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Pot Dispensary Loses Tax Fight in 10th Circuit

DENVER (CN) - A Colorado marijuana dispensary found little relief in their ongoing battle with the Internal Revenue Service after the 10th Circuit denied its petition to overturn a tax court order.

The owners of Castle Rock, Colo.-based Total Health Concepts marijuana dispensary took the IRS to tax court after their marijuana business expenses were disallowed and they were handed a hefty bill for tax deductions that, had the expenses not been marijuana-related, might have been granted.

But because marijuana is still illegal under federal law, the IRS asked the dispensary to disclose the nature of their business. Total Health Concepts asserted their Fifth Amendment right not to respond to avoid self-incrimination, according to court records.

The IRS filed a motion to compel discovery of the nature of the business. After the motion was granted in tax court, the dispensary took their case to the Denver-based appeals court in an effort to get the discovery motion overturned through a writ of mandamus.

Judges Neil Gorsuch, Jerome Holmes and Nancy Moritz of the 10th Circuit denied Total Health Concepts' petition on Dec. 18 while admitting the company was "fighting" a larger IRS policy at hand that can be confusing in light of U.S. Justice Department memos encouraging federal prosecutors not to pursue charges against state-regulated dispensaries.

The ruling, penned by Gorsuch, admitted that the issue at hand "owes its genesis to the mixed messages the federal government is sending these days about the distribution of marijuana."

But Gorsuch explained that appeals courts rarely intervene in ongoing court cases like this one, and that Total Health Concepts didn't prove that showing the IRS their company's dealings would cause irreparable harm to their business.

"They run the business with the blessing of state authorities but in defiance of federal criminal law," Gorsuch wrote. "Even so, officials at the Department of Justice have now twice instructed field prosecutors that they should generally decline to enforce Congress' statutory command when states like Colorado license operations like THC. At the same time and just across 10th Street in Washington, D.C., officials at the IRS refuse to recognize business expense deductions claimed by companies like THC on the ground that their conduct violates federal criminal drug laws.

The judge said "prosecutors will almost always overlook federal marijuana distribution crimes in Colorado but the tax man never will."

Gorsuch empathized with the petitioners' plight, saying the appeals court might be "missing something" about the issue, but that for now, it was out of their hands.

"In the end, the petitioners fail to offer a convincing reason to think that without an immediate remedy they will face an irreparable injury," the judge concluded. "Maybe we're missing something. Maybe a future party will show us what it is we're missing. But the petitioners have not done that much here. And that by itself supplies an independent reason, beyond even our controlling precedent, to withhold the extraordinary remedy of mandamus in this case."

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