A federal lawsuit claims the Department of Justice is conducting secret investigations of legal cannabis businesses, using IRS tax investigations as a front, as reported by The Denver Post.
The IRS conducts regular investigations of marijuana businesses to preclude them from certain tax deductions. While most businesses can deduct expenses, businesses which traffick in federally banned narcotics (such as cannabis) cannot. This provision increases the taxes paid by marijuana businesses substantially. But to enforce it, the IRS has to investigate whether or not a given business engages in selling or manufacturing weed.
But the lawsuit from Rifle Remedies contends that the IRS is doing much more than determining what tax exemptions these businesses can use. It claims that the IRS is secretly giving information obtained in tax audits to the DOJ for the purpose of criminal narcotic investigations.
“The IRS is working jointly with the Department of Justice to investigate purported criminal activity of the taxpayers,” attorneys Richard Walker and James Thorburn wrote in their filing. “To this end, the IRS has converged on Colorado and is conducting mass audits of those it has determined to be unlawfully trafficking in controlled substances … dishing out summonses like candy.”
In a court filing, the federal government said these accusations were inaccurate and illogical. “That the DEA is using the IRS to investigate … defies common sense,” the filing reads.
“If prosecution were truly the goal, it would be far simpler — and likely more effective — for the DEA to send a plainclothes agent to purchase marijuana from [Rifle Remedies] than to co-opt the IRS into issuing summons to MED for information about past years’ marijuana sales. [The] underlying theory of this case lacks not only evidence, but logic.”
If the DEA were to go after Rifle itself, however, that could violate the Cole Memorandum, a series of federal guidelines set forth by former Attorney General James Cole which prohibit the Justice Department from using its resources to go after state-regulated marijuana businesses.
The IRS is also seeking to obtain Colorado’s seed to sale platform, called Marijuana Enforcement Tracking Reporting Compliance, or METRC. This tracking program not only gives information on businesses such as Rifle Remedies, but on their customers as well.
Photo via Flickr user saturnism