Pot shop sues IRS over cash penalty

DENVER — A marijuana business in Colorado has filed a lawsuit against the Internal Revenue Service for assessing a penalty for paying taxes in cash.

The IRS charges a 10 percent penalty on cash payments for federal employee withholding taxes. But many marijuana businesses are forced to pay taxes in cash because of difficulty accessing banking services

Because pot is illegal under federal drug law, many marijuana businesses have no bank accounts despite federal guidance earlier this year on how banks may accept pot money.

Medical marijuana dispensary Allgreens LLC of Denver is challenging the IRS practice of fining cash payments in U.S. Tax Court, The Denver Post reported Wednesday.

The dispensary says in its petition that it can’t pay via the Electronic Federal Tax Payment System because it has no bank account.

“It was not that the taxpayer ‘did not want’ to make use of the EFTP System,” Allgreens’ attorney Rachel Gillette wrote in the Tax Court petition. “Rather, the taxpayer is unable to secure a bank account due to the nature of its business. With no bank account and no access to banking services, the taxpayer is simply incapable of making” the payments electronically.

Since the account was closed, Allgreens has hand-delivered cash payments on the tax twice monthly to the IRS office in downtown Denver — the only one in the state that accepts cash.

As a result, the company has been assessed a 10 percent penalty every quarter of the tax cycle.

Allgreens asked the IRS for a waiver of the penalty, saying it had complied with the law and had not intentionally avoided making the electronic payments.

The IRS sent the company a letter with a copy of its internal policies, which say companies have two alternatives to pay electronically. Both methods required Allgreens to funnel the cash to a third party, who could then make the tax payment on its behalf.

“It’s the very definition of money laundering,” Gillette told The Denver Post. “It’s absurd. An alternative should not force a taxpayer to engage in a potentially unlawful activity under a federal statute.”

A third alternative the IRS suggested — paying the tax in a single lump-sum payment at the end of each quarter — would not only incur the 10 percent penalty, but an additional penalty for paying late.

The tax is due within days of a company’s payroll and is accounted for quarterly. Marijuana business owners not near Denver must make the frequent trip downtown to pay in cash.

“Literally it becomes an all-day affair, and you can only do it by appointment,” Gillette said. “The IRS knows darn well the money is coming from marijuana sales, and they’re happy to accept it.”

No hearing date has been set for the petition.

More in Herald Business Journal

Peoples, HomeStreet banks bump lowest salaries after tax cut

The banks with Snohomish County branches will raise minimum salaries for employees to $15 an hour.

Electroimpact cuts Mukilteo staff by 9 percent

“What we’re missing now is a monster anchor project,” the company’s VP said.

Exotic animals find compassionate care in Bothell (video)

At the Center for Bird and Exotic Animal Medicine, vets treat snakes, hedgehogs and even kangaroos.

How can you tell if you are getting good financial advice?

Assume that it’s still the same buyer-beware market that has always existed.

Amanda Strong (left) tries on an Angel of the Winds Arena hat as she and Courtney Brown hand out gift bags after the renaming ceremony Dec. 13 in Everett. The new name replaces the Xfinity name. (Andy Bronson / Her file)
Angel of the Winds to break ground on $60M casino expansion

“We think we’re on the cusp of becoming a major resort.”

In this Dec. 20, 2017, photo, a clerk reaches to a shelf to pick an item for a customer order at the Amazon Prime warehouse, in New York. (AP Photo/Mark Lennihan, File)
Amazon’s potential HQ2 sites leaves many cities disappointed

And yet, some municipal leaders are looking at the bright side of being rejected.

How do you retrieve an errant Boeing 737 from a muddy slope?

Turkish authorities used cranes to lift a plane that skidded off a runway.

Don’t take economic forecasts to the bank — or the casino

Air travel delays could spur a rebirth of passenger rail service.

Emirates orders 20 more Airbus A380 jumbos, saving program

The Dubai carrier also has options to buy 16 more. The program seems safe until 2029.

Most Read