<html xmlns:v="urn:schemas-microsoft-com:vml" xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:w="urn:schemas-microsoft-com:office:word" xmlns:m="http://schemas.microsoft.com/office/2004/12/omml" xmlns="http://www.w3.org/TR/REC-html40"><head><META HTTP-EQUIV="Content-Type" CONTENT="text/html; charset=us-ascii"><meta name=Generator content="Microsoft Word 14 (filtered medium)"><style><!--
/* Font Definitions */
@font-face
        {font-family:Helvetica;
        panose-1:2 11 6 4 2 2 2 2 2 4;}
@font-face
        {font-family:Wingdings;
        panose-1:5 0 0 0 0 0 0 0 0 0;}
@font-face
        {font-family:Wingdings;
        panose-1:5 0 0 0 0 0 0 0 0 0;}
@font-face
        {font-family:Calibri;
        panose-1:2 15 5 2 2 2 4 3 2 4;}
@font-face
        {font-family:Tahoma;
        panose-1:2 11 6 4 3 5 4 4 2 4;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
        {margin:0in;
        margin-bottom:.0001pt;
        font-size:11.0pt;
        font-family:"Calibri","sans-serif";}
h2
        {mso-style-priority:9;
        mso-style-link:"Heading 2 Char";
        mso-margin-top-alt:auto;
        margin-right:0in;
        mso-margin-bottom-alt:auto;
        margin-left:0in;
        font-size:18.0pt;
        font-family:"Times New Roman","serif";
        font-weight:bold;}
a:link, span.MsoHyperlink
        {mso-style-priority:99;
        color:blue;
        text-decoration:underline;}
a:visited, span.MsoHyperlinkFollowed
        {mso-style-priority:99;
        color:purple;
        text-decoration:underline;}
p
        {mso-style-priority:99;
        mso-margin-top-alt:auto;
        margin-right:0in;
        mso-margin-bottom-alt:auto;
        margin-left:0in;
        font-size:12.0pt;
        font-family:"Times New Roman","serif";}
p.MsoAcetate, li.MsoAcetate, div.MsoAcetate
        {mso-style-priority:99;
        mso-style-link:"Balloon Text Char";
        margin:0in;
        margin-bottom:.0001pt;
        font-size:8.0pt;
        font-family:"Tahoma","sans-serif";}
span.EmailStyle17
        {mso-style-type:personal-compose;
        font-family:"Calibri","sans-serif";
        color:windowtext;}
span.Heading2Char
        {mso-style-name:"Heading 2 Char";
        mso-style-priority:9;
        mso-style-link:"Heading 2";
        font-family:"Times New Roman","serif";
        font-weight:bold;}
p.byline, li.byline, div.byline
        {mso-style-name:byline;
        mso-margin-top-alt:auto;
        margin-right:0in;
        mso-margin-bottom-alt:auto;
        margin-left:0in;
        font-size:12.0pt;
        font-family:"Times New Roman","serif";}
span.pipe
        {mso-style-name:pipe;}
span.caption
        {mso-style-name:caption;}
span.apple-converted-space
        {mso-style-name:apple-converted-space;}
span.BalloonTextChar
        {mso-style-name:"Balloon Text Char";
        mso-style-priority:99;
        mso-style-link:"Balloon Text";
        font-family:"Tahoma","sans-serif";}
.MsoChpDefault
        {mso-style-type:export-only;
        font-family:"Calibri","sans-serif";}
@page WordSection1
        {size:8.5in 11.0in;
        margin:1.0in 1.0in 1.0in 1.0in;}
div.WordSection1
        {page:WordSection1;}
/* List Definitions */
@list l0
        {mso-list-id:255216590;
        mso-list-template-ids:-1004884240;}
@list l0:level1
        {mso-level-number-format:bullet;
        mso-level-text:\F0B7;
        mso-level-tab-stop:.5in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Symbol;}
@list l0:level2
        {mso-level-number-format:bullet;
        mso-level-text:o;
        mso-level-tab-stop:1.0in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:"Courier New";
        mso-bidi-font-family:"Times New Roman";}
@list l0:level3
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:1.5in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
@list l0:level4
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:2.0in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
@list l0:level5
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:2.5in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
@list l0:level6
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:3.0in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
@list l0:level7
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:3.5in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
@list l0:level8
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:4.0in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
@list l0:level9
        {mso-level-number-format:bullet;
        mso-level-text:\F0A7;
        mso-level-tab-stop:4.5in;
        mso-level-number-position:left;
        text-indent:-.25in;
        mso-ansi-font-size:10.0pt;
        font-family:Wingdings;}
ol
        {margin-bottom:0in;}
ul
        {margin-bottom:0in;}
--></style><!--[if gte mso 9]><xml>
<o:shapedefaults v:ext="edit" spidmax="1026" />
</xml><![endif]--><!--[if gte mso 9]><xml>
<o:shapelayout v:ext="edit">
<o:idmap v:ext="edit" data="1" />
</o:shapelayout></xml><![endif]--></head><body lang=EN-US link=blue vlink=purple><div class=WordSection1><p class=MsoNormal>OK then…<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal><o:p> </o:p></p><h2 style='margin:0in;margin-bottom:.0001pt;mso-line-height-alt:14.4pt'><span style='font-size:15.5pt;font-family:"Helvetica","sans-serif";font-weight:normal'><a href="http://reason.com/blog/2014/07/11/irs-fines-marijuana-merchants-for-refusi"><span style='font-size:16.0pt;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>IRS Fines Marijuana Merchants for Refusing to Commit a Felony</span></a><o:p></o:p></span></h2><p class=byline style='margin:0in;margin-bottom:.0001pt;line-height:14.4pt'><span style='font-size:9.5pt'><a href="http://reason.com/people/jacob-sullum/all"><b><span style='font-size:10.0pt;color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>Jacob Sullum</span></b></a></span><span class=pipe><span style='font-size:10.0pt;color:#BBBDBF;border:none windowtext 1.0pt;padding:0in'>|</span></span><span style='font-size:9.5pt'>Jul. 11, 2014 2:21 pm<o:p></o:p></span></p><p class=MsoNormal style='mso-margin-top-alt:0in;margin-right:2.25pt;margin-bottom:0in;margin-left:0in;margin-bottom:.0001pt;text-indent:-.25in;mso-list:l0 level1 lfo1'><![if !supportLists]><span style='font-size:10.0pt;font-family:Symbol'><span style='mso-list:Ignore'>·<span style='font:7.0pt "Times New Roman"'>         </span></span></span><![endif]><span style='font-size:12.0pt'><o:p> </o:p></span></p><p style='margin:0in;margin-bottom:.0001pt;line-height:18.0pt'><span style='font-size:10.5pt;font-family:"Helvetica","sans-serif";color:black;letter-spacing:.25pt'>State-licensed marijuana stores, which began serving recreational customers in Colorado at the beginning of the year and in Washington this week, are criminal enterprises under federal law. But as<span class=apple-converted-space> </span><a href="http://history.howstuffworks.com/history-vs-myth/capone-tax-evasion.htm"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>Al Capone</span></a><span class=apple-converted-space> </span>could have told you, Uncle Sam still wants his cut: Selling marijuana is a felony, and so is<span class=apple-converted-space> </span><a href="http://www.law.cornell.edu/uscode/text/26/7201"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>failing to pay taxes</span></a><span class=apple-converted-space> </span>on the money you earn by selling marijuana. The government does not make it easy to comply with federal tax laws, however.<span class=apple-converted-space> </span><a href="http://www.law.cornell.edu/uscode/text/26/280E"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>Section 280E</span></a>of the Internal Revenue Code, for example,<a href="http://reason.com/archives/2013/10/15/marijuana-money-muddle"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>bars</span></a><span class=apple-converted-space> </span>marijuana merchants from deducting standard business expenses (although they are, rather counterintuitively, allowed to deduct the "cost of goods sold," including the cost of growing or obtaining marijuana). And when a business pays federal taxes withheld from employees' paychecks, along with the employer's share of payroll taxes, the Internal Revenue Service insists that it be done via the Electronic Federal Tax Payment System (EFTPS), which requires a bank account. Cannabusinesses<span class=apple-converted-space> </span><a href="http://reason.com/archives/2014/06/04/marijuana-money-in-the-mattres"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>have trouble obtaining</span></a> bank accounts, what with being criminal enterprises under federal law. The IRS does not consider that a good excuse, so when marijuana merchants pay the monthly taxes in cash, they are charged a 10 percent penalty. That is how<span class=apple-converted-space> </span><a href="https://weedmaps.com/dispensaries/colorado/denver-central/allgreens-denver"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>Allgreens</span></a>, a Denver dispensary, ended up<span class=apple-converted-space> </span><a href="http://www.denverpost.com/business/ci_26075425/irs-fines-unbanked-pot-shops-paying-federal-payroll"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>owing the IRS</span></a> more than $20,000 in penalties.<o:p></o:p></span></p><p style='margin:0in;margin-bottom:.0001pt;line-height:18.0pt'><span style='font-size:10.5pt;font-family:"Helvetica","sans-serif";color:black;letter-spacing:.25pt'>In a<span class=apple-converted-space> </span><a href="http://cloudfront-assets.reason.com/assets/db/14051026605179.pdf"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>petition</span></a><span class=apple-converted-space> </span>filed last month with the U.S. Tax Court, Allgreens argues that the IRS should waive the penalties, as permitted by law "for reasonable cause," because the store's inability to make electronic payments is "due to circumstances completely outside of [its] control." After all, writes Allgreens' lawyer, Rachel K. Gillette, "the taxpayer is unable to secure a bank account due to the nature of its business, which is explicitly legal under Colorado State law. With no bank account and no access to banking services, the taxpayer is simply incapable of making EFTPS payments or to utilize the EFTP System."<o:p></o:p></span></p><p style='mso-margin-top-alt:0in;margin-right:0in;margin-bottom:15.0pt;margin-left:0in;line-height:18.0pt'><span style='font-size:10.5pt;font-family:"Helvetica","sans-serif";color:black;letter-spacing:.25pt'>The IRS argues that businesses like Allgreens have other options. For example, "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)." Alternatively, "Taxpayer may utilize/authorize a third party such as a tax professional, accountant, payroll service firm, etc., to make the deposit on their behalf. Using the third party service, the deposit is made through the batch provider software using the third parties' bank account."<o:p></o:p></span></p><p style='margin:0in;margin-bottom:.0001pt;line-height:18.0pt'><span style='font-size:10.5pt;font-family:"Helvetica","sans-serif";color:black;letter-spacing:.25pt'>The problem, as Gillette points out, is that such tricky maneuvers can be treated as<span class=apple-converted-space> </span><a href="http://www.law.cornell.edu/uscode/text/18/1956"><span style='color:#F37221;border:none windowtext 1.0pt;padding:0in;text-decoration:none'>money laundering</span></a>, a crime punishable by up to 20 years in prison under federal law. "An alternative should not force a taxpayer to engage in a potentially unlawful activity under a federal statute," she writes, concluding that "the IRS's decision in this case is arbitrary and capricious." <o:p></o:p></span></p><p class=MsoNormal><o:p> </o:p></p></div></body></html>