IRS Can Audit Cannabis Companies Under New Appeals Court Ruling

The U.S. 10th Circuit Court of Appeals has ruled that the Internal Revenue Service (IRS) has the authority to obtain financial records from Colorado cannabis companies, Colorado Politics reports.

In her opinion, U.S. District Judge Mary Beck Briscoe said the arguments brought by the plaintiffs challenging the IRS’s “ability to investigate and impose tax consequences” are “familiar” to the courts.

“The dispensaries have lost every time,” she said, adding that “the same result is warranted here.”

The Green Solution, a Denver-based firm that had been audited by the IRS for tax years 2013 and 2014, was a plaintiff in the case, along with Medicinal Oasis, LLC, Medicinal Wellness Center. The Green Solution lost a previous case in 2017 to prevent the audit.

Medicinal Oasis and Medicinal Wellness Center were under IRS audit for tax years 2014 through 2016. The firms had asked for immunity from federal drug prosecution before providing details about their businesses to the IRS, which was rejected. The businesses claimed the IRS was using the veil of the audit to uncover non-tax-related illegal dealings – which is prohibited under federal case law.

The government said that the IRS had “nothing to uncover” as the businesses openly – and legally in the state they operate – “sell marijuana to the public.”

“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.” – IRS attorneys in a legal brief, Speidell et al. vs USA

The IRS said The Green Solution and its pass-through businesses did not substantiate their tax information to the government’s satisfaction. The agency requested – and will now obtain – product tracking details from the Marijuana Enforcement Division and Marijuana Enforcement Tracking Reporting and Compliance (METRC), the seed-to-sale tracking system used in the state.