Speidell v. United States.
No. 19-1214 to -1218. D.Colo. Judge Briscoe. IRS Enforcement Authority—Retail Marijuana—26 USC § 280E Tax Deduction Disallowance—Discrepancy Between Federal and State Law.
October 19, 2020
The parties to this appeal are Speidell and various business entities affiliated with marijuana dispensaries in Colorado. Speidell is believed to be or to have been an owner of some of the business entities. The Internal Revenue Service (IRS) is auditing the parties’ prior year federal tax returns under 26 USC § 280E. It requested information and sent summonses to the parties but only received partial responses that were insufficient to substantiate the figures shown on their tax returns. For example, the parties did not produce information reported to Colorado’s Marijuana Enforcement Division (MED). The IRS responded by serving summonses on MED and the parties’ financial institutions. The parties petitioned to quash the summonses, and the IRS moved to dismiss the petitions and enforce the summonses. The district court denied the motions to quash and granted the motions to enforce. The district court denied Speidell’s individual petition to quash for lack of subject matter jurisdiction because it was not timely filed.
On appeal, the parties challenged the IRS’s ability to investigate and impose tax consequences upon them. In general, the IRS has broad latitude to issue summonses in connection with determining tax liability and collecting any such liability. But the IRS must show that it has not made a referral to the Department of Justice for criminal prosecution and must demonstrate good faith in issuing the summonses by establishing the factors set forth in United States v. Powell, 379 US 48 (1964). Powell requires the IRS to make a showing that (1) the investigation will be conducted pursuant to a legitimate purpose, (2) the inquiry may be relevant to the purpose, (3) the information sought is not already within the IRS’s possession, and (4) administrative steps required by the Internal Revenue Code have been followed. Here, there is no genuine dispute of material fact that the IRS met the Powell factors nor as to any alleged lack of good faith or abuse of process.
Speidell asserted that the IRS waived sovereign immunity by filing a motion to enforce the summons, and the district court’s decision to grant the motion confirms the existence of subject matter jurisdiction. Here, the IRS phrased its arguments in the alternative, asking the district court to enforce the summonses only if it denied the IRS’s motions to dismiss pursuant to Fed. R. Civ. P. 12(b)(1). The IRS clearly did not waive sovereign immunity or invite the district court to bypass the issue of subject matter jurisdiction. The district court’s dismissal of Speidell’s petition on timeliness grounds was proper.
The decisions denying or dismissing the motions to quash and granting the motions to enforce were affirmed.