The various forms of information reporting required by the Internal Revenue Code form the backbone of both voluntary compliance with tax laws and the starting point for audits by the Internal Revenue Service (IRS). One form that is particularly relevant in the cannabis space is IRS Form 8300, which implements the law that requires a business to report transactions involving a cash payments of more than $10,000.

A chief counsel attorney in the Small Business/Self-Employment Division of the IRS has written a memo (ILM 202409016) to a compliance group manager that responds to a series of questions about the application of the reporting law in the context of the marijuana industry. It was released for public consumption on March 1. Since it is an internal memo, it cannot be cited as authority by a taxpayer, but it provides valuable insight into what the IRS will be looking for in audits of compliance with Form 8300 reporting. It would also be reasonable to interpret this memo as an indication of increased IRS activity in audits of state-legalized cannabis businesses.

The memo is in the form of FAQs and addresses a wide range of issues, including how to complete the form when concerned with Fifth Amendment claims, whether legalized substance businesses are per se suspicious (they are not), and whether a deposit or a prepayment is a payment for these purposes (it is). It also clarifies the need to report payments between parties related by ownership.

Failure to comply with the correct reporting under Code Section 6050I on Form 8300 can give rise to significant penalties, which increase greatly if the failure is intentional. Generally, the IRS’ approach has not been to use the penalties as revenue raisers, but rather as a stick to get taxpayers to comply. The memo does explain the concept of having reasonable cause for failing to properly report, but without reasonable cause for noncompliance, the penalties have heightened importance.

Given that the IRS has released the memo, it may be harder for a taxpayer to claim reasonable cause for lack of compliance, as willful ignorance is not considered reasonable cause. It would be a good time for companies in the cannabis space to review their policies and procedures for complying with reporting of cash payments exceeding $10,000.