Update 

On Marijuana
James D. Thorburn, Esq.
Issues 
Theresa Mains, Esq.
LasVegas Medical  Thorburn Walker, LLC/
Marijuana  Thorburn Law Group
Association
March 11, 2020

Copyright 2020 Thorburn Walker, LLC/ Thorburn Law Group
JUSTICE GORSUCH ON STATE‐
LEGAL MARIJUANA

“This case owes its genesis to the mixed messages the federal government is sending these days 
about the distribution of marijuana.”  
Feinberg v. C.I.R., 808 F.3d 813 (10th Cir. 2015).  

“So it is the government simultaneously urged the court to take seriously its claim that the 
petitioners are violating federal criminal law and to discount the possibility that it would enforce 
federal criminal law.”
Feinberg, 808 F.3d at 815.

“In light of questions and possibilities like these, you might be forgiven for wondering whether, 
memos or no memos, any admission by the petitioners about their involvement in the 
marijuana trade still involves an "authentic danger of self‐incrimination."

Feinberg, at 816.

Copyright 2018 Thorburn Walker, LLC
 GENERAL BACKGROUND

Three Years Later:

“[T]he Department of Justice has specifically rescinded its former policy of

non-prosecution for marijuana dispensaries complying with state law,
evidencing governmental intent to enforce this law.”

Alpenglow Botanicals, Ltd. Liab. Co. v. United States, 894 F.3d 1187, 1206 (10th
Cir. 2018)
 THE IRS 280E CRIMINAL INVESTIGATION

“The IRS made initial findings that Green Solution trafficked in a controlled
substance and is criminally culpable under the CSA. The IRS then requested that Green Solution turn
over documents and answer questions related to whether Green Solution is disqualified from taking
credits and deductions under § 280E.”

Green Sol. Retail, Inc. v. United States, 855 F.3d 1111, 1113 (10th Cir. 2017).
 THE IRS 280E CRIMINAL INVESTIGATION

The IRS is currently summonsing METRC data on Dispensaries including:

“Transfer reports” - the names and addresses of purchases

“Inventory reports” - Identification of all plants the dispensary has or had

27 cases are pending either in the federal district court of Court of Appeals challenging the IRS
 “A HUGE FEDERALISM DISPUTE”

Statement by Judge Carlos F. Lucero, 10th Circuit Court of Appeals, January 22, 2019
Feinberg v. Commissioner, 18-9005, oral argument beginning at 13:30.
Judge Lucero:

“These cases are frustrating, because under the Constitution, under the Tenth Amendment, of course the
powers of the federal government are limited to the powers granted under the Constitution, and the
States reserve certain powers. we have here, basically, is a huge federalism dispute.”
 “A HUGE FEDERALISM DISPUTE”

Statement by Nancy Moritz, 10th Circuit Court of Appeals, November 20, 2019
Standing Akimbo, LLC v. United States, 19-1049, oral argument at 10:30.
Judge Moritz:

“We all know that it (cannabis) is unlawful under federal law.”

 “A HUGE FEDERALISM DISPUTE”

Statement by Judge Carlos Lucero, 10th Circuit Court of Appeals, November 20, 2019
Standing Akimbo, LLC v. United States, 19-1049, oral argument at 10:30.
Judge Moritz to audience:

“We have requested Congress resolve the dispute but our pleas have gone unanswered..”
 “A HUGE FEDERALISM DISPUTE”

Petitioners in
Standing Akimbo, LLC v. United States, 19-1049:

“It is in the interest of our country – and the 37 states who have legalized marijuana – for the Court to
resolve this federalism dispute.”
 “A HUGE FEDERALISM DISPUTE”

Standing Akimbo, LLC v. United States, 19-1049:

Judge Lucero – yes

Judge Moritz – no
Judge Phillips ????

Nearly four months since oral argument and no decision . . .

Compliance and 280E

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

Copyright 2018 Thorburn Walker, LLC
 CPA DUTIES REGARDING 280E

Duties of the CPA with respect to 280E:

No Guidance – enter at your own risk.

“CPA’s need to proceed with caution.”

What due diligence is necessary to determine whether 280E applies – preparer penalties.
Insufficient to simply state that CPA didn’t believe that 280E applied to this taxpayer.
Must show substantial defenses to Section 280E.
 WHAT IS THE IRS/DOJ LOOKING FOR?

• IRS CLAIMS THAT IT IS LOOKING SOLELY TO DETERMINE

PROPER TAX

• HOWEVER, REFUSAL TO GRANT IMMUNITY

• RESERVES ALL RIGHTS TO USE ANY AND ALL INFORMATION

OBTAINED IN THE AUDIT FOR CRIMINAL DRUG LAW
PROSECUTION PURPOSES
 THE RESULT

• Tax May Exceed Net Income

 COSTS OF GOODS SOLD A CONSTITUTIONAL RIGHT

Congress has the unquestioned constitutional and statutory authority to tax gross income. . . To ensure
taxation of income rather than sales, the "cost of goods sold" is a mandatory exclusion from the
calculation of a taxpayer's gross income.

Alpenglow Botanicals, Ltd. Liab. Co. v. United States, 894 F.3d 1187, 1199 (10th Cir. 2018)
 COSTS OF GOODS SOLD A CONSTITUTIONAL RIGHT

Costs of goods sold was confirmed as a constitutional right by the Tax Court following Alpenglow.

N. Cal. Small Bus. Assistants, Inc. v. Commissioner, No. 26889-16, 2019 U.S. Tax Ct. LEXIS 24 (T.C. Oct. 23,
2019)
 COSTS OF GOODS SOLD A CONSTITUTIONAL RIGHT

Before Alpenglow the IRS was allowing only 35 cents of GOGS per dollar over revenue.

We are now getting 60 cents or more.

 COSTS OF GOODS SOLD A CONSTITUTIONAL RIGHT

“Although there can be similarity between

expenses that qualify as cost of goods sold and ordinary
and necessary business expenses (such as labor),
the cost of goods sold relates to acquisition or creation
of the taxpayer's product, while ordinary and necessary
business expenses are those incurred in the operation
of day-to-day business activities.”
Alpenglow Botanicals
 COSTS OF GOODS SOLD A CONSTITUTIONAL RIGHT

Proper bookkeeping is essential to good results in a 280E audit.

Canna Bookkeeping opening in Las Vegas

 THE CONSTITUTIONALITY OF 280E

NCSBA was a split decision

• Majority – 280E does not violate the 16th Amendment or 8th
Amendment
• Three judge dissent- 280E Unconstitutional under the 16th
Amendment, and is a penalty under the 8th Amendment
 THE CONSTITUTIONALITY OF 280E

NCSBA was a split decision

A crack in the ice

Thorburn Walker, LLC/ Thorburn Law Group
Nevada:
3960 Howard Hughes Parkway, Suite 500
Las Vegas, Nevada 89169
Telephone: 702‐966‐7606
E‐Mail:  jthorburn@thorburnwalker.com
Website:  www.thorburnwalker.com
Colorado:
5460 South Quebec Street, Suite 310
Greenwood Village, CO 80111
(303) 646‐3482
Thorburn Walker LLC/ Thorburn Law Group, 
offers over 50 years of combined legal and CPA 
experience and represents Colorado 
dispensaries in a variety of ways.  They are 
keenly aware of the current federal and state 
issues affecting Colorado dispensaries and work 
hard to achieve successful results for their 
clients. 
They help dispensaries navigate through these 
complex legal issues including tax court and IRS 
audits. Their services range from representation 
of dispensaries in IRS audits and tax court, 
including section 280E issues. 
Thorburn Walker/ Thorburn Law Group also 
provides general business representation, 
helping dispensaries comply with state and 
federal regulations.
 Q & A
Thorburn Walker, LLC/Thorburn Law Group
Nevada:
3960 Howard Hughes Parkway, Suite 500
Las Vegas, Nevada 89169
Telephone: 702‐966‐7606
E‐Mail:   jthorburn@thorburnwalker.com
Tmains@thorburnwalker.com
Website:  www.thorburnwalker.com
Colorado Address:
5460 South Quebec Street, Suite 310
Greenwood Village, CO 80111
(303) 646‐3482