According to Law360, The Internal Revenue Service can request information from state governments in its investigations of federal tax crimes, the Tenth Circuit said Tuesday, affirming a Colorado federal court's decision to toss a suit from pot businesses challenging the agency's summonses.
The three-judge panel concluded that a lower court correctly upheld the IRS' summonses for information on Green Solution LLC and other companies owned by Eric Speidell and on Medicinal Wellness Center LLC and other businesses owned by Judy Aragon and Steven Hickox.
The appeals court applied a precedent it set earlier this year establishing that the federal government has the ability to request state-based information in investigations of federal tax crimes and it rejected the companies' arguments that the IRS acted outside its authority.
"Over The Last Several Years, Multiple Colorado Marijuana Dispensaries Have Challenged The IRS' Ability To Investigate And Impose Tax Consequences Upon Them,
" U.S. Circuit Judge Mary Beck Briscoe Said In The Opinion. "The Dispensaries Have Lost Every Time."
The cannabis companies had argued the IRS lacks the authority to issue the summonses, and told the Tenth Circuit in August that the court's ruling in Standing Akimbo v. U.S. should not apply in their cases.
James D. Thorburn, an attorney for the cannabis companies, told the circuit panel during oral arguments last month that the burden is on the government to make an affirmative case that the documents sought are existent, described with particularity and relevant. The IRS urged the circuit panel to follow precedent the court set in Standing Akimbo and toss the companies' appeals.
In the earlier case, the Tenth Circuit found in April that the IRS satisfied proper requirements when it requested business information from the Colorado Department of Revenue in its audit of dispensary Standing Akimbo.
The government had argued that the factors that led to the Tenth Circuit's decision in Standing Akimbo, such as the submission of affidavits by IRS revenue agents explaining the need for the records requested, are similar to the proceedings in Speidell's series of appeals. The parallels in proceedings should make clear that the summonses should be enforceable, the government said.
The appeals court opinion "quoted liberally" from its ruling in Standing Akimbo in its decision and concluded that the IRS' investigation in the case also met a four-part test established in U.S. v. Powell , a 1964 U.S. Supreme Court decision. The judgment in Powell stipulated an agency must state a legitimate purpose for seeking information outside its possession that is relevant to an investigation and proper administrative procedures must be followed.
In the Green Solution and Medicinal Wellness case, the companies failed to prove that the IRS investigation was "quasi-criminal," as they alleged, and provided no evidence to support that argument, such as a referral by the agency to the U.S. Department of Justice to prosecute the marijuana businesses, the opinion said.
Speidell and several Green Solution entities he owned were issued summonses by the IRS in 2016 seeking information from state agencies about the businesses' 2013 and 2014 tax returns to determine whether the companies improperly claimed federal business expense deductions, according to court documents.
Those Deductions Are Disallowed For State-Regulated Marijuana Businesses Under IRC Section 280E .
A Colorado federal court denied Speidell's attempts to quash the summonses in the series of cases during 2018 and 2019, according to court documents. Medicinal Wellness Center LLC and its related entities, which joined Speidell in urging the reversal of the lower court's order on appeal, were also required to hand over documents under the ruling, according to court documents., Tax Division.
The consolidated cases are Eric D. Speidell et al. v. U.S., case numbers 19-1214, 19-1215, 19-1216, 19-1217 and 19-1218, in the U.S. Court of Appeals for the Tenth Circuit.
Read more at: Tax Times blog