Court Allows IRS to Investigate Colorado Cannabis Companies

Colorado cannabis companies facing investigation by the Internal Revenue Service have recently lost the battle when it comes from challenging the institution’s legal authority to look into their dealings. The U.S. Court of Appeals for the 10th Circuit is siding with the IRS in this case, and against the cannabis companies. 

“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,” wrote U.S. District Judge Mary Beck Briscoe in the official court opinion, released this past Tuesday. “The dispensaries have lost every time.”

The companies that are fighting back against the IRS probe are The Green Solution, a cannabis company based in Denver whom the IRS has been auditing since the 2013-2014 tax year, as well as Medicinal Oasis and Medicinal Wellness Center, who are also involved in the litigation for not claiming expenses correctly on their taxes, according to the IRS. The IRS is getting documentation from the Marijuana Enforcement Division and Marijuana Enforcement Tracking Reporting and Compliance to obtain more info, which they’ve also been . 

Immunity Not Granted

So far, the investigated parties have requested immunity from the investigation, but have not been granted it. They claimed that the IRS is using its authority incorrectly, trying to get information in order to share it with federal law enforcement. 

“Instead, the audit is performed under a full reservation of rights to share drug crime information with the Department of Justice, and to prosecute based upon the investigation,” the plaintiffs wrote in their federal complaint”

“The IRS claims that [the cannabis companies] are unlawful drug traffickers,” the plaintiffs wrote. “Under these facts, it is bad faith to investigate criminal drug trafficking under the auspices of a civil audit.”

However, the government claimed that the companies in question brazenly sell cannabis, and as such don’t have a leg to stand on, since there can be no question of what the brands do. 

“There is nothing to uncover. Petitioners sell marijuana to the public,” the government countered in its brief. “Medicinal Wellness Center promotes itself as ‘a full service marijuana superstore’ [and] Medicinal Oasis claims to have the ‘largest selection of cannabis in the world!’ If the Federal Government someday elected to pursue prosecution of petitioners under the Controlled Substances Act, a visit to their websites, stores, or superstores (as the case may be) would almost certainly provide an ample basis to begin an investigation.”

“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,” wrote Judge Gregory A. Phillips in the Standing Akimbo case that took place before this one, a case involving another Colorado cannabis company. In this case, the ruling was similar, and the IRS was allowed to continue its investigation. 

As of now, the panel has ruled in favor of the IRS, and it’s clear that these investigations will continue unless something else comes to light.