When State and Federal Laws Collide - The IRS, Legal Pot and Penalties.

[Mlle. Zabzie]

Oh absurdity, how I love thee. ALLGREENS LLC v. Commissioner. Legal CO marijuana dispensary can’t get a bank account (due to federal banking laws), so the entity timely and fully pays its taxes in cash. The IRS then imposes a failure-to-use-EFTPS (electronic funds transfer) penalty. The IRS’s argument as to why the penalty shouldn’t be abated is that the taxpayer had alternatives. The alternative suggested by the IRS is literally that the taxpayer should have laundered the money to get it into the banking system. The situation arises in the first place because the federal and state laws don't talk well to each other, but it's just awesome. Some highlights from the brief filed in tax court:

"The IRS has posited that the taxpayer is not entitled to relief because "alternatives exist." Notably, the IRS acknowledges that "federal and state law banks will not issue an account to a dispensary.""

""Taxpayer may use a currency exchange/same-day loan establishment, to convert cash (often times for a fee) into a money order to deposit and then use a financial institution to complete a same-day wire transaction (often times for a fee)."

a. This is not an alternative for a taxpayer in the marijuana industry. Although the taxpayer has a legal and licensed operation in Colorado, the taxpayer's legal activities within the state could still be considered money laundering under 18 U.S.C. § 1956. An alternative should not force a taxpayer to engage in a potentially unlawful activity under a federal statute."

""Taxpayer may remit full payment when they file their tax return. However, taxpayers using this method will be assessed a FTD penalty since EFTPS was not used as required. It is not appropriate to abate the FTD penalty simply because they could not get a bank account when alternatives/options exist."

a. This is not an actual "alternative" to being assessed a penalty for failure to pay via EFTPS. Rather, the IRS's suggestion of paying the tax with the return when a taxpayer is a monthly or bi-weekly tax depositor would actually cause the taxpayer to accrue not only the EFTPS penalty, but also a late payment penalty. This "alternative" essentially advises marijuana business taxpayers to be even more non-compliant by asserting that taxpayers could avoid the EFTPS penalty liability by incurring the EFTPS penalty as well as additional penalties."

[Fragile Bird]

Geez, the IRS (and pretty well every country's Revenue Agency) loves to grab you by the balls and squeeze, don't they?

[aceluby]

Not surprising. This is classic 'marijuana tax' territory.

[Fragile Bird]

Dealing with Inland Revenue can be like walking through Alice's Wonderland. Or being in the theatre of the absurd.

Or better still, Catch-22!

[Larry of the Lawn]

Seems like a great way to encourage blackmarket ganja sales and growing. :smoking:

[Alarich]

Good to see that your tax authorities are also struggling with federal structures. It's a curse (and a blessing for some...).