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Americans largely approve of marijuana. Americans largely disapprove of taxes. Yet, somehow, when pitted against each other, taxes always win.
That is the essence of a recent 10th Circuit Court of Appeals case. The issue arose again because the IRS does not allow business deductions for expenses for controlled substances that are illegal under federal law. This is true even in states that have legalized the recreational use of marijuana. Federal law still bans the sale of marijuana.
This is not the first time a marijuana dispensary has challenged the IRS stance on allowable deductions. Trying valiantly once more, several large Colorado marijuana dispensaries challenged the IRS' refusal to allow their business deductions. The IRS audited the 2013 and 2014 tax returns of Green Solutions, LLC, which promotes itself as "Colorado's #1 marijuana dispensary." The IRS issued a summons to Green Solutions when the company failed to provide adequate documentation in the audit.
Green Solutions challenged the IRS summons, alleging that they were overly broad and compliance would violate Colorado law, among other claims. You can almost hear the sigh from Judge Mary Beck Briscoe, who wrote that she was familiar with these arguments, and not impressed. In years of fighting the IRS, "[t]he dispensaries have lost every time," Judge Briscoe wrote bluntly. In Standing Akimbo v. IRS, which the Tenth Circuit decided in April, the issues were virtually identical. As such, Judge Briscoe coolly noted, "this opinion liberally quotes that decision from earlier this year" and reached the same conclusions.
A panel cannot overturn circuit precedent without a full en banc decision or Supreme Court intervention. While Green Solutions gamely tried to differentiate their case from Standing Akimbo, the unanimous Tenth Circuit panel was having none of it. Mainly, Green Solutions tried to argue that the standard of review with which the district court dismissed the case was in error. Not so, wrote Judge Briscoe, "In the text of the Standing Akimbo opinion, we addressed on the merits—and at some length—the appropriate standard of review."
The rest of the opinion quotes whole paragraphs of Standing Akimbo, highlighting why the Tenth Circuit held that the IRS had the authority and a legitimate reason for issuing the summons. Further, there was no evidence of bad faith on the part of the IRS, and Colorado law does not prohibit state agencies from releasing confidential information for an authorized purpose.
For now, marijuana dispensaries in Colorado will have to pay more taxes since allowable deductions for other businesses are not recognized by the IRS. At least until Congress addresses the issue specifically or removes marijuana from its controlled substances list.
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