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The head of the Internal Revenue Service (IRS) says marijuana industry banking access would make the agency’s job easier, and officials “shouldn’t just sit on our hands” as the federal government moves to reschedule cannabis.

At a hearing before the House Appropriations Subcommittee on Financial Services and General Government on Tuesday, Chairman Dave Joyce (R-OH) pressed IRS Commissioner Daniel Werfel about cannabis banking and tax compliance issues.

The commissioner said the Justice Department’s decision to move marijuana from Schedule I to Schedule III of the Controlled Substances Act (CSA) is “recent,” and “what we need to do in a moment like this is understand the implications that this change will have on a whole variety of different elements of this part of the economy.”

“What will their status be with respect to financial institutions? Will they remain mostly a cash-based industry or would they move into something other than cash?” Werfel said. “All of these things are important moving pieces for the IRS to determine how this emerging and changing industry is assessed at the right level and paying what they owe.”

“We shouldn’t just sit on our hands,” he added. “We should be active and looking at what steps we need to take—and we need to interact with this community and make sure we understand and talk to them.”

The IRS commissioner also said that, in his experience, industries are generally “very amenable” to getting clarifications on their tax expectations, and the cannabis industry is no different.

“It’s not a good thing if you’re operating in ambiguity. It’s a stressful enough situation to pay your taxes,” he said, committing to working with the congressman “to understand how this change evolves the industry and make sure we set up the right tax structure for them to operate in.”

Joyce, who serves as co-chair of the Congressional Cannabis Caucus, also asked if freeing up access to the banking system for marijuana businesses, as would be accomplished under a bipartisan bill he’s sponsoring, would “make life a little bit easier for you.”

Werfel responded that “history has demonstrated” that when businesses are effectively integrated with the banking system, that “drives a lot of integrity and quality control,” while reducing “uncertainties and variables” in a way that “often is helpful to the taxpayer” as well as to the federal government.

“So, in general, yes” marijuana banking access would make the IRS’s job easier, he said.

Finally, Joyce asked the commissioner whether the agency has taken any steps to provide resources to the cannabis industry so they’re better informed about tax compliance and related issues.

“Typically what happens when we have an issue like this or an emerging change in an industry—for example, new currencies, new new tax credits…we build a collaboration and engagement,” he said. “Sometimes we can do FAQs. Sometimes we can hold webinars or roundtables. It seems like this is a material change, and that’s going to impact this industry and likely will warrant that we start building that type of stakeholder engagement.”

What didn’t get explicitly mentioned at the hearing was the fact that the administration’s proposed rescheduling action would affect one critical IRS policy that’s beleaguered the state-legal marijuana industry: a statute known as 280E that prevents licensed cannabis businesses from taking federal tax deductions. IRS clarified that policy for medical cannabis firms in 2022.

If marijuana is moved to Schedule III, that would enable such businesses to start taking those deductions, significantly reducing their effective tax rate.

The head of the Drug Enforcement Administration (DEA) that made the rescheduling decision also spoke to a separate Appropriations subcommittee on Tuesday, but she repeatedly declined to comment because the regulatory review process is “ongoing.”

With respect to cannabis banking legislation, the Senate Banking Committee approved the Secure and Fair Enforcement Regulation (SAFER) Banking Act last September and it’s currently pending floor action. However, it’s unclear what vehicle leadership will seek to use to advance it, as plans have reportedly fallen apart to attach it to a must-pass Federal Aviation Administration (FAA) reauthorization bill.

Meanwhile, IRS issued a recent memo clarifying the rules for reporting large cash payments between marijuana businesses, which the agency says should not automatically be considered “suspicious” just because of the federally prohibited nature of the industry.

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The post Passing Marijuana Banking Bill Would Increase ‘Integrity And Quality Control’ In Financial System, IRS Commissioner Says appeared first on Marijuana Moment.

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Kyle Jaeger, KahliBuds, 420GrowLife