Summaries of Selected Opinions, 0717 COBJ, Vol. 46 No. 7 Pg. 80
U.S. COURT OF APPEALS FOR THE TENTH CIRCUIT
No. 16-1281. The Green Solution Retail, Inc. v. United States. 5/2/2017. D.Colo. Judge McHugh. Marijuana
Dispensary—IRS Audit—Controlled Substance—Trafficking—Anti-Injunction Act— Declaratory Judgment Act.
Plaintiff is a Colorado-based marijuana dispensary. At the time of this case, the IRS was auditing plaintiff’s tax returns concerning the applicability of 26 U.S.C. § 280E, which forbids federal tax deductions and credits to companies trafficking in a “controlled substance.” The IRS determined that plaintiff trafficked in a controlled substance and is criminally culpable, and then requested that plaintiff answer questions and turn over documents as to whether plaintiff is disqualified from taking credits and deductions under § 280E. The IRS has not made an assessment or begun collection proceedings.
Plaintiff sued the IRS to enjoin its investigation and sought a declaratory judgment that the IRS is acting outside its authority when it makes findings that a taxpayer has trafficked in a controlled substance. The IRS moved to dismiss, arguing that injunctive relief was foreclosed by the Anti-Injunction Act (AIA), which bars suits to restrain the assessment or collection of any tax. The IRS further argued that the Declaratory Judgment Act (DJA) prohibited a declaratory judgment in this tax matter. The district court dismissed for lack of jurisdiction.
On appeal, plaintiff contended that its suit to enjoin the IRS is not precluded by the AIA, arguing that the controlling Tenth Circuit case, Lowrie v. United States (which held that lawsuits challenging “activities leading up to and culminating in” an assessment are barred), was implicitly overruled by Direct Marketing Association v. Brohl, The Tenth Circuit observed that while Direct Marketing called the Lowrie holding into question, the Tenth Circuit could not say that Direct Marketing so undermined Lowrie in this context that the Tenth Circuit had to retreat from its holding. Further, the DJA is coterminus with the AIA, so if the AIA bars this suit, DJA claims are likewise barred. Because the IRS’s investigation of plaintiff’s business records is an “activity leading up to” an assessment, plaintiff’s lawsuit was fled to restrain any such assessment and is therefore barred by the AIA and DJA.
Plaintiff also argued that even if Lowrie is good law, the AIA does not preclude its suit because the IRS was acting outside its authority in investigating whether plaintiff trafficked in a controlled substance. The Tenth Circuit decided that the IRS’s efforts to assess taxes based on the application of § 280E fall within the scope of the AIA.
Plaintiff further argued that § 280E is a penalty, not a tax subject to the AIA. The Tenth Circuit stated that § 280E is not a penalty.
The judgment was affirmed.
No. 16-5015. United States v...
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