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

Health-care consumers need to take the lead, so get smart

David Russian, CEO of Western Washington Medical Group, writes our third essay about fixing health care.

More business, more competition for Everett kidney dialysis center

Nonprofit Puget Sound Kidney Centers sees large for-profit competitors enter state market.

Molina Medical holds fall carnival for families in Everett

Molina Medical is hosting a free event for families in the Everett… Continue reading

Leadership Snohomish County celebrates 20 years of service

Leadership Snohomish County is celebrating its 20th anniversary. The organization was launched… Continue reading

Snohomish, Monroe manufacturers honored for innovation, excellence

Two Snohomish County companies have been honored with Manufacturing Excellence awards at… Continue reading

Remodeled home tours planned this weekend

This weekend, Edmonds-based Chermak Construction will participate in the 2017 Remodeled Homes… Continue reading

Barron Heating to celebrate anniversary at Marysville showroom

Barron Heating and Air Conditioning is celebrating its 45th anniversary from 10… Continue reading

Suitors, beware: In Seattle, Amazon also brought disruption

The company has grown there from a workforce of about 5,000 to more than 40,000 in 33 buildings.

Boeing rushes to bring back retirees as temps

It’s unclear if this could be a definitive turn in the downsizing tide.

Most Read