ERIC D. SPEIDELL, Petitioner - Appellant, v. UNITED STATES OF AMERICA, through its agency the Internal Revenue Service, Respondent - Appellee.; THE GREEN SOLUTION RETAIL, INC., a Colorado corporation; GREEN SOLUTION, LLC, a Colorado limited liability company; INFUZIONZ, LLC, a Colorado limited liability company; GREEN EARTH WELLNESS, INC., a dissolved Colorado corporation, Plaintiffs - Appellants, v. UNITED STATES OF AMERICA, through its agency the Internal Revenue Service, Defendant - Appellee.; GREEN SOLUTION, LLC, a Colorado limited liability company; GREEN EARTH WELLNESS, INC., a dissolved Colorado limited liability Company; TGS MANAGEMENT, LLC, a Colorado limited liability company; S-TYPE ARMORED, LLC, a Colorado limited liability company; IVXX INFUZIONZ, LLC, a Colorado limited liability company, Petitioners - Appellants, v. UNITED STATES OF AMERICA, through its agency the Internal Revenue Service, Respondent - Appellee.; MEDICINAL WELLNESS CENTER, LLC, a Colorado limited liability company; MEDICINAL OASIS, LLC, a Colorado limited liability company; MICHAEL ARAGON, an individual; JUDY ARAGON, an individual; STEVEN HICKOX, an individual, Petitioners - Appellants, v. UNITED STATES OF AMERICA, through its agency the Internal Revenue Service, Respondent - Appellee.
No. 19-1214, No. 19-1215, No. 19-1216, Nos. 19-1217 & 19-1218
United States Court of Appeals for the Tenth Circuit
October 20, 2020
Appeal from the United States District Court for the District of Colorado (D.C. Nos. 1:16-MC-00162-PAB, 1:16-MC-00137-PAB, 1:16-MC-00167-PAB, 1:18-MC-00031-PAB, and 1:17-MC-00170-PAB)
James D. Thorburn (Richard Walker, with him on the briefs), Thorburn Walker LLC, Greenwood Village, Colorado, appearing for Appellants.
Nathaniel S. Pollock, Attorney, United States Department of Justice, Tax Division, Washington DC (Richard E. Zuckerman, Principal Deputy Assistant Attorney General, and Travis A. Greaves, Deputy Assistant Attorney General, United States Department of Justice, Washington, DC; Gilbert S. Rothenberg and Michael J. Haungs, Attorneys, United States Department of Justice, Tax Division, Washington, DC; and Jason R. Dunn, United States Attorney, Office of the United States Attorney for the District of Colorado, Denver,
Before BRISCOE, MORITZ, and CARSON, Circuit Judges.
BRISCOE, Circuit Judge.
This case examines the power of the Appellee, the Internal Revenue Service (IRS or Agency), to enforce a provision in the tax code disallowing deductions for business activities concerning controlled substances which are illegal under federal law. That provision states as follows:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) 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 trade or business is conducted.
The Appellants object to the IRS’s attempts to collect and audit information about their marijuana-related business practices. The Appellants argue that (1) the IRS investigation is quasi-criminal, exceeds the Agency’s authority, and is being conducted for an illegitimate purpose; (2) even if the investigation had a legitimate purpose, the information sought is irrelevant; and (3) the investigation is in bad faith and constitutes an abuse of process because (a) the IRS may share the information collected with federal law enforcement agents, (b) the IRS summonses are overly broad and require the creation of new reports, (c) the dispensaries have a reasonable expectation of privacy in the data they tender to state regulatory authorities, and (d) those state authorities cannot provide the requested information without violating Colorado law. The Appellants further contend that the district court applied the wrong standard of review when it denied motions to quash and granted motions to enforce the summonses.
These arguments are familiar to us. Over the last several years, multiple Colorado marijuana dispensaries have challenged the IRS’s ability to investigate and impose tax consequences upon them. Those dispensaries have been represented by the same attorneys that are representing the dispensaries fighting the summonses in this case. The dispensaries have lost every time. See Standing Akimbo, LLC v. United States, 955 F.3d 1146, 1150–69 (10th Cir. 2020); High Desert Relief, Inc. v. United States, 917 F.3d 1170, 1174–98 (10th Cir. 2019); Feinberg v. Comm’r of Internal Revenue, 916 F.3d 1330, 1331–38 (10th Cir. 2019); Alpenglow Botanicals, LLC v. United States, 894 F.3d 1187, 1192–1206 (10th Cir. 2018); Green Sol. Retail, Inc. v. United States, 855 F.3d 1111, 1112–21 (10th Cir. 2017). The same result is warranted here. We affirm the district court’s rulings in favor of the IRS. Because Standing Akimbo summarizes much of the relevant case law and is directly on point for almost every argument raised by the Appellants, this opinion liberally quotes that decision from earlier this year.
I. Background
This case involves two sets of Appellants. The first set encompasses Green Earth Wellness, Inc.; Green Solution, LLC; Infuzionz, LLC; IVXX Infuzionz,
Pursuant to
The Green Solution parties petitioned to quash the IRS summonses. The IRS moved to dismiss the petitions to quash and also moved to enforce the summonses. In a series of orders, the district court denied the Green Solution parties’ motions to quash and granted the IRS’s motions to enforce. Among other things, the district court held that (1) the IRS had a legitimate purpose in issuing the summonses because the Agency has the authority to determine whether a taxpayer is trafficking in a controlled substance; (2) the information sought was not already in the IRS’s possession and was relevant to determining the Green Solution parties’ tax obligations; (3) the IRS followed the required administrative steps; and (4) the Green Solution parties did not show an abuse of process or bad faith because there was no proof the IRS was seeking to place them in criminal jeopardy. Several of the Green Solution parties filed a motion to alter or amend, which the district court denied as well.
The district court denied Speidell’s individual motion to quash on different grounds. The district court observed that the IRS issued summonses regarding Speidell to MED on June 7, 2016, but Speidell did not file his petition to quash until July 29, 2016, missing the 20-day deadline set by
The second set of Appellants encompasses Medicinal Oasis, LLC; Medicinal Wellness Center, LLC; Judy Aragon; Michael Aragon; and Steven Hickox (collectively
Pursuant to
The Medicinal Wellness parties petitioned to quash the IRS summonses. The IRS moved to dismiss the petitions to quash and to enforce the summonses. In a pair of orders, the district court denied the Medicinal Wellness parties’ motions to quash and granted the IRS’s motions to enforce. Among other things, the district court held that (1) the IRS had a legitimate purpose in issuing the summonses because there was no pending criminal investigation and no right among the Medicinal Wellness parties to demand immunity or invoke the privilege against self-incrimination; (2) the information sought was not already in the IRS’s possession and was relevant to determining the Medicinal Wellness parties’ tax obligations; (3) the IRS followed the required administrative steps; and (4) the Medicinal Wellness parties did not show an abuse of process or bad faith because the summonses had a valid purpose, were not fishing expeditions seeking materials outside MED’s control, did not run afoul of any Fourth Amendment right to privacy, and did not require MED to violate Colorado law.
After appeals had been filed in the various Green Solution and Medicinal Wellness cases, the parties requested a consolidated briefing schedule. This court obliged, directing the parties to file consolidated opening, response, and reply briefs. Sua sponte, the court later directed the parties to file supplemental briefs “addressing whether this court’s opinion in Standing Akimbo is determinative of the outcomes of these consolidated appeals.” 8/4/20 Tenth Circuit Order at 3.
II. Nearly all of the Appellants’ arguments are directly foreclosed by circuit precedent
The United States Supreme Court’s decision in United States v. Powell, 379 U.S. 48 (1964), provides the framework for our analysis. In general, the IRS has “broad latitude” to issue summonses for the purpose of “ascertaining the correctness of
We have held that the IRS’s burden in connection with these factors is “slight,” because statutes like
The Appellants argue that the rules announced in our 1985 Balanced Financial Management decision, which rules impose a “slight” burden on the IRS and a “heavy” burden on the taxpayer, are incompatible with normal summary judgment standards and the Supreme Court’s 2014 ruling in Clarke. Although Standing Akimbo does not directly address this issue, the panel in that case was clearly aware of Clarke and continued to apply Balanced Financial Management principles. See Standing Akimbo, 955 F.3d at 1154–55, 1157, 1160–61, 1163, 1166 (citing both Clarke and Balanced Financial Management). High Desert embraces a similar analysis. See High Desert, 917 F.3d at 1181–84, 1187, 1191, 1194 (same). In any event, we need not decide whether this point in Standing Akimbo and High Desert is dictum or a holding. As discussed below, even if we eschew descriptions like “slight” and “heavy” and apply traditional summary judgment standards, the Appellants simply have not submitted proof sufficient to create a genuine dispute of material fact. The Appellants thus fall short even if we assume arguendo that Balanced Financial Management has been displaced by
It bears emphasis, however, that Clarke does not clearly overrule Balanced Financial Management. Clarke indeed indicates that direct evidence of bad faith “will rarely
Because any tension created by Clarke is indirect, we must follow our circuit precedent. “[O]ne panel of the court cannot overrule circuit precedent” absent “an intervening Supreme Court or en banc decision justifying such action.” Lincoln v. BNSF Ry. Co., 900 F.3d 1166, 1183 (10th Cir. 2018) (citations omitted). A Supreme Court ruling is “intervening” if it “is contrary to or invalidates our previous analysis.” Id. (citation omitted). And to reiterate, Clarke does not obviously contradict or invalidate Balanced Financial Management.
A. The rules governing summary judgment apply, but the Appellants have not demonstrated a prejudicial error
The Appellants contend that the
The district court correctly applied the Powell framework but erred by considering [an IRS agent’s] declaration without converting the motion to dismiss to a motion for summary judgment. But we will not reverse or remand on this error, because “we may affirm on any basis that the record adequately supports.” And the record supports the government’s position under the summary-judgment standard. . . . Notably, our traditional summary-judgment standard of review precludes the Taxpayers from resting on conclusory statements because such statements do not suffice to create a genuine issue of material fact.
Id. at 1155–56 (quoting High Desert, 917 F.3d at 1181) (other citations and internal quotation marks omitted). Put another way, the Appellants in this case rely on the same types of evidence (and the same types of attacks on the IRS’s evidence) that they proffered in Standing Akimbo. See, e.g., Aplt. Br. at 25 (recognizing that one of the IRS agent’s declarations in this case “is nearly identical to the Declaration he submitted in Standing Akimbo”); Aple. Suppl. Br. at 5 (“The affidavits filed by the IRS agents who issued the summonses here on appeal are materially similar to the affidavit that this Court determined to be sufficient to meet the Powell standard in Standing Akimbo.”). That evidence and the attacks on the IRS’s evidence did not create a genuine dispute of material fact in Standing Akimbo, and they create no such dispute here.
For example, as in Standing Akimbo, each Appellant repeatedly claims that the declarations tendered by the IRS are too “conclusory” to justify summary judgment. Aplt. Br. at 25; Aplt. Rep. Br. at 16–17; Aplt. Suppl. Br. at 5. Under
In their supplemental brief, the Appellants assert that “the Standing Akimbo Court determined that the Taxpayers waived all arguments as to standard of review.” Aplt. Suppl. Br. at 3. That is true to a degree, but incomplete. We did state in Standing Akimbo that the Taxpayers “waived appellate review” as to the standard of review “by failing to raise it in their objections to the magistrate judge’s recommendation.” 955 F.3d at 1156 n.5. Yet that footnoted point essentially was made in the alternative. In the text of the Standing Akimbo opinion, we addressed on the merits—and at some length—the appropriate standard of review, making clear that “we will apply our traditional Rule 56 summary-judgment standard in assessing this case.” Id. at 1156.
B. There is no genuine dispute of material fact regarding the Powell factors
1. The IRS has not made referrals to the DOJ for prosecution
The Appellants have not pointed to competent evidence contradicting the IRS’s denial that the cases at issue have been referred to the DOJ for prosecution. Declarations submitted by IRS agents state that no such referral is in effect. Aplt. App., Vol. 1 at 74; id., Vol. 2 at 62; id., Vol. 6 at 74; id., Vol. 9 at 187. As noted in Standing Akimbo, “an ‘affidavit of the agent who issued the summons and who is seeking enforcement’ is sufficient to make ‘[t]he requisite showing.’” 955 F.3d at 1156 (quoting High Desert, 917 F.3d at 1184). That is particularly true when, as in this case, there is no proof to the contrary.
2. The IRS is conducting the investigations for a legitimate purpose
Nor have the Appellants pointed to evidence contradicting the IRS’s explanation
We have rejected the Appellants’ “lack of authority” argument several times, most recently in Standing Akimbo. We said:
[T]he Taxpayers argue that the IRS acted with an illegitimate purpose, namely, investigating federal drug crimes. We have already rejected this argument. In 2017, we observed that “the IRS’s obligation to determine whether and when to deny deductions under § 280E[ ] falls squarely within its authority under the Tax Code.” Green Sol. Retail, 855 F.3d at 1121[.] The next year we held that “it is within the IRS’s statutory authority to determine, as a matter of civil tax law, whether taxpayers have trafficked in controlled substances.” Alpenglow[, 894 F.3d at 1187]. Most recently in High Desert, we relied on Green Solution and Alpenglow to hold that the IRS has statutory authority to “mak[e] a determination that Congress expressly asked it to make—even if that determination requires the IRS to ascertain whether the taxpayer is engaged in conduct that could subject him or her to criminal liability under the CSA.” High Desert, 917 F.3d at 1187. So, even if the IRS had in fact issued the summonses to investigate federal drug crimes (and the Taxpayers have furnished no evidence of that), the IRS could still do so as part of determining § 280E’s applicability.
955 F.3d at 1157 (various brackets added, further citations omitted).
We have rejected the Appellants’ “preemption” argument as well. Once more, we explained in detail in Standing Akimbo why the argument is unavailing:
The CSA does not have to preempt Colorado law for § 280E to apply. Section 280E applies when a business’s activities “consist[] 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 trade or business is conducted.”
26 U.S.C. § 280E (emphasis added). Congress’s use of “or” extends the statute to situations in which federal law prohibits the conduct even if state law allows it. Further, the CSA reigns supreme. “[S]tate legalization of marijuana cannot overcome federal law.” Feinberg[, 916 F.3d at 1338 n.3]. So, despite legally operating under Colorado law, “the Taxpayers are subject to greater federal tax liability” because of their federally unlawful activities, and any “remedy [for this] must come from Congressional change to § 280E or21 U.S.C. § 812(c) (Schedule I) rather than from the courts.” [Id.]
955 F.3d at 1158 (various brackets added, emphasis in original, further citations omitted); see also id. at 1168 n.21 (“The Supremacy Clause enables federal law to preempt state law when it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. So, even if the Taxpayers’ interpretation were correct, the Colorado statutes
3. The information sought by the IRS is relevant
The Appellants likewise have not established a genuine dispute of material fact concerning whether the information sought by the IRS is relevant to the purpose of the investigations. For instance, the declarations submitted by IRS agents state that METRC data requested in the summonses may show “whether a marijuana business properly reported its gross receipts and allowed deductions for cost of goods sold.” Aplt. App., Vol. 2 at 61; id., Vol. 6 at 71; id., Vol. 9 at 184. The declarations also indicate that information from MED “may be relevant to determine the correctness” of the individual owners’ “federal tax returns” and “federal tax liabilities.” Id., Vol. 1 at 74; id., Vol. 6 at 73; id., Vol. 9 at 186. Given that the IRS “has authority to summon information ‘of even potential relevance to an ongoing investigation,’” Standing Akimbo, 955 F.3d at 1160 (quoting United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984)) (emphasis in original), the uncontradicted, sworn statements of knowledgeable IRS agents are sufficient to construe this Powell factor in the IRS’s favor. In addition, “the Taxpayers concede that METRC information is relevant in determining whether they trafficked in marijuana—a relevant and proper inquiry the IRS may make in determining § 280E’s application.” Id. (citing High Desert, 917 F.3d at 1187, and Alpenglow, 894 F.3d at 1197).
4. The IRS does not already possess the information summoned
The declarations provided by IRS agents further establish that the Agency does not have the information sought. Among the statements in those declarations are that the documentation provided by Appellants is incomplete, and “[t]he IRS does not already possess the books, papers, records, and other data sought by the summonses issued to MED.” Aplt. App., Vol. 1 at 72–74; id., Vol. 2 at 60–62; id., Vol. 6 at 70-73; id., Vol. 9 at 183–86. Like the Taxpayers in Standing Akimbo, the Appellants in the case at bar have “failed to demonstrate the existence of a genuine factual dispute whether the IRS already possessed the information summoned.” 955 F.3d at 1160.
5. The IRS followed all administrative steps
Finally, the IRS declarations show that the Agency adhered to administrative procedures. The agents specifically aver that they “complied with the administrative steps required by the Internal Revenue Code.” Aplt. App., Vol. 1 at 74; id., Vol. 2 at 62; id., Vol. 6 at 73; id., Vol. 9 at 186. As stated in Standing Akimbo, the Appellants “do not contest on appeal that this factor has been met.” 955 F.3d at 1161.
C. There is no genuine dispute of material fact as to any alleged lack of good faith or abuse of process
1. The IRS’s ability to communicate with the DOJ does not evince bad faith
Citing cases like Boyd v. United States, 116 U.S. 616 (1886) and Marchetti v. United States, 390 U.S. 39 (1968), the Appellants proclaim that the IRS’s refusal to grant immunity constitutes bad faith and makes these proceedings quasi-criminal. It doesn’t. In the words of Standing Akimbo, the Appellants “proffer nothing to support their conclusory
Moreover, Standing Akimbo explains why the Marchetti line of cases does not support the Appellants’ position. Id. at 1161 & n.11. We reasoned in Standing Akimbo that Marchetti does not “remove the IRS’s ability to issue summonses under
2. The summonses do not require the creation of reports and are not impermissibly broad
The Appellants next argue that the summonses to MED only vaguely request “reports,” Aplt. Br. at 25–26, and as construed by the district court, the summonses amount to overly broad fishing expeditions. Id. at 35–36. The Taxpayers in Standing Akimbo failed to provide competent evidence that any summons forced MED to create documents. 955 F.3d at 1163. The same is true for the Appellants here. Regardless, if MED “does not have the requested reports, then by the IRS’s guidelines [MED] need not create and produce them. Nothing requires [MED] to create the records, and the summons does not purport to say otherwise.” Id. at 1164. This reasoning renders irrelevant Appellants’ argument that the IRS should bear the burden of proving the existence of any requested report. Aplt. Suppl. Br. at 5–7.
The Taxpayers in Standing Akimbo correspondingly provided “no authority for their contention that the summonses are overbroad,” and ignored that “the summonses specifically describe the information they seek and limit the request to the tax years in question.” 955 F.3d at 1166. The same holds true in the case at hand. “Powell does not require that the IRS explain why it seeks information beyond showing its potential relevance to a legitimate purpose. The IRS has shown the information summoned is relevant, and the Taxpayers failed to rebut this showing.” Id.; see also id. (“The summonses are thus proportionate to the ends sought and are not a ‘fishing expedition.’”).
3. The IRS does not need probable cause to summon METRC data
Principally relying on Carpenter v. United States, 138 S. Ct. 2206 (2018), the Appellants contend that they have a reasonable expectation of privacy in METRC information under the Fourth Amendment, requiring
The Taxpayers have no reasonable expectation of privacy in the METRC data collected on their business. . . . “[A] person has no legitimate expectation of privacy in information he voluntarily turns over to third parties.” This principle, known as the third-party doctrine, applies “even if the information is revealed on the assumption that it will be used only for a limited purpose.” The Supreme Court recently reaffirmed this doctrine in Carpenter. . . .
Contrary to the Taxpayers’ assertions, Carpenter’s finding precluding the third-party doctrine’s application does not apply to them. Carpenter examined a narrow issue: whether the third-party doctrine should apply to the collection of cell-site-location information (CSLI). The METRC records differ markedly from CSLI. METRC tracks the movement of plants, and CSLI tracks people. Further, the Taxpayers voluntarily provided the information summoned to [MED] so they could legally conduct their business; this differs from CSLI, which collects information without any affirmative act on the part of the user beyond powering up. . . .
The third-party doctrine applies to the METRC data summoned here. The Taxpayers chose to operate a marijuana business under Colorado law and, thus, agreed to provide certain information to [MED]. . . . The METRC reports are [MED’s] property—the Taxpayers have no ownership, possession, or proprietary interest in them. So the Taxpayers have no expectation of privacy in these reports. Because the Taxpayers have no Fourth Amendment right at stake, the IRS need not obtain a warrant supported by probable cause to get the records.
955 F.3d at 1164–65 (quoting Smith v. Maryland, 442 U.S. 735, 743–44 (1979) and United States v. Miller, 425 U.S. 435, 442–44 (1976)) (other citations and internal quotation marks omitted). Additionally, we held that while Colorado law does treat the information as confidential, it also allows disclosure under certain circumstances, and “even if the statute somehow provides the Taxpayers with a right of privacy here, the statute would be preempted by the Supremacy Clause.” Id. at 1165.
4. Enforcing the summonses will not compel a violation of Colorado law
The Appellants insist that enforcing the summonses is improper, because MED cannot disclose METRC information without violating Colorado law. As alluded to above, that argument was dismantled in Standing Akimbo. Referencing the current versions of the statutes, we held that state law permits disclosure of confidential data for an authorized purpose, such as “allowing a law-enforcement agency’s investigation into a medical marijuana dispensary’s unlawful activity.” 955 F.3d at 1167 (citing
III. The district court’s dismissal of Speidell’s petition on timeliness grounds was proper
As set forth above, Speidell’s individual petition to quash fails as a matter of law, irrespective of whether it was timely filed. As the district court recognized, however, Speidell’s petition was filed outside of the statutory deadline, robbing the court of subject matter jurisdiction to consider it. Although the United States enjoys sovereign immunity from suit, it has waived immunity to allow a taxpayer to bring a petition to quash a summons seeking information from a third party. See generally
Speidell asserts 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. The IRS effected no such waiver. The IRS phrased its arguments in the alternative, asking the district court to enforce the summons only if the court denied the IRS’s motion to dismiss pursuant to
Speidell points out that the district court’s order not only dismissed his petition to quash, but also purported to enforce the summons. As the IRS notes on appeal, though, “[t]his was almost certainly just an oversight; the court’s opinion dealt only with the jurisdictional issue and did not address the validity of the summons.” Aple. Br. at 25. At most, the effect of this technical error was to neutralize the “enforcement” provisions of the district court’s order. It did not somehow eliminate the IRS’s ability to rely on sovereign immunity or a statutory timeliness argument, and Speidell cites no on-point authority in his opening appellate brief (or in his appellate reply brief) to prove otherwise. Aplt. Br. at 9 n.3, 38–39; Aplt. Rep. Br. at 30–32.1 As the Supreme Court has remarked in a related context, “[j]urisdiction over any suit against the Government requires
IV. Conclusion
For the foregoing reasons, we AFFIRM the district court’s decisions denying or dismissing the Appellants’ petitions to quash and granting the Appellee’s motions to enforce the summonses.