Green Solution Retail, Inc. v. United States
2017 U.S. App. LEXIS 7746
| 10th Cir. | 2017Background
- Green Solution Retail, a Colorado marijuana dispensary, sued the IRS seeking to enjoin its investigation into whether the business trafficked in a federal "controlled substance" and thus is ineligible for deductions under I.R.C. § 280E.
- The IRS audited Green Solution for 2013–2014, made preliminary findings that it trafficked in marijuana, and served document requests and a summons (no tax assessment or collection had occurred).
- Green Solution alleged irreparable harm if the IRS continued its investigation, including deprivation of income, a punitive forfeiture effect, and Fifth Amendment violations.
- The IRS moved to dismiss under Rule 12(b)(1), arguing the Anti-Injunction Act (AIA) bars suits ‘‘for the purpose of restraining the assessment or collection of any tax’’ and the Declaratory Judgment Act (DJA) likewise bars declaratory relief on federal tax matters.
- The district court dismissed for lack of subject-matter jurisdiction, relying on Tenth Circuit precedent (Lowrie) that the AIA bars not only assessment/collection suits but also activities "leading up to" assessment.
- On appeal Green Solution argued Direct Marketing Ass’n v. Brohl implicitly overruled Lowrie, and alternatively contended the IRS exceeded authority or §280E is a penalty rather than a tax; the Tenth Circuit rejected these arguments and affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the AIA bars Green Solution's suit to enjoin IRS investigation into §280E applicability | Green Solution: investigation is a step removed from assessment/collection and thus not barred; Direct Marketing undermines Lowrie | IRS: investigation is an activity leading to assessment; AIA bars suits purposefully restraining assessment/collection | Held: AIA (with DJA) bars the suit under Lowrie; Direct Marketing did not clearly overrule Lowrie |
| Whether Direct Marketing v. Brohl implicitly overruled Lowrie | Green Solution: Brohl narrows jurisdictional bar to suits that to some degree stop assessment/collection | IRS: Brohl interpreted a different statute (TIA); differences in text and context mean Lowrie still governs AIA jurisprudence | Held: Brohl does not clearly undermine Lowrie; panel is bound by Lowrie absent en banc or Supreme Court reversal |
| Whether IRS exceeded authority by investigating alleged criminal CSA violations | Green Solution: CSA enforcement is criminal and for DOJ, not IRS; IRS lacks authority to probe CSA violations | IRS: §6201 and §7602 authorize the IRS to investigate tax liability and obtain records; §280E applies without DOJ conviction | Held: Argument not properly preserved; in any event IRS authority to investigate §280E claims lies within Tax Code and is within AIA scope |
| Whether §280E is a penalty (thus outside AIA) | Green Solution: §280E functions as a penalty, not a tax, so AIA shouldn't apply | IRS: Disallowance of deductions is not a punitive statutory exaction; courts treat deduction rules as part of tax scheme | Held: §280E is not a penalty for AIA purposes; disallowance of deductions falls within tax regime and AIA applies |
Key Cases Cited
- Lowrie v. United States, 824 F.2d 827 (10th Cir. 1987) (AIA bars activities "leading up to, and culminating in" assessment or collection)
- Direct Mktg. Ass'n v. Brohl, 135 S. Ct. 1124 (2015) (interpreting Tax Injunction Act; "restrain" means to some degree stop assessment/levy/collection)
- Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962) (AIA is jurisdictional; bars injunctions to prohibit tax collection)
- Bob Jones Univ. v. Simon, 416 U.S. 725 (1974) (AIA/TIA purpose: minimize preenforcement judicial interference and require refund suits)
- Cohen v. United States, 650 F.3d 717 (D.C. Cir. 2011) (en banc) (DJA tax exception is coterminous with AIA; careful inquiry into remedy and its relation to assessment/collection)