The legal weed industry continues its game of a Whac-A-Mole with the government as the IRS is increasing its scrutiny of marijuana businesses. The struggle to establish legit industry standards on par with alcohol or tobacco is a long and winding road. As soon as a state legalizes, the DEA comes in and steps on you. As soon as the DEA agrees to let well enough alone with state-OK’ed marijuana businesses, the IRS slides in and says, “not so fast.”

The IRS is sticking their noses farther and farther into the white market cannabis world, at least according to James Thorburn, a cannabis-specializing attorney who spoke to The Cannabist last week.

“Any business that is handling product is probably going to be subject to an audit,” Thorburn said. “It’s not a question of if at this time, it’s a question of when.”

The attorney, who works both with marijuana law and taxes, talked about the many dice stacked against cannabis businesses. One major problem is IRS Code 280E, which prohibits tax credits against any business that trades in controlled substances. The code, titled “Expenditures in connection with the illegal sale of drugs,” is obviously meant to stop criminals from claiming tax credits on their illegal enterprises, not stop farmers and medical providers operating within the confines of the law from having tax benefits that nearly any other legitimate business would have. But, as long as marijuana is still a Schedule I federally controlled substance, it’s going to have these kind of problems, no matter how legal it is with a state or municipality.

Another major issue, like Code 280E, comes not from a malicious bias against the cannabis industry, but simply from a complicated web of laws that both uphold marijuana as a legal crop in certain areas and prohibit it in ways that treat it as a criminalized narcotic at the same time. Behold the innocuous-sounding Form 8300.

Form 8300 is a mandated document that is used to report any cash transaction over $10,000. Because of strict banking restrictions against the cannabis industry, many deals have to be conducted in cash. A major wholesale transaction can easily hit its head on the $10,000 ceiling. “It is the wholesale transactions among the businesses,” said Thorburn. “Because there might be five, 10, 20 pounds that [are in transaction] between two businesses and because of the problem with banking, the transaction is in cash.”

Since many businesses don’t even know about the required Form 8300, it’s easy for them to not file it. “Part of the problem has been that the industry, as a whole, has not been aware of this requirement,” the attorney said. And being discovered in failure of filing the necessary paperwork can draw the IRS’s attention, and then an audit.

An audit like that can lead to criminal prosecution, but so far the DOJ has sat on their hands. Thorburn warns, “that doesn’t mean they can’t do it in the future,” and recommends pot businesses use “cautious compliance” with the government tax agency.

Photo via Flickr user David Pursehouse