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.

David Migoya: 303-954-1506, dmigoya@denverpost.com or twitter.com/davidmigoya