The Green Solution Retail, Inc. v. United States

          ORDER

          PHILIP A. BRIMMER Chief United States District Judge.

         This matter is before the Court on petitioners' Motion to Alter or Amend Judgment [Docket No. 33]. Pursuant to Fed. R. Civ. P 59(e), petitioners seek to alter or amend the Court's February 12, 2018 Order [Docket No. 32] dismissing petitioners' petition to quash summonses and closing the case.

         I. BACKGROUND

         This case is one of a series of lawsuits between the Internal Revenue Service (“IRS”) and companies involved in Colorado's marijuana industry. Docket No. 32 at 1. The IRS is conducting a civil audit of petitioners' tax liability for fiscal years 2013 and 2014. Docket No. 1 at 4, ¶ 12; Docket No. 1-2; Docket No. 8-1 at 2, ¶¶ 5-7. Petitioners, who are all involved in the marijuana industry, seek to prevent the IRS from collecting information about their business activities. Under 26 U.S.C. § 280E (I.R.C. § 280E), companies who traffic in a “controlled substance” such as marijuana are forbidden from taking federal tax deductions and credits. In relation to the audit, David Hewell, an IRS revenue agent, informed petitioners that his department had made a determination that petitioners were trafficking in a controlled substance, and Mr. Hewell sought records to establish the extent of petitioners' activities. Docket No. 1 at 4, ¶¶ 13-14; Docket No. 8-1 at 1, ¶ 1. After petitioners declined to provide their Marijuana Enforcement Tracking Reporting and Compliance (“METRC”) records, the IRS issued summonses to the Colorado Department of Revenue's Marijuana Enforcement Division seeking petitioners' METRC records and inventory information. Docket No. 1 at 4, ¶ 14; Docket No. 1-1. Petitioners sought to quash those summonses, and the government sought to enforce the summonses. Docket Nos. 1, 8.

         In a separate proceeding, petitioner The Green Solution Retail, Inc. (“Green Solution”) sought similar relief against the IRS. See Green Sol. Retail, Inc. v. United States, 855 F.3d 1111, 1113 (10th Cir. 2017) (“Green Solution”). The Tenth Circuit affirmed the trial court's dismissal of Green Solution's claims as barred by the Anti-Injunction Act, 26 U.S.C. § 7421 (I.R.C. § 7421). The Tenth Circuit rejected Green Solution's argument that the IRS acted outside its authority, concluding 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 Solution, 855 F.3d at 1121.

         II. LEGAL STANDARD

         “A motion to alter or amend a judgment must be filed no later than 28 days after the entry of the judgment.” Fed.R.Civ.P. 59(e). “Grounds warranting a motion to alter or amend the judgment pursuant to Rule 59(e) include (1) an intervening change in the controlling law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice.” Alpenglow Botanicals, LLC v. United States, 894 F.3d 1187, 1203 (10th Cir. 2018) (quoting Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000)). A Rule 59(e) motion is appropriate where “the court has misapprehended the facts, a party's position, or the controlling law, ” but not to “revisit issues already addressed or advance arguments that could have been raised in prior briefing.” Id.

         Petitioners filed their Motion to Alter or Amend Judgment [Docket No. 33] on March 12, 2018, within 28 days of the entry of the order closing the case on February 12, 2018.

         III. DISCUSSION

         Petitioners raise three arguments in their Rule 59(e) motion for why altering or amending the judgment is warranted. See Docket No. 33. First, petitioners argue that the Court erred in applying the Tenth Circuit's ruling in Green Solution to this case. Id. at 2-3. Second, petitioners argue that the Court improperly criticized petitioners' filing of petitions to quash summonses because the petitions are necessary to protect petitioners' right to obtain absolute immunity from the IRS. Third, petitioners argue that the government has “conceded” that METRC information is not relevant to a determination of income and expenses. Id. at 5-6.

         A. Application of the Green Solution Ruling

         Petitioners' first argument is that the Court's application of the ruling in Green Solution to this case is clear error. They argue that the “District Court erred in its assertion that the Court of Appeals in [Green Solution] gave the IRS authority to administratively investigate and determine violations of federal criminal drug laws.” See Docket No. 33 at 2-3. Tellingly, petitioners fail to cite anywhere in the Court's order where the court interpreted Green Solution to give the IRS authority to “determine violations of federal criminal drug laws.” Instead, the Court noted that

[w]hile the IRS may lack authority to criminally prosecute petitioners for trafficking in controlled substances, the IRS has authority to make determinations about whether deductions are allowable under the Internal Revenue Code, including § 280E. Revenue Agent Hewell's affidavit establishes that the summonses are related to an investigation of petitioners' tax liabilities, something within the IRS's authority.

Docket No. 32 at 5. Petitioners again try to suggest that, because the IRS made a preliminary conclusion that a company is engaging in the marijuana business, the IRS is acting outside its scope of authority in issuing summonses pursuant to § 280E. However, that preliminary determination is not a criminal investigation. Petitioners' argument was rejected in Green Solution, where the Tenth Circuit concluded unequivocally that “the IRS's obligation to determine whether and when to deny deductions under § 280E[] falls squarely within its authority under the Tax Code.” SeeGreen Solution, 855 F.3d at 1121. In a recent case, the Tenth Circuit reaffirmed that holding, stating that “it is within the IRS's statutory authority to determine, as a matter of civil tax law, ...