The Internal Revenue Service (IRS) on Wednesday hosted a forum dedicated to tax policy for marijuana businesses and cryptocurrency…and cannabis legalization was on the menu. How could it not be when there has been growing public support for legalization and the prospects of federal reform?
The tax tête-à-tête, presented by the National Association of Tax Professionals (NATP), looked at issues such as allowable tax deductions and how different states are taxing marijuana — clearly not an easy subject in view of the U.S.'s patchwork of state-by-state cannabis regulations.
Bitcoin At The Nationwide Forum: The IRS Nationwide Tax Forum also covered issues related to paying taxes on earnings in Bitcoin and other forms of digital currency. Again, not a line anyone has seen on their tax forms, at least not yet.
Although one wonders what Detroit Pistons' Cade Cunningham, the first overall pick in the 2021 NBA draft, will do about his taxes next year. Cunningham is being paid 100% of his NBA signing bonus in Bitcoin (CRYPTO: BTC).
Tax Return For Illegal Activities? Though the meeting was aimed at accountants and tax professionals interested in learning how to “prepare a tax return for illegal activities” and “identify when virtual currency needs to be reported as taxable income,” it provided a high-level overview of some of the financial issues that are unique to the “marijuana industry under the umbrella of federal prohibition,” reported Marijuana Moment.
Cannabis Company's Locked Out Of Tax Benefits: Regardless of the fact that many states now have some form of legalized cannabis, its status under the Controlled Substances Act means marijuana businesses cannot deduct standard business expenses. This provision, known as Section 280E, states that businesses selling cannabis (or any other federally illegal controlled substance) cannot deduct any expenses incurred in the production, distribution and sale of that product.
Section 280E of the IRS tax code essentially keeps cannabis entrepreneurs “locked out of valuable tax credits available to other businesses and should proceed with caution when it comes to business expense deductions,” according to the Hoban Law Group.
Despite this disadvantage, the presenter explained that the legality doesn't matter from the IRS’s perspective — all income from any source is taxable.
Something that may have pleasantly surprised attendees was when the IRS rep said that limited deductions might be available when it comes to reporting the cost of goods for retailers and producers.
Cannabis companies would be wise to check out the IRS’s new website that was set up last year to tax state-compliant cannabis dispensaries.
Growing Support For Cannabis: One slide shown at the presentation highlighted recent polling indicating that a majority of Americans support ending prohibition. It also provided an overview of the economic potential of the booming marijuana market.
The IRS official who led the panel made reference to legalization efforts underway, especially Senate Majority Leader Chuck Schumer's federal cannabis legalization draft bill that was presented in mid-July.
“I think this is a very active item—and in doing so, I believe that is becoming more and more mainstream,” said the presenter. “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.”