The head of Colorado NORML, Rachel Gillette, is fighting mad about the way the federal government is discriminating against legal marijuana businesses, and now she’s suing the Internal Revenue Service.

Gillette is representing Allgreens LLC, a Denver medical marijuana dispensary, in its lawsuit against the IRS. At issue is an IRS lien against Allgreens for the payment of $20,000 in penalties from 2013. Gillette believes that the penalty is an unfair discrimination against state-legal marijuana businesses and that the IRS’ proposed solution amounts to entrapment into committing the crime of money laundering.

The IRS accepts payments for required quarterly federal payroll taxes through an online service called the Electronic Federal Tax Payment System (EFTPS). Those taxpayers who do not use the EFTPS are assessed a 10% penalty. Through 2012, Allgreens used the EFTPS to pay its taxes, but in mid-2012, Allgreens lost its bank account as federal regulators began raising alarms about banks accepting marijuana business.

Since mid-2012, Allgreens hasn’t been able to secure a bank account. Without an account, Allgreens can’t use the EFTPS and has been hand-delivering its federal tax payments to the IRS office in Downtown Denver, which is the only place in the state where IRS will take cash payments. But the cash payments are subject to that 10% penalty for non-electronic deposits.

Gillette finds the situation to be untenable for her client. “It was not that the taxpayer ‘did not want’ to make use of the [EFTPS],” she explained to the Tax Court. “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 IRS suggested three alternatives to Allgreens, all of which Gillette finds unacceptable. The first two methods involve the dispensary transferring money to a third party that could then transfer the money to IRS through the EFTPS. “It’s the very definition of money laundering,” Gillette told The Denver Post. “It’s absurd. An alternative should not force a taxpayer to engage in a potentially unlawful activity under a federal statute.”

The third alternative is to hold all the cash and pay it at the end of the quarter, which not only incurs the 10% non-electronic penalty but another penalty for late payment. This would have pot shops hoarding inordinate amounts of cash, which is a danger to all involved. But since the only Colorado IRS office that accepts cash is in downtown Denver, making an appointment and a trip to deliver tax payments for every two-week payroll period is an all-day affair, even for a Denver-area shop.

Source: International Cannabis Business Conference