Speidell v. United States ( 2020 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS October 20, 2020
Christopher M. Wolpert
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
ERIC D. SPEIDELL,
Petitioner - Appellant,
v. No. 19-1214
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. No. 19-1215
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. No. 19-1216
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. Nos. 19-1217 & 19-1218
UNITED STATES OF AMERICA,
through its agency the Internal Revenue
Service,
Respondent - Appellee.
_________________________________
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)
_________________________________
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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, Colorado, with him on the briefs), appearing for Appellee.
_________________________________
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.
26 U.S.C. § 280E. The Appellants are affiliated with marijuana dispensaries in
Colorado, where that line of business is legal under state law. This discrepancy
between federal and state law gives rise to all of the issues in this case.
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
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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
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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, LLC;
S-Type Armored, LLC; TGS Management, LLC; The Green Solution Retail, Inc.;
and Eric Speidell (collectively “the Green Solution parties”). Speidell is believed to
be (or believed to have been) an owner of some of the Green Solution entities. The
Green Solution parties “are engaged in the retail sale of marijuana and marijuana-
related products,” and advertise themselves as “Colorado’s #1 Marijuana
Dispensary.” Aplt. App., Vol. 1 at 71; id., Vol. 2 at 60.
Pursuant to § 280E, the IRS is auditing the Green Solution parties’ tax returns
for 2013 and 2014. Because some of the Green Solution businesses are pass-through
entities for tax purposes, the IRS’s investigation includes Speidell’s individual tax
returns. The IRS requested information and sent summonses to the Green Solution
parties, but only received partial responses that were insufficient “to substantiate the
figures shown on their tax returns.” Id., Vol. 1 at 72–73; id., Vol. 2 at 60, 81–84.
Among other things, the Green Solution parties did not produce information reported
to Colorado’s Marijuana Enforcement Division (“MED”), including information from
MED’s Marijuana Enforcement Tracking Reporting and Compliance (“METRC”)
system. The IRS contends that this information “is particularly valuable during an
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audit,” because “[i]n Colorado, marijuana growers and dispensaries must account for
all marijuana plants and products” through METRC, thus potentially confirming
“whether a marijuana business properly reported its gross receipts and allowed
deductions for cost of goods sold.” Id., Vol. 2 at 61; id., Vol. 9 at 184. After
unsuccessfully seeking such information from the Green Solution parties, the IRS
served summonses on MED itself. The IRS also served summonses on the Green
Solution parties’ financial institutions.
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
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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 26 U.S.C. § 7609(b)(2)(A). The
district court determined that Speidell did not contradict the IRS agent’s declaration
demonstrating service of the summonses. The district court thus dismissed Speidell’s
petition to quash for lack of subject matter jurisdiction. The district court went on to
say that it was granting the IRS’s motion to dismiss the petition and enforcing the
summonses to MED.
The second set of Appellants encompasses Medicinal Oasis, LLC; Medicinal
Wellness Center, LLC; Judy Aragon; Michael Aragon; and Steven Hickox
(collectively “the Medicinal Wellness parties”). The Aragons and Hickox are
believed to be (or believed to have been) owners of some of the Medicinal Wellness
entities. The Medicinal Wellness parties include a marijuana retail dispensary,
“marijuana grow facilities,” and a cannabis “superstore” in Colorado. Id., Vol. 6
at 69; id., Vol. 9 at 182. The Medicinal Wellness parties advertise themselves as
“full service” with the “largest selection of cannabis in the world!” Id., Vol. 6 at 69;
id., Vol. 9 at 182.
Pursuant to § 280E, the IRS is auditing the Medicinal Wellness parties’ tax
returns from 2014 through 2016. Because some of the Medicinal Wellness
businesses are pass-through entities, the IRS’s investigation includes the personal tax
returns of the Aragons and Hickox. The IRS sent Information Document Requests
(“IDRs”) or summonses to the Medicinal Wellness parties, but only received partial
responses that were “not . . . sufficient . . . to substantiate the figures shown on their
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tax returns.” Id., Vol. 6 at 70–71; id., Vol. 8 at 42–60; id., Vol. 9 at 183–84. The
Medicinal Wellness parties say they requested immunity from prosecution before
providing further information, but the IRS declined the request after consulting with
the United States Attorney’s Office. The Medicinal Wellness parties did not produce
information reported to MED, including information from MED’s METRC system.
The IRS again contends that this information “is particularly valuable during an
audit.” Id., Vol. 2 at 61; id., Vol. 6 at 71; id., Vol. 9 at 184. After unsuccessfully
seeking such information from the Medicinal Solution parties, the IRS served
summonses on MED itself.
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
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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 any return, making a return where none has been made, determining the liability of
any person for any internal revenue tax,” or “collecting any such liability.” Standing
Akimbo, 955 F.3d at 1154 (quoting United States v. Clarke, 573 U.S. 248, 250
(2014)) (internal quotation marks omitted). Still, the IRS “must first show that it has
not made a referral of the taxpayer’s case” to the Department of Justice (“DOJ”) for
criminal prosecution. Id. (citations omitted). Thereafter, the IRS must demonstrate
good faith in issuing the summonses, which means “establishing what have become
known as the Powell factors.” Id. at 1154–55 (citations omitted). “Powell requires
that the IRS establish (1) ‘that the investigation will be conducted pursuant to a
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legitimate purpose,’ (2) ‘that the inquiry may be relevant to the purpose,’ (3) ‘that the
information sought is not already within the [IRS’s] possession,’ and (4) ‘that the
administrative steps required by the [Internal Revenue] Code have been followed.’”
Id. at 1155 (quoting Powell, 379 U.S. at 57–58) (brackets in original).
We have held that the IRS’s burden in connection with these factors is
“slight,” because statutes like 26 U.S.C. § 7602(a) “must be read broadly to ensure
that the enforcement powers of the IRS are not unduly restricted.” Id. (quoting
United States v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1443 (10th Cir. 1985)).
“The IRS generally meets this burden with an affidavit of the agent who issued the
summons.” Id. Once the IRS provides such an affidavit, a “heavy” burden falls on
the taxpayer “to factually refute the Powell showing or factually support an
affirmative defense.” Id. “Because the burden of showing an abuse of the [c]ourt’s
process is on the taxpayer,” he or she “must make a substantial preliminary showing
before even limited discovery need be ordered.” Id. (citations and internal quotation
marks omitted). We review the denial of a petition to quash for an abuse of
discretion, but we review an order granting a motion to dismiss such a petition and
enforcing a summons—as well as any alleged errors of law—de novo. Id.; see also
id. at 1155 n.4 (noting that a district court’s decision to enforce a summons may be
reviewed for clear error with respect to contested findings of fact).
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
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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 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 Federal Rule of Civil Procedure 56 and Clarke.
It bears emphasis, however, that Clarke does not clearly overrule Balanced
Financial Management. Clarke indeed indicates that direct evidence of bad faith
“will rarely if ever be available” at an early stage, that “circumstantial evidence can
suffice,” and that a taxpayer need not provide a “fleshed out case” to warrant further
inquiry. 573 U.S. at 254. But Clarke’s core holding is that “a bare allegation of
improper purpose does not entitle a taxpayer to examine IRS officials. Rather, the
taxpayer has a right to conduct that examination when he points to specific facts or
circumstances plausibly raising an inference of bad faith.” Id. at 249 (emphasis
added); see also id. at 254 (“Naked allegations of improper purpose are not enough:
The taxpayer must offer some credible evidence supporting his charge.”). That is at
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least directionally consistent with Balanced Financial Management, and the
Appellants have not provided the “specific facts or circumstances” required by
Clarke. There are other statements in Clarke that are consistent with Balanced
Financial Management. See 573 U.S. at 250 (stating that the IRS has “broad
latitude” to issue summonses); id. at 250, 254 (stating that the IRS usually makes the
required showing under Powell by filing “an affidavit from the responsible
investigating agent”); id. at 254 (stating that “summons enforcement proceedings are
to be summary in nature”) (citation and internal quotation marks omitted); id. (stating
that “we have rejected rules that would thwart and defeat the [IRS’s] appropriate
investigatory powers”) (citation and internal quotation marks omitted).
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 Rule 56 standards governing motions for
summary judgment apply, rather than the Rule 12 standards governing motions to
dismiss. That is correct. See Standing Akimbo, 955 F.3d at 1155 (“In determining
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whether the IRS met Powell’s requirements, we must consider something outside the
pleadings. . . . Because we are considering [an IRS agent’s] declaration, the IRS’s
motion to dismiss must be treated as one for summary judgment under Rule 56.”)
(citation and internal quotation marks omitted). As in Standing Akimbo, though, the
Appellants have not shown that any application of Rule 12 by the district court
affected the outcome of the case:
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.
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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 Rule 56, they
are not. The agents have first-hand knowledge of the matters at issue, and their
testimony consists of more than mere legal conclusions. “So long as an affidavit is
based upon personal knowledge and set[s] forth facts that would be admissible in
evidence, it is legally competent to oppose summary judgment, irrespective of its
self-serving nature.” Sanchez v. Vilsack, 695 F.3d 1174, 1180 n.4 (10th Cir. 2012)
(brackets in original, citations and internal quotation marks omitted); see also Greer
v. City of Wichita, Kan., 943 F.3d 1320, 1325 (10th Cir. 2019) (agreeing that self-
serving testimony satisfying these criteria is useable on summary judgment, because
“virtually any party’s testimony can be considered ‘self-serving’”).
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.
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 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 of the purpose of the audits of the Green Solution and Medicinal
Wellness parties. Among other things, the declarations from IRS agents state that the
Agency is investigating the Appellants’ federal tax liabilities, “verifying the
accounting records,” “reconstructing income,” “substantiating the tax returns at
issue,” and confirming business relationships. Aplt. App., Vol. 1 at 71–73; id.,
Vol. 2 at 58–61; id., Vol. 6 at 68–71; id., Vol. 9 at 182–84. Rather than challenging
these factual assertions, the Appellants maintain that (1) the IRS lacks authority to
decide whether the Appellants’ conduct is prohibited by the Controlled Substances
Act (“CSA”); and (2) the IRS’s powers do not supersede or preempt Colorado law.
Neither argument has legs.
15
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 or 21 U.S.C. § 812(c)
(Schedule I) rather than from the courts.” [Id.]
16
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 would have to yield.”) (citations
and internal quotation marks omitted).
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
17
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.
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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 assertion that the IRS’s refusal to grant immunity turned its civil tax
investigation ‘quasi-criminal.’” 955 F.3d at 1161. We observed in Standing Akimbo
that Boyd “dealt with a forfeiture prescribed by a criminal statute as a penalty for
committing fraud,” and is “inapposite to a strictly civil investigation into whether the
Taxpayers violated the tax code.” Id. at 1162. We also commented that the IRS
presented sworn testimony that no referral had been made to the DOJ, and “[t]he
Taxpayers have offered no evidence that the government is criminally investigating
them, let alone that the IRS is involved.” Id. at 1162 & nn.12–13; see also id.
at 1162 (remarking that “the summonses are enforceable notwithstanding the
possibility of later referral”). Those rulings apply here.
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
§ 7602 when investigating potential § 280E violations.” Id. at 1163. We further
recognized that “in Alpenglow, we distinguished Marchetti and its related cases from
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the IRS’s investigations under § 280E.” Id. (citing Alpenglow, 894 F.3d at 1197). In
sum, “[t]he Marchetti line of cases is inapposite: those cases involve the invocation
of a Fifth Amendment privilege to overcome IRS regulations requiring a taxpayer to
disclose information carrying a real risk of self-incrimination.” Id. Parallel to
Standing Akimbo, the Appellants “have not raised a Fifth Amendment challenge on
appeal, and § 280E does not require the disclosure of incriminating information.” Id.
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
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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 IRS to obtain search
warrants supported by probable cause. After analyzing Carpenter’s effect on the
“third-party doctrine,” we rejected the Appellants’ Fourth Amendment argument in
Standing Akimbo:
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. . . .
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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 Colo. Rev. Stat. Ann. §§ 44-10-201(4), 44-10-202(3), and
44-10-204(1)). We therefore concluded that a MED employee’s compliance with a
summons seeking METRC information “would not constitute a crime.” Id. at
1167-68. For the reasons expressed in Standing Akimbo, the Appellants’ contrary
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interpretation disregards the “plain language” of the statutes and is “unpersuasive.”
Id. at 1168. And a third party, MED, “holds the information,” removing any “Fifth
Amendment interests” the Appellants otherwise may have had in this data. Id.
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
26 U.S.C. § 7609. Nevertheless, a taxpayer must file such a petition no later than the
twentieth day after notice of the summons is given. 26 U.S.C. § 7609(b)(2)(A); see
also Faber v. United States, 921 F.2d 1118, 1119 (10th Cir. 1990) (“The
government’s waiver of sovereign immunity ends—and thus jurisdiction ends—when
the twenty-day limitation period has run.”). The district court concluded the proof
submitted by the IRS showed that Speidell missed this deadline, and Speidell did not
present competent evidence to the contrary. Nothing in the appellate record calls into
question the district court’s finding of untimeliness.
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
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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 Rule
12(b)(1). See Aplt. App., Vol. 1 at 53 (asking for dismissal on jurisdictional grounds
and, “[i]n the alternative,” to enforce the summons); id. at 54 (seeking enforcement
“[i]n the alternative, to the extent Petitioner’s arguments are addressed on the
merits”); id. at 57 (asking for dismissal but, “[i]n the alternative,” explaining why
Speidell’s substantive theories lacked merit); id. at 58 (after requesting jurisdictional
dismissal, arguing that “In the Alternative, the Petition Fails to State a Claim for
Relief”) (emphasis omitted); id. at 68 (“[T]he Court should issue an order dismissing
the petition for lack of jurisdiction. In the alternative, should the Court address the
petition on the merits, it should issue an order dismissing the petition and enforcing
the summons issued to MED.”). The IRS thus clearly and unmistakably did not
waive sovereign immunity or invite the district court to bypass the issue of subject
matter jurisdiction.
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
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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 a clear statement from the United
States waiving sovereign immunity, together with a claim falling within the terms of
the waiver. The terms of consent to be sued may not be inferred, but must be
unequivocally expressed.” United States v. White Mountain Apache Tribe, 537 U.S.
465, 472 (2003) (citations and internal quotation marks omitted); see also Flute v.
United States, 808 F.3d 1234, 1239 (10th Cir. 2015) (“[W]e will find the government
has waived sovereign immunity only when its consent to be sued is unequivocally
expressed.”) (citation and internal quotation marks omitted).
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.
1
Speidell’s main case is Steadfast Ins. Co. v. Agric. Ins. Co., 507 F.3d 1250
(10th Cir. 2007), which involved immunity from federal lawsuits enjoyed by states
under the Eleventh Amendment. Id. at 1252–53. We recognized that an immunity
waiver may occur “either when a state voluntarily invokes the jurisdiction of a
federal court, or when a state makes a clear declaration that it intends to submit itself
to a federal court’s jurisdiction.” Id. (citation and internal quotation marks omitted).
Nonetheless, we emphasized that “we will not readily find” such a waiver, id.
at 1252, and we rejected a waiver claim in part because a state agency “immediately
contested federal court jurisdiction based on its right to Eleventh Amendment
immunity.” Id. at 1256 (citation omitted). The IRS also immediately contested
subject matter jurisdiction, asking the district court to enforce the summons only if
the IRS lost its jurisdictional challenge.
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