Alpenglow Botanicals v. United States, No. 17-1223 (10th Cir. 2018)Annotate this Case
Alpenglow Botanicals, LLC (“Alpenglow”) sued the Internal Revenue Service (“IRS”) for a tax refund, alleging the IRS exceeded its statutory and constitutional authority by denying Alpenglow’s business tax deductions under 26 U.S.C. 280E. The federal government classified marijuana as a “controlled substance” under schedule I of the Controlled Substances Act (“CSA”), but it is legal for medical or recreational use in Colorado. This appeal was the product of the clash between these state and federal policies: Alpenglow is a medical marijuana business owned and operated by Charles Williams and Justin Williams, doing business legally in Colorado. After an audit of Alpenglow’s 2010, 2011, and 2012 tax returns, however, the IRS issued a Notice of Deficiency concluding that Alpenglow had “committed the crime of trafficking in a controlled substance in violation of the CSA” and denying a variety of Alpenglow’s claimed business deductions under section 280E. Alpenglow’s income and resultant tax liability were increased based on the denial of these deductions. Because Alpenglow was a “pass through” entity, the increased tax liability was passed on to Charles Williams and Justin Williams. The two men paid the increased tax liability under protest and filed for a refund, which the IRS denied. The district court dismissed Alpenglow’s suit under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted, and denied Alpenglow’s subsequent motion under Federal Rule of Civil Procedure 59(e) to reconsider the judgment. Finding no reversible error in the district court's judgment, the Tenth Circuit affirmed.