Pubdate: Thu, 03 Jul 2014
Source: Denver Post (CO)
Copyright: 2014 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: David Migoya
Page: 1A

IRS FINING FIRMS FOR PAYING IN CASH

A Suit Claims Pot Stores Are Unfairly Penalized on Employee 
Withholding Taxes They Are Required to Remit Electronically.

Legal marijuana businesses without bank accounts are unfairly 
assessed a 10 percent penalty on federal employee withholding taxes 
they are required to pay electronically but are forced to pay in 
cash, according to a lawsuit challenging the practice.

That's because the Internal Revenue Service requires all businesses 
to pay the quarterly tax by bank wire, an impossibility for hundreds 
of medical and recreational marijuana shops nationwide that are 
unable to obtain banking services.

And rather than waive the penalty for cash-only businesses paying the 
tax on time, the IRS advised the companies to avoid the assessment by 
using techniques that amount to money-laundering, according to a 
petition filed in U.S. Tax Court.

In a case that could have enormous tax ramifications for hundreds of 
marijuana dispensaries nationwide, Allgreens LLC of Denver is 
challenging the IRS practice of collecting what amounts to millions 
of dollars in penalties the businesses are helpless to avoid.

Allgreens, a medical marijuana dispensary on Kalamath Street in 
Denver, says in its petition that it can't pay via the Electronic 
Federal Tax Payment System because it has no bank account as a result 
of federal laws that make banks leery of doing business with the 
marijuana industry.

"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)."

The company also pays cash to cover state and local taxes and is not 
assessed a penalty.

Allgreens had a bank account - and paid its withholding taxes 
electronically - until mid-2012, when the bank closed the account. 
Allgreens has been unable to locate a new bank that will take its business.

Since the account was closed, Allgreens has diligently 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.

The IRS says Allgreens owes more than $20,000 in penalties from 
December 2012 through December 2013, according to liens filed with 
the Colorado secretary of state's office. Liens for 2014 have not yet 
been filed.

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 in a telephone interview from her Lafayette office. "It's 
absurd. An alternative should not force a taxpayer to engage in a 
potentially unlawful activity under a federal statute."

Gillette is also the executive director of the Colorado chapter of 
the National Organization for the Reform of Marijuana Laws.

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.

"Taxed differently"

The problem, Gillette says, is that as long as marijuana remains 
illegal under federal law, banks are wary of doing business with 
cannabis-related companies, leaving them to work as cash-only enterprises.

"Despite their best efforts, they simply cannot comply with the law," 
Gillette said."Why should they be taxed differently simply because 
they cannot follow a restrictive rule? And the alternatives the IRS 
suggests are criminal."

Paying the tax isn't a simple matter, either. Because only one IRS 
office in the state accepts cash payments, business owners not near 
Denver are often forced to make the frequent trip downtown.

"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.
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MAP posted-by: Jay Bergstrom