related to allowing local municipalities to opt out of allowing marijuana businesses to operate in their area. He said “once the legislation is passed and whatever form is passed in, the communities have an opportunity to opt out.”

“They have an opportunity to opt out if the community doesn’t want to participate in it,” he said. “That’s their decision—however, they don’t get the funds that would come from the sales in that community.”

The majority leader also noted that neighboring states like Connecticut and Massachusetts have enacted legalization, and that adds impetus for the legislature to pursue reform in the state. .

Shekarchi, meanwhile, said this month that he doesn’t intend to let regional pressure dictate the timeline for when Rhode Island enacts a policy change. But it is the case that legalization has now gone in effect in in surrounding states like Connecticut and Massachusetts.

“I’m not in any hurry to legalize marijuana for the sake of legalizing it. I want to do it right,” he said. “It doesn’t matter to me if we’re the last state in the union to legalize it or we never legalize it, but I need to do it right.”

Social equity, licensing fees, labor agreements and home grow provisions are among the outstanding matters that need to be addressed, Shekarchi said.

These latest comment come weeks after the state Senate approved a legalization bill from McCaffrey and Health & Human Services Chairman Joshua Miller (D), which was introduced in March. The governor also came out with his own legalization proposal shortly thereafter.

A third Rhode Island legalization measure was later filed on the House side by Rep. Scott Slater (D) and several cosponsors. The House Finance Committee held a hearing on the measure last month.

The governor, for his part, told reporters that while he backs legalization it is “not like one of my highest priorities,” adding that “we’re not in a race with Connecticut or Massachusetts on this issue.”

“I think we need to get it right,” he said, pointing to ongoing discussions with the House and Senate.

The House Finance Committee discussed the governor’s proposal to end prohibition at an earlier hearing in April.

Both the governor and the leaders’ legalization plans are notably different than the proposal that former Gov. Gina Raimondo (D) had included in her budget last year. Prior to leaving office to join the Biden administration as commerce secretary, she called for legalization through a state-run model.

McKee gave initial insights into his perspective on the reform in January, saying that “it’s time that [legalization] happens” and that he’s “more leaning towards an entrepreneurial strategy there to let that roll that way.”

Shekarchi, meanwhile, has said he’s “absolutely” open to the idea of cannabis legalization and also leans toward privatization.

Late last year, the Senate Finance Committee began preliminary consideration of legalization in preparation for the 2021 session, with lawmakers generally accepting the reform as an inevitability. “I certainly do think we’ll act on the issue, whether it’s more private or more state,” Sen. Ryan Pearson (D), who now serves as the panel’s chairman, said at the time.

Meanwhile, the governor this month signed a historic bill to allow safe consumption sites where people could use illicit drugs under medical supervision and receive resources to enter treatment. Harm reduction advocates say this would prevent overdose deaths and help de-stigmatize substance misuse. Rhode Island is the first state to allow the facilities.

The Senate Judiciary Committee also held a hearing in March on legislation that would end criminal penalties for possessing small amounts of drugs and replace them with a $100 fine.

Ohio Lawmakers Officially File Marijuana Legalization Bill In Historic First For The State

Photo courtesy of WeedPornDaily.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.
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Ohio Lawmakers Officially File Marijuana Legalization Bill In Historic First For The State

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Ohio lawmakers on Friday formally introduced a bill to legalize marijuana possession, production and sales—the first effort of its kind in the state legislature. This comes as activists are pursuing a separate ballot initiative that would effectively force the legislature to consider similar cannabis reforms.

Reps. Casey Weinstein (D) and Terrence Upchurch (D) filed the legislation, weeks after circulating a co-sponsorship memo to colleagues to build support for the measure.

The 180-page bill would legalize possession of up to five ounces of cannabis for adults 21 and older and allow them to cultivate up to 12 plants for personal use. It also includes provisions to expunge prior convictions for possession and cultivation activities that are being made legal under the measure.

A 10 percent excise tax would be imposed on marijuana sales, with revenue first going toward the cost of implementation and then being divided among municipalities with at least one cannabis shop (15 percent), counties with at least one shop (15 percent), K-12 education (35 percent) and infrastructure (35 percent).

“It’s time to lead Ohio forward,” Weinstein said in a press release. “This is a big step for criminal justice reform, for our veterans, for economic opportunity, and for our individual liberties.”

The state Department of Commerce would be responsible for overseeing the program and issuing cannabis business licenses.


Marijuana Moment is already tracking more than 1,200 cannabis, psychedelics and drug policy bills in state legislatures and Congress this year. Patreon supporters pledging at least $25/month get access to our interactive maps, charts and hearing calendar so they don’t miss any developments.

Learn more about our marijuana bill tracker and become a supporter on Patreon to get access.

Individual municipalities could restrict the type and number of marijuana that operate in their area. The bill specifically states that the state’s existing medical marijuana program would not be impacted by the establishment of an adult-use market.

“This bill is much needed in Ohio, and it’s time for Ohio to become a national leader in marijuana decriminalization and legalization,” Upchurch said. “This bill is more than just about legalization, it’s about economic and workforce development, it’s about decriminalization, and it’s about healthcare! The time is now, and I look forward to getting this done in a bipartisan fashion.”

Gov. Mike DeWine (R) is likely to oppose the effort given his record, but activists have effectively demonstrated through local initiatives that voters in the state broadly support enacting a cannabis policy change.

A newly formed organization called the the Coalition to Regulate Marijuana Like Alcohol (CTRMLA) is also actively collecting signatures for a statewide ballot measure that would separately force lawmakers to consider taking up legalization legislation once a certain signature gathering threshold is met.

“I’m glad to see it! It’s added momentum toward legalization,” Weinstein told Marijuana Moment earlier this week of the ballot effort. “And hopefully a looming ballot initiative will add some incentive for my Republican colleagues to work with me on my bill.”

Meanwhile, 22 jurisdictions have adopted local statues so far that reduce the penalty for low-level cannabis possession from a misdemeanor punishable by jail time and a fine to the “lowest penalty allowed by state law.” And activists are pursuing similar policy changes in dozens of cities this year.

Don Keeney, executive director of NORML Appalachia, told Marijuana Moment that local officials have so far certified decriminalization initiatives in five cities they were targeting this year: Laurelville, McArthur, Murray City, New Lexington and New Straitsville.

Ohio activists had hoped to place a cannabis legalization initiative on the statewide ballot last year, but that effort stalled as the COVID-19 outbreak and resulting public health restrictions made signature gathering all but impossible.

Local advocates sought relief through the court system to make it so they could collect signatures electronically for 2020 ballot initiatives, but the lawsuit was repeatedly rejected—most recently by the U.S. Circuit Court of Appeals for the Sixth Circuit, which ruled on Wednesday that the challenge was no longer relevant because last year’s election has passed and the case was therefore moot.

Read the text of the Ohio marijuana legalization bill below: 

Ohio marijuana legalization… by Marijuana Moment

GOP Senator Sponsoring Marijuana Banking Bill Proposes Controversial Welfare Restrictions For Cannabis Purchases

Photo courtesy of Mike Latimer.

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.
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