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Why the IRS Wants to See Marijuana Laws Changed

Marijuana remains an illegal Schedule I controlled substance under federal law. There are plenty of politicians who would like to see that change. So would the IRS – at least where banking laws are concerned. While the IRS takes no official position on marijuana from an ethical or moral standpoint, they do know that current banking laws make it difficult for them to collect taxes from marijuana businesses.

Apparently, the IRS was recently represented by Cassidy Collins at an annual tax forum sponsored by UCLA. Collins told forum attendees that the IRS continually faces challenges collecting taxes from the marijuana industry. Their biggest hurdle is the cash-only nature of the industry itself. Collins made it clear that changing the laws could make banks more amenable to doing business with companies in the sector, thereby making it easier for the IRS to collect.

It has long been assumed that Washington would work to either decriminalize or reschedule marijuana when the morality was stripped away and they were forced to look at it solely in financial terms. We could finally be reaching that point. We already know that states are collecting billions of dollars in marijuana tax revenues, and it is hard to believe that Washington would not want a piece of that pie.

  • Banks Remain Cautious

As things currently stand, banks are reluctant to offer services to marijuana growers, processors, or dispensaries. Doing so puts them at risk of violating federal law. Even though Washington has chosen to turn a blind eye as marijuana has slowly been legalized in the states, banks do not want to take any chances. Who could blame them?

Without banks to facilitate business, companies are forced to operate their businesses primarily on cash. Yet how can they pay their taxes? According to Collins, there are some local IRS offices that accept cash payments. But they are not the norm. Moreover, business owners are skeptical of walking into an IRS office and handing $50,000 to an IRS agent who might be a bit overzealous.

Changing at least the banking laws could help solve a big problem for the IRS. If the banking industry were officially taken off the hook, they might welcome the opportunity to offer services to marijuana businesses. Industry deposits could easily total hundreds of millions of dollars annually, which is something banks usually appreciate.

  • Decriminalization and Federal Taxes

Though Collins did not go as far as discussing federal taxes on marijuana businesses, lawmakers have to think along those lines. Changing banking laws would make it easier for the IRS to collect income taxes. But decriminalizing marijuana altogether would open the door for federal excise taxes. Washington could effectively do with marijuana what it did with alcohol at the end of Prohibition.

Federal decriminalization would probably be viewed differently among the states. In Utah, where lawmakers are committed to not opening the door to recreational use, federal decriminalization only makes their job harder. But in neighboring Colorado, federal decriminalization would probably be welcomed., an organization the works with a number of Utah clinics that help patients obtain medical cannabis cards, says the politics of it all cannot be avoided. The only reason medical cannabis is legal in Utah is because a voter referendum forced lawmakers to create a medical program. If not for that referendum, Utah would probably be still among the holdout states.

Decriminalization probably will not change minds on either side of the marijuana debate. But it would make it easier for the IRS to do what it does best: collect tax revenues. That might ultimately be what tips the scales.