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

An Alaska Airlines Embraer 175. The carrier plans to use this model on routes to and from Paine Field in Everett. (Alaska Airlines)
Alaska Airlines says it hopes to be a decent neighbor

Diana Birkett Rakow shared aspects of the company’s philosophy as keynote at an Economic Alliance event.

Safe saves Everett Office Furniture’s future after fire

The business was able to reopen because vital paperwork was preserved.

Get ready for the era of hypersonic flight — at Mach 5

The Pentagon sees hypersonic weaponry as a potential game changer.

Why real estate investors are watching self-driving cars closely

With decisions on real estate made years in advance, could self-driving cars change how we live?

More than 60 Boeing 737s per month: Can suppliers keep up?

There was lots of talk this week about the prudence and pressures of soaring production rates.

Developer proposes an 18-story building in Lynnwood

It would be the second-tallest in the county and include apartments with retail space.

Snohomish County business licenses

PLEASE NOTE: Business license information is obtained monthly from the Washington Secretary… Continue reading

New Everett mayor speaks out about business in city, region

Q&A: Cassie Franklin on what can be done to get Boeing to build the 797 here and attract new industries.

Aerospace analyst explains how he’ll help state’s Boeing bid

Richard Aboulafia will deliver a report on Washington’s strengths and weaknesses in landing the 797.

Most Read