A Denver medical marijuana dispensary penalized for not paying certain taxes electronically got a succinct reply from the Internal Revenue Service during its appeal: Tough luck.
An Internal Revenue Service appeals officer told Allgreens LLC that not being able to get a bank account is no excuse for not paying employee withholding taxes electronically, as required by federal tax law. The dispensary has tried to get a bank account for at least two years.
That Allgreens “cannot secure a bank account due to current banking laws is not considered reasonable cause to abate the penalty,” an IRS hearing officer ruled in denying the dispensary’s request to waive the 10 percent penalty.
The dispensary is one of many to face the fine, assessed even though the company pays its taxes in cash and on time at the Denver downtown IRS office twice each month.
The IRS requires all businesses to pay the quarterly tax by bank wire, which is impossible for hundreds of medical and recreational marijuana shops nationwide that are unable to obtain banking services.
Rather than waive the penalty for cash-only businesses paying the tax on time, the IRS has advised the companies to avoid the assessment by using techniques that amount to money laundering, Allgreens’ attorney Rachel Gillette has said.
The dispensary was the first to challenge the IRS policy in U.S. Tax Court, saying the penalty is unfair since many marijuana businesses cannot find banking because the drug remains illegal under federal law.
In newly filed court papers, the dispensary said a hearing officer’s determination in October that the business’ inability to get a bank account was little more than hard luck runs afoul of the agency’s own rules.
The IRS imposes the penalty “unless it can be shown that such failure (to pay electronically) is due to reasonable cause and not due to willful neglect.”
Allgreens “meets the requirements of reasonable cause because the petitioner exercised ordinary business care and prudence in paying its federal employment tax obligations,” Gillette writes in a new court brief.
“The application of a penalty to an entire industry that, though willing, is unable to comply, is discriminatory, unjust and unfair,” Gillette wrote the IRS.
The IRS was clear that its “position is all (withholding taxes) are to be made via Electric Funds Transfer Deposit System, and as of now IRS has not made any policy change or exception for businesses that cannot use banks to make their federal tax deposits,” IRS settlement officer Linda Andrews wrote in her decision denying Allgreens’ request.
Gillette said the decision shows how the IRS “has forsaken its role as a fair and impartial enforcer of the tax code as it has allowed the federal government’s position on marijuana to influence its decision.”
Enforcing the penalties is “a wasteful and inefficient use of taxpayer dollars,” Gillette wrote in her Tax Court challenge.
Allgreens’ case is pending.
David Migoya: 303-954-1506, email@example.com or twitter.com/davidmigoya