Colorado Marijuana Business Challenges IRS Penalties

It's no story that marijuana businesses in the brave new world of quasi-legalization are getting hammered by regulators.  They exist in a kind of post-Soviet Eastern Europe, where buying and selling things has stopped being actually illegal, but is still not actually "legal."  The government won't stop you from selling pot, but they'll make sure they extort as much money as humanly possible from you in the process.

Witness the Internal Revenue Service.  This story from Bloomberg captures the dilemma that faces a lot of cannabis businesses forced to use cash because government regulators effectively cut them off from banks.  (Yes, I know the President is always suggesting otherwise, but he's not telling the truth.)  Some are fighting back:

    A Colorado medical marijuana dispensary is challenging an Internal Revenue Service penalty for failing to pay certain taxes electronically, arguing it couldn't do so because it has been unable to open a bank account.

    Rachel Gillette, the Denver attorney that represents Allgreens LLC, told Bloomberg BNA Feb. 17 that the company filed a petition with the U.S. Tax Court challenging an IRS Appeals officer's determination that the company's inability to get a bank account doesn't excuse its failure to pay employee withholding taxes electronically (Allgreens LLC v. Commissioner, T.C., No. 28012-14L, petition filed 11/24/14).

    “If you look at the penalty section of the tax code, you are entitled to abatement as long as you have reasonable cause”

    That Allgreens “cannot secure a bank account due to current banking laws is not considered reasonable cause to abate the penalty,” the IRS settlement officer, Linda Andrews, ruled in a substantive contract letter issued July 24, 2014.

    Allgreens faces a 10 percent penalty for failing to deposit Form 940 and Form 941 employment taxes via the Electronic Federal Tax Payment System as required by federal law, according to Tax Court documents obtained by Bloomberg BNA.

    The use of the EFTPS requires a bank account. Allgreens is a licensed medical marijuana business in the state of Colorado and the city of Denver, but has been unable to secure a bank account because marijuana is a Class 1 controlled substance under federal law.

    Allgreens pays its taxes in cash at a local IRS office, Gillette told BNA. “The taxpayer is a compliant business making timely tax payments and filing timely returns, but due to circumstances beyond his control, is unable to get a bank account so he can file via the EFTPS,” she said. “A compliant taxpayer is one who pays on time and pays the correct amount.”

The whole piece is worth reading.  My favorite part is where the clueless IRA staffers basically tell the taxpayers that they can avoid paying the 10 percent penalty if they  simply do a little money laundering.

On a more serious note, I doubt that this is a legal claim that can win.  Pot is still illegal, and these sorts of agency determinations are hard to challenge.  That said, the IRS's position here is genuinely appalling.