Lessons from the rash of CO audits

We are figuring that CA will see the next wave of IRS audits and what we have learned from the audits currently being conducted in CO is that 8300 forms are a big deal!!!

Form 8300 Incidents in Colorado

By: Sharon Lu

December 13, 2016

IRS Form 8300

Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, must be filed “if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.” The Internal Revenue Service and Financial Crimes Enforcement Network uses the information on this form to fight against money laundering, which is used to hide proceeds from illegal activities.

Why Colorado has so much cash

Marijuana businesses deal predominantly in cash because of certain restrictions that prohibits them from having bank accounts. And as a result “businesses can’t get loans, customers have to pay in cash, and state tax collectors are processing bags of bills.” Colorado legalized medical marijuana in 2000, and recreational marijuana in 2012, allowing the sale of non-medical marijuana starting in January 2014. With the increase of marijuana businesses in Colorado, and thus the increase of cash transactions, comes the increase of scrutiny from the Internal Revenue Service.

Audits in Colorado

The audits of these marijuana businesses have a significant emphasis on the IRS Form 8300. The failure to file the form could possibly result in jail time. A CNBC news article published in July 2016, said that “at least 30 marijuana businesses in Colorado have been audited recently. There are more than 500 pot dispensaries operating in Colorado and the publication estimates current year revenues at pot shops will exceed $400 million.” With all this cash going around, it is not hard to attract auditors to examine businesses more closely, and they definitely will not handle the cases easily.

Colorado attorney Jim Thorburn, who represents multiple marijuana companies facing Form 8300 audits, “raised the possibility of the IRS working together with the U.S. Treasury Department and the Department of Justice to develop money laundering charges against cannabis companies.” In April 2015, the IRS signed a memorandum with the Financial Crimes Enforcement Network. The IRS questionnaire used in the audits asks for information not in a standard 8300 audit, which is likely used to evaluate whether any money laundering was involved. And that could cost someone up to 20 years in prison and up to a half million dollar fine per violation.

The Form 8300 audits are expected to spread to other states. Marijuana businesses outside of Colorado should be expecting such audits sometime in the future.

Works Cited

"Small Business/Self-Employed Topics." Form 8300 and Reporting Cash Payments of Over $10,000.

Internal Revenue Service, n.d. Web. 13 Dec. 2016.

Daniels, Jeff. "IRS Said to Be Auditing Colorado Marijuana Businesses." CNBC. CNBC, 12 July 2016. Web.

13 Dec. 2016.

Schroyer, John. "New IRS Audits in Colorado Worry Cannabis Companies - Marijuana Business Daily."

Marijuana Business Daily. N.p., 12 July 2016. Web. 13 Dec. 2016.

Quinton, Sophie. "Why Marijuana Businesses Still Can't Get Bank Accounts." The Pew Charitable Trusts.

N.p., 22 Mar. 2016. Web. 13 Dec. 2016.

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