The IRS is Seemingly Delighted by Cash Payments from Cannabis Businesses
State-legal cannabis businesses in the United States pay their taxes in an old fashion way as compared to other markets in the United States who pay their federal taxes via check or electronically. The company sets a personal appointment with their local IRS office. When the representatives of the company arrive, they’re given a safe spot which is alongside two IRS agents who are always in the room; their job is to count tens or hundreds of thousands of dollars in cash. The annual, awkward procedure, is popular among cannabis businesses. And it has become a significant symptom of the industry’s current cash problem, its impotence to access standard banking services because of the prohibition of cannabis by the federal government.
The correctly analyzed cash problem that is faced by the cannabis industry hurts companies and consumers in many ways. However, according to the IRS, the problem with cash is also leading to a lot of issues for the federal government. And cannabis businesses are paying billions in taxes with money, which has made the IRS face cash problem of its own.
According to a recent McClatchy report, an estimation of 70 percent of all companies does not work with a bank even though the state has provided a lot of efforts to offer financial services to cannabis organizations. They instead take cash payments from customers and pay their employees and their taxes in cash. And businesses must discover a means to keep secure all the money. It’s tough for companies to manage so much revenue. Therefore, people working in the cannabis industry, particularly in retail and transport department, are very open to theft. Recently, an L.A. County sheriff’s deputy was convicted for armed robbery charges. A cannabis warehouse was the target in which the company kept several safes.
Last year, legal marijuana companies paid about $4.7 billion in taxes, and all of it was paid in cash. But do you know how the IRS handles such? According to federal data, a company in Virginia called the Mitre Corporation gained a $1.7 million contract to manage vast amounts of cash payments from federal cannabis taxes. The invoice has led to some speculations among accountants in the cannabis industry. A worker in cannabis companies in Denver called Jordan Cornelius, believes that the $1.7 million isn’t only for counting the cash. According to him, the company is probably working with the IRS to simplify how it processes high amounts of cash payments.
When a cannabis company finally sued and won in 2014, the IRS imposed a 10 percent penalty on cannabis organizations that paid in cash. The IRS later removed the fee in 2015 but stated that they would be good if businesses try to locate a bank and pay taxes via check, credit card, or electronically. The IRS noted that the handling of paper tax filings cost more than handling electronic filings.
Also, bank accounts representing cannabis organizations are more expensive than other bank accounts for other businesses. And as far as the additional “cannabis tax,” is involved, companies receive less: no credit lines, mortgages, or merchant services. Thus, most organizations don’t like to bank, acknowledging the risks of the cash economy. This means, the absence of banking services prompt legal companies to remain unknown.