IRS Guidance Targets Cash Reporting in the Cannabis Industry

The IRS closely monitors cash transactions to ensure businesses across all industries comply with tax laws. Cannabis businesses, often reliant on cash, face particular scrutiny. A recent IRS memo provides important insights into how the IRS expects cannabis businesses to handle large cash transactions and the potential consequences of failing to do so.

The IRS uses a variety of information reporting requirements to ensure tax compliance and guide its audits. One key tool is Form 8300, which mandates that businesses report cash transactions over $10,000.

A recent IRS memo (ILM 202409016) sheds light on how Form 8300 applies specifically to the cannabis industry. While not legally binding for taxpayers, this memo signals that the IRS may increase scrutiny of cannabis businesses.

Key Takeaways from the Memo

• Completing Form 8300: The memo clarifies reporting procedures, even when there might be Fifth Amendment concerns.
• Suspicion: Legally operating cannabis businesses aren’t automatically flagged as suspicious.
• What counts as “payment”: Deposits and prepayments qualify as reportable transactions under Form 8300.
• Related Parties: Transactions between businesses with shared ownership must still be reported.

Penalties for Non-Compliance

Failure to correctly file Form 8300 can lead to substantial penalties, especially if the IRS determines the noncompliance was intentional. Historically, the IRS has prioritized compliance over using penalties to raise revenue. However, this memo makes it harder for businesses to claim they weren’t aware of the rules.

Recommendation

Cannabis (and all cash businesses) businesses should carefully review their existing policies for reporting large cash transactions to ensure they align with the guidance provided in this IRS memo.

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