The federal appeals courtroom based mostly in Denver declined to use a 2021 assertion of U.S. Supreme Court docket Justice Clarence Thomas in deciding final week whether or not to dam federal authorities from investigating a marijuana dispensary’s compliance with the tax code.
Beforehand, Thomas cast doubt on Congress’s means to manage hashish inside states by pointing to the federal authorities’s tolerance of widespread retail and medical marijuana legalization, regardless of its continued federal standing as an unlawful substance. Standing Akimbo, Inc., a Denver dispensary, seized on Thomas’ assertion in its personal combat with the Inside Income Service, arguing the IRS’s quest for enterprise information was illegitimate due to the federal government’s receding curiosity in implementing the marijuana prohibition towards states.
However on Friday, the U.S. Court docket of Appeals for the tenth Circuit determined an announcement from a single Supreme Court docket justice didn’t outweigh the Supreme Court docket’s personal precedent, within the type of a 2005 case endorsing federal crackdowns in states with authorized marijuana.
“The non-precedential assertion of a single justice … nevertheless esteemed he could also be,” wrote Senior Decide Bobby R. Baldock, “doesn’t name the integrity of that call into query.”
For years, Standing Akimbo has pushed again on the IRS’s investigation into the enterprise’s compliance with a provision within the tax code referred to as Section 280E. The availability prevents tax deductions for enterprise bills for these whose actions include “trafficking in managed substances.” Marijuana remains to be unlawful underneath the Managed Substances Act.
The IRS requested paperwork from Standing Akimbo’s house owners however, after receiving incomplete responses, issued a summons on Colorado’s Marijuana Enforcement Division, in search of stock and gross sales stories from the state’s compliance system. Standing Akimbo then sought to quash, or invalidate, the summons, alleging the IRS’s investigation was not a respectable, tax-related continuing.
“Within the circumstances right here, it’s clear that the aim of those summonses is to not decide revenue or bills, however to find out whether or not the Petitioners have violated the CSA,” wrote attorneys for Standing Akimbo.
The tenth Circuit originally decided in 2020 that the IRS’s investigation of Standing Akimbo for tax years 2014 and 2015 was respectable, noting the IRS had not referred the dispensary to the U.S. Division of Justice for felony prosecution.
Standing Akimbo appealed to the Supreme Court. Though the justices declined to listen to the case, Thomas took the weird step of issuing an announcement, during which he referred to as Standing Akimbo a “prime instance” of the federal authorities’s inconsistent observe of implementing the marijuana prohibition.
“As soon as complete, the Federal Authorities’s present method is a half-in, half-out regime that concurrently tolerates and forbids native use of marijuana,” he wrote.
Thomas raised the 2005 choice of Gonzales v. Raich, which held that Congress’s authority to manage marijuana reached into the states. Nevertheless, marijuana legalization has expanded since then, together with with Colorado voters’ personal enactment of retail marijuana in 2012. Whereas the federal authorities doesn’t crack down on hashish extra broadly, Thomas famous, it’s apparently eager about implementing Part 280E.
“Suffice it to say, the Federal Authorities’s present method to marijuana bears little resemblance to the watertight nationwide prohibition {that a} intently divided Court docket discovered essential to justify the Authorities’s blanket prohibition in Raich,” Thomas concluded, questioning whether or not the regulation of marijuana cultivation inside states remains to be a correct train of federal authority.
Standing Akimbo instantly raised Thomas’ assertion in Colorado, the place an analogous IRS enforcement case was pending in regards to the dispensary’s 2016 tax information. U.S. District Court docket Chief Decide Philip A. Brimmer finally sided with the IRS based mostly on the tenth Circuit’s prior choice discovering the investigation to be respectable.
Thomas’ “non-precedential assertion” had no bearing on the case, Brimmer added.
As soon as once more, Standing Akimbo appealed to the tenth Circuit, now centering its arguments across the Thomas assertion. If regulating hashish inside states is now not a respectable train of federal authority, argued Standing Akimbo, the premise for the IRS’s Part 280E investigation “evaporates.”
“What good does that (assertion) do you?” Baldock replied throughout oral arguments final 12 months. “That isn’t even a holding of the Supreme Court docket.”
“What does it do to your case? Why can we care?” added Decide Allison H. Eid, a former clerk for Thomas.
James D. Thorburn, the legal professional for Standing Akimbo, argued Thomas’ assertion supplied a window into “what was being mentioned” on the Supreme Court docket. The assertion additionally allegedly undermined the IRS’s declare that it was conducting a respectable Part 280E investigation into Standing Akimbo’s enterprise bills.
The federal government countered that even when Part 280E have been unconstitutional, the IRS would nonetheless have the flexibility to confirm Standing Akimbo’s tax returns typically.
The tenth Circuit panel in the end reiterated the courtroom’s place in Standing Akimbo’s earlier attraction, discovering the IRS might proceed with its summons for the dispensary’s information.
“However we need to be very clear: We are going to proceed to faithfully apply Gonzales v. Raich except the Supreme Court docket instructs us in any other case,” wrote Baldock in the Jan. 27 order. “The Taxpayers can’t present the IRS lacked a respectable function based mostly on Justice Thomas’s assertion.”
The case is Standing Akimbo, Inc. et al. v. United States.
