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Digital currency use in the U.S. cannabis industry has been on the rise, and the country’s tax agency is keeping a close eye. The Internal Revenue Service (IRS) issued a new notice claiming that the use of digital currencies in this industry is a ‘top enforcement priority’ for the agency.

Medical cannabis is now legal in over 35 states, with 17 legalizing it for recreational use. However, despite the changing laws, the legacy banking system still shuns companies operating in this sector. This has led them to explore alternatives, and digital currencies have been on top of the list.

The IRS is keen on taxing gains made by cannabis companies through the use of digital currencies. In a recent notice, IRS Small Business Division Commissioner De Lon Harris offered guidance for the first time on this emerging sector.

“Another of our top enforcement priorities in the cannabis industry is the use of cryptocurrency. Those who use it need to understand that the IRS considers it property, and there are gains that are taxable,” he wrote.

The commissioner advised cannabis companies to ensure they work with reputable exchanges in their digital currency dealings. The U.S. has toughened its rules governing exchanges in recent times, with some like Coinbase almost attracting the wrath of the securities regulator while others like BitMEX and Kraken have had to pay penalties for their crimes.

Digital currency tax reporting in the U.S. is still not as well laid out as in other sectors. Many investors are still unsure of how much tax they owe the government, especially given the volatile nature of the assets. Unique transactions such as swapping from one digital currency to another or buying an NFT further compound the confusion. There are also block reward miners who have also been in the dark on how to go about their tax reporting.

For its part, the government is seeking to collect much more in taxes from the industry. In its recent Infrastructure Bill, the Biden administration sought to collect as much as $28 billion from the sector. 

Watch: CoinGeek Zurich panel, Service Providers for the Digital Asset Industry: Evolving for Scale

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