Cannabis Shop Scaremongering – Tax Case
Cannabis Shop Scaremongering – Tax Case – “Contrary to taxpayers’ fevered assertions … this provision does not open the door to criminal prosecutions of welders or utility companies,” U.S. Department of Justice lawyers said Friday, refuting the parade of horribles presented by a Colorado cannabis shop.
Attorneys for the IRS are defending the agency’s authority to block marijuana companies’ tax deductions, calling a Colorado dispensary’s “fevered assertions” to the contrary “scaremongering.”
The panel correctly held that the IRS has authority to investigate and enforce I.R.C. § 280E
Congress has conferred upon the Secretary of the Treasury the
responsibility to make accurate determinations of tax liability and has
given him broad authority to conduct investigations for that purpose.
More specifically, the Commissioner of Internal Revenue, as the
Secretary’s delegate, is charged with the duty “to make the inquiries,
determinations, and assessments of all taxes” imposed by the Internal
Revenue Code. I.R.C. § 6201(a). See also I.R.C. §§ 6301, 7601.
The IRS is further authorized to “examine any books, papers, records, or other data which may be relevant or material to” “determining the liability of any person for any internal revenue tax.” I.R.C. § 7602(a). As relevant here, I.R.C. § 280E prohibits the deduction of any amount incurred in carrying on a business that “consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such business is conducted.” Taxpayers offer no valid reason for the panel to revisit its conclusion that the IRS has authority to investigate and determine the applicability of I.R.C. § 280E, or for the entire Court to question that conclusion.
In a related vein, taxpayers contend that the IRS was required to
halt its civil investigation into the taxpayer’s tax liability when it came
upon potentially criminal conduct and transfer the case for criminal
investigation. Taxpayers rely on two criminal cases involving motions
to suppress evidence gathered during a civil tax investigation, asserting
that the cases stand for the proposition that when the IRS finds firm
indications of fraud or other criminal activity, it must put down its
(civil) investigatory tools. See United States v. Peters, 153 F.3d 445 (7th
Cir. 1998); United States v. Grunewald, 987 F.2d 531 (8th Cir. 1993).