High Desert Relief, Inc. v. United States , 917 F.3d 1170 ( 2019 )


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  •                                                                  FILED
    United States Court of Appeals
    Tenth Circuit
    PUBLISH                  March 5, 2019
    Elisabeth A. Shumaker
    UNITED STATES COURT OF APPEALS Clerk of Court
    TENTH CIRCUIT
    HIGH DESERT RELIEF, INC., a
    New Mexico non-profit
    corporation,
    Plaintiff - Appellant,
    v.                                          Nos. 17-2083 & 17-2095
    UNITED STATES OF AMERICA,
    through its agency the Internal
    Revenue Service,
    Defendant - Appellee.
    Appeals from the United States District Court
    for the District of New Mexico
    (D.C. Nos. 1:16-CV-00469-MCA-SCY,
    1:16-CV-00816-MCA-SCY,
    and 1:16-CV-01255-WJ-KBM)
    James D. Thorburn (Richard Walker with him on the briefs), Thorburn
    Walker, LLC, Greenwood Village, CO, for Plaintiff-Appellant.
    Michael J. Haungs, Attorney, Tax Division (David A. Hubbert, Deputy
    Assistant Attorney General, Tax Division; Gilbert S. Rothenberg and
    Patrick J. Urda, Attorneys, Tax Division; and Robert C. Troyer, former
    Acting United States Attorney, of counsel; with him on the briefs)
    Department of Justice, Washington, D.C., for Defendant-Appellee.
    Before LUCERO, HOLMES, and EID, Circuit Judges.
    HOLMES, Circuit Judge.
    This case arises out of the efforts of the Internal Revenue Service
    (“IRS”) to investigate the tax liability of High Desert Relief, Inc. (“HDR”),
    a medical marijuana dispensary in New Mexico. The IRS began an
    investigation into whether HDR had improperly paid its taxes, and
    specifically whether it had improperly taken deductions for business
    expenses that arose from a “trade or business” that “consists of trafficking
    in controlled substances.” 26 U.S.C. § 280E. Because HDR refused to
    furnish the IRS with requested audit information, the IRS issued four
    summonses to third parties in an attempt to obtain the relevant materials by
    other means.
    HDR filed separate petitions to quash these third-party summonses in
    federal district court in the District of New Mexico, and the government
    filed corresponding counterclaims seeking enforcement of the summonses.
    HDR argued that the summonses were issued for an improper
    purpose—specifically, that the IRS, in seeking to determine the
    applicability of 26 U.S.C. § 280E, was mounting a de facto criminal
    2
    investigation pursuant to the Controlled Substances Act (“CSA”), 
    21 U.S.C. § 801
    , et seq. HDR also asserted that enforcement of § 280E was improper
    because an “official [federal] policy of non-enforcement” of the CSA
    against medical marijuana dispensaries had rendered that statute’s
    proscription on marijuana trafficking a “dead letter” incapable of
    engendering adverse tax consequences for HDR. Aplt.’s Opening Br. at 30.
    The petitions were resolved in proceedings before two different
    district court judges. Both judges ruled in favor of the United States on the
    petitions to quash, and separately granted the United States’ motions to
    enforce the summonses. HDR challenges these rulings on appeal.
    Exercising jurisdiction under 
    28 U.S.C. § 1291
    , we affirm.
    I
    A
    HDR is a New Mexico medical marijuana dispensary. Although such
    dispensaries are lawful under state law, see N.M. STAT. ANN. §§ 26-2B-3,
    26-2B-4 (2017), “marijuana is still classified as a federal ‘controlled
    substance’ under schedule I of the CSA.” Green Solution Retail, Inc. v.
    United States, 
    855 F.3d 1111
    , 1113 (10th Cir. 2017), cert. denied, 
    138 S. Ct. 1281
     (2018). And this federal classification has potential tax
    consequences, even for businesses that are lawful under state law. In
    3
    particular, while 
    26 U.S.C. § 162
    (a) allows taxpayers to claim deductions
    for “all the ordinary and necessary expenses paid or incurred . . . in
    carrying on any trade or business,” § 280E prohibits deductions for business
    expenses when the underlying business “consists of trafficking in controlled
    substances (within the meaning of schedule I and II of the [CSA]) which is
    prohibited by Federal law .” 26 U.S.C. § 280E (emphasis added).
    In February 2016, the IRS began to investigate whether HDR had
    taken improper deductions and thus had outstanding tax liabilities. IRS
    Revenue Agent Lisa Turk provided written notice to HDR that its return for
    the fiscal year ending June 30, 2014 (“2014 return”) had been selected for
    examination. In this initial communication, Agent Turk identified several
    preliminary issues for inquiry (e.g., the costs of goods sold, gross receipts,
    and total deductions) and provided HDR with a copy of IRS Publication 1.
    Publication 1 outlines the IRS’s audit procedures, and also explains, under
    a section titled “Potential Third Party Contacts,” that the IRS might
    “sometimes talk with other persons if we need information that you have
    been unable to provide, or to verify information we have received.” IRS
    Publication 1, Your Rights as a Taxpayer (Rev. 9-2017),
    4
    https://irs.gov/pub/irs-pdf/p1.pdf. 1
    After failing to receive a response from HDR by the date specified on
    the notice, Agent Turk made a phone call to one of HDR’s two
    shareholders. During the call, the shareholder confirmed that HDR grows
    and sells medical marijuana to qualified patients. At that time, Agent Turk
    communicated, once more, that the IRS’s audit would focus on gross
    receipts, costs of goods sold, and all other business expenses, and then
    “proceeded to explain the taxpayer’s rights as outlined in Publication 1.”
    Aplt.’s App. at 340 (Mem. for the file, dated Mar. 9, 2017).
    Because she was not able to obtain further information directly from
    HDR or its shareholders at this juncture, Agent Turk sent HDR an initial
    Information Document Request (“Document Request”) relating to the
    dispensary’s 2014 fiscal year. An updated Document Request was re-issued
    to HDR after the audit expanded to include HDR’s tax return for the fiscal
    year ending in June 30, 2015 (“2015 return”). Agent Turk included an
    additional copy of IRS Publication 1 when providing notice of the expanded
    1
    Though the parties did not include a copy of this publication on
    appeal, we may nevertheless take judicial notice of official government
    publications. See Pueblo of Sandia v. United States, 
    50 F.3d 856
    , 861 n.6 (10th
    Cir. 1995); see also F ED . R. E VID . 201(b)(2) (permitting courts to take notice of a
    “fact that is not subject to reasonable dispute because it . . . can be accurately and
    readily determined from sources whose accuracy cannot reasonably be
    questioned”).
    5
    audit.
    Around this period, Agent Turk also attempted to schedule an
    interview with HDR to discuss the tax years at issue and to tour the
    company’s facilities. HDR ultimately objected to any such contacts because
    of its concern that the IRS’s investigation into § 280E would be equivalent
    to a criminal investigation under the CSA.
    HDR’s wariness of triggering penalties under the CSA also informed
    its responses to the IRS’s Document Requests. In correspondence, HDR
    insisted that it would only “furnish documentation . . . provided that [HDR
    is] given assurance from the IRS, that the IRS will use the information
    furnished for this civil audit, and not to support the IRS’s determination
    that the Taxpayer’s business consists of illegal activities.” Id. at 79 (Letter
    from Bridge West LLC to Agent Turk, dated May 23, 2016). The IRS
    informed HDR that it could not receive documentation under such a
    condition, as (1) the IRS was entitled to investigate whether § 280E
    applied, and (2) § 6103 of the Internal Revenue Code (“IRC”)—which sets
    forth certain circumstances under which the IRS must disclose taxpayer
    material to other agencies—limited the IRS’s ability to agree to HDR’s
    conditional offer. See 
    26 U.S.C. § 6103
    (i). In response, HDR told Agent
    Turk that it “would not answer any questions, provide any records, or
    6
    provide . . . a tour of the business.” Aplt.’s App. at 239 (Decl. of Lisa
    Turk, dated Oct. 21, 2016). There is no indication from the record that
    HDR ever sent the IRS any documents in response to either its initial, or its
    subsequent, Document Requests.
    Employing alternative means to ascertain the correctness of HDR’s
    2014 and 2015 returns, the IRS issued four summonses to third parties for
    information allegedly pertinent to those returns. Summonses to My Bank
    and Southwest Capital Bank sought information concerning HDR’s bank
    accounts. A summons to the New Mexico Department of Health’s Medical
    Cannabis Program was aimed at HDR’s financial records and statements,
    applications to the medical cannabis program, cannabis product
    descriptions, and a description of HDR’s facilities. And a summons issued
    to the Public Service Company of New Mexico, a local electric company,
    requested information regarding HDR’s application for service, credit data,
    and also billing statements regarding HDR’s electricity consumption. Each
    time a summons was issued, HDR was provided a notice of the summons, a
    copy of the summons, and an explanation of HDR’s right to bring a
    proceeding to quash the summons.
    B
    HDR first filed, in federal court, a petition to quash the summonses
    7
    that had been issued to the New Mexico Department of Health and My
    Bank. HDR asserted that neither summons satisfied United States v.
    Powell, 
    379 U.S. 48
     (1964), which, as discussed infra, sets out the
    requirements for the enforcement of an IRS summons. Specifically, HDR
    claimed that the summonses were devoid of a legitimate purpose because
    they were issued in furtherance of a “pseudo-criminal investigation[] . . . to
    . . . convict taxpayers of violating federal criminal drug laws”—i.e., the
    CSA—and sought an evidentiary hearing to test the IRS’s alleged good
    faith. Aplt.’s App. at 10 (Pet. to Quash Summonses, dated May 23, 2016).
    The United States moved to dismiss HDR’s petition, arguing that the
    IRS satisfied each of the Powell criteria and that the summonses were
    issued for the valid purpose of determining the correctness of HDR’s tax
    returns under § 280E. On the same day that the United States filed this
    motion to dismiss HDR’s first petition to quash, HDR filed another petition
    to quash, this one directed at the summons issued to the Public Service
    Company of New Mexico. Because the arguments contained in HDR’s
    second petition largely mirrored those in the first, the two cases were
    consolidated before one district court judge.
    The United States moved to dismiss the new petition regarding the
    Public Service Company of New Mexico, appending a declaration made by
    8
    Agent Turk, as well as more documentary evidence. The United States also
    moved to enforce the outstanding summonses against My Bank and the
    Public Service Company of New Mexico, but withdrew its request to
    enforce the summons issued to the New Mexico Department of Health, as
    the IRS had successfully obtained the summonsed information by means of
    a public records request.
    At this juncture, the district court judge handling the consolidated
    cases gave notice that it was converting the government’s motions to
    dismiss into motions for summary judgment pursuant to Fed. R. Civ. P.
    12(d). The judge both explained her rationale—the conversion allowed her
    to consider the parties’ supporting declarations and sundry exhibits—and
    afforded the parties an opportunity to present additional material. The
    government did not submit further filings; HDR filed a supplemental
    pleading arguing that “the federal drug laws which the IRS seeks to enforce
    through § 280E are a ‘dead letter,’” and could not therefore serve as basis
    for the summonses at issue. Aplt.’s App. at 414, 419 (Pet’r’s Supp. to Mot.
    for Summ. J., dated Mar. 9, 2017). In particular, HDR relied on two
    Department of Justice directives—the “Ogden Memo” issued in 2009, and
    the “Cole Memo,” issued in 2013—as purported evidence of a “strong,
    9
    official federal policy of non-enforcement of the CSA against medical
    marijuana dispensaries.” Id. at 418, 420.
    While these proceedings were ongoing, HDR filed in the District of
    New Mexico a third and final petition to quash, this time directed at the
    IRS summons issued to Southwest Capital Bank. This case was assigned to
    another district court judge. This judge issued an order requesting that the
    parties show cause why the case should not be consolidated with earlier
    litigation filed by HDR (i.e., involving the two consolidated cases).
    However, before the parties filed their responses in the Southwest
    Capital Bank case, the district court judge presiding over the earlier
    litigation granted summary judgment to the United States. The judge
    determined that the government carried its prima facie burden of proving
    the four factors set out in Powell, and that HDR failed to demonstrate that
    the IRS had issued the summonses in bad faith. In addition, the judge
    rejected HDR’s argument that enforcement of § 280E was improper because
    the CSA’s proscription on marijuana trafficking had become a “dead letter.”
    The judge accordingly granted the United States’ motions, entered a
    separate order enforcing the summons to My Bank, 2 and entered judgment.
    2
    While proceedings were ongoing, Agent Turk received a package
    from the Public Service Company of New Mexico in response to her summons
    (continued...)
    10
    In light of the above ruling, the judge presiding over the Southwest
    Capital Bank case entered an order ruling in favor of the IRS for “the same
    reasons” found by the judge in HDR’s earlier action, concluding that the
    reasoning of the judge in the earlier action was “very persuasive authority.”
    Aplt.’s App. at 714 (Order, dated Apr. 11, 2017). 3 Thereafter, the judge in
    (...continued)
    which provisionally obviated the need for an additional enforcement order as to
    that entity.
    3
    At least nominally, the district court judge’s order in the Southwest
    Capital Bank case resolved an IRS motion to dismiss pursuant to Fed. R. Civ. P.
    12(b)(6). However, as noted, that judge expressly adopted wholesale the summary-
    judgment analysis of the district court judge in the earlier HDR action, which took
    into consideration evidentiary matters outside of the complaint. This seems to
    explain why on appeal HDR operates on the premise that the district court judge in
    the Southwest Capital Bank case tacitly converted the IRS’s motion to dismiss into
    one for summary judgment under Fed. R. Civ. P. 56. See Aplt.’s Opening Br. at
    14–15 (“The two lower courts ruled (one, sua sponte), that both motions to dismiss
    brought by Respondent were to be treated as motions for summary judgment, as
    both parties summited [sic] documents and declarations with their pleadings and
    asked the court to consider these documents.”); id. at 36 (“The lower courts both
    entered orders converting Respondent’s two motions to dismiss, from Rule 12
    motions to Rule 56 motions, pursuant to Fed. R. Civ. [P.] 12(d).”). Notably, HDR
    does not challenge on appeal the propriety of this seemingly tacit Rule 56
    conversion, or argue that we should review the district court judge’s order in the
    Southwest Capital Bank case under a different standard than the other judge’s
    earlier summary-judgment ruling. Therefore, as explicated further infra, we apply
    traditional summary judgment standards in reviewing both judges’ orders. See
    Ford v. Pryor, 
    552 F.3d 1174
    , 1177 (10th Cir. 2008) (“In dismissing with
    prejudice, the district court considered evidence beyond the pleadings, a procedure
    to which Mr. Ford did not object, so we ‘review the dismissal under the standard
    applicable to an entry of summary judgment.’” (quoting N. Nat. Gas Co. v. Nash
    (continued...)
    11
    the Southwest Capital Bank case entered an order enforcing the summons to
    that bank.
    HDR has appealed from the rulings of both district court judges, and
    those appeals have been consolidated for our resolution.
    II
    On appeal, HDR makes two overarching arguments for why we should
    reverse the district court judges’ enforcement of the summonses and their
    adverse rulings on HDR’s petitions to quash. First, HDR contends that the
    district judges misapplied the Powell factors. To that end, HDR attempts to
    refute the government’s prima facie Powell showing and to demonstrate that
    the IRS’s investigation did not proceed in good faith. Second, HDR argues
    that the district court judges erred in not applying a “dead letter rule” to the
    government’s motions to enforce the summonses.
    The resolution of both arguments turns on issues of law. We address
    these issues in succession and conclude (A) that the IRS met its initial
    (...continued)
    Oil & Gas, Inc., 
    526 F.3d 626
    , 629 n.1 (10th Cir. 2008))); see also N. Nat. Gas.
    Co., 
    526 F.3d at
    629 n.1 (“The district court considered evidence beyond the
    pleadings to dismiss the claim . . . ; therefore, it should have converted Nash’s
    motion to dismiss to one for summary judgment. Northern, however, does not
    appeal the propriety of this procedure, so we will not reverse on this basis and will
    review the dismissal under the standard applicable to an entry of summary
    judgment.” (citation omitted)).
    12
    burden to demonstrate that it acted in good faith and HDR failed to
    thereafter rebut that showing, and (B) that HDR’s proposed “dead letter
    rule” has no application here. We therefore uphold the dispositive rulings
    of both district court judges.
    A
    1
    We review de novo the district court judges’ dispositive orders
    granting the IRS’s motions. See Jewell v. United States, 
    749 F.3d 1295
    ,
    1297 (10th Cir. 2014) (applying de novo review to the district court’s grant
    of summary judgment to the government on its motion opposing the
    taxpayer’s petition to quash). Further, we will not reverse a district court’s
    denial of a petition to quash an IRS summons unless the denial amounts to
    an abuse of discretion. See 
    id. at 1297
    ; accord Hopkins v. I.R.S., 318 F.
    App’x 703, 705 (10th Cir. 2009) (unpublished); Lain v. United States, 173
    F. App’x 651, 652 (10th Cir. 2006) (unpublished); see also Sugarloaf
    Funding, LLC v. U.S. Dep’t of the Treasury, 
    584 F.3d 340
    , 346 (1st Cir.
    2009).
    Notably, a district court necessarily abuses its discretion “when it
    commits an error of law.” Wyandotte Nation v. Sebelius, 
    443 F.3d 1247
    ,
    1252 (10th Cir. 2006); accord Westar Energy, Inc. v. Lake, 
    552 F.3d 1215
    ,
    13
    1224 (10th Cir. 2009); see also Fox v. Vice, 
    563 U.S. 826
    , 839 (2011) (“A
    trial court has wide discretion when, but only when, it calls the game by the
    right rules.”); United States v. Clarke, 
    573 U.S. 248
    , 256 (2014) (“[T]he
    District Court’s decision is entitled to deference only if based on the
    correct legal standard.”). Because the disposition of this appeal turns on
    issues of law, our standard of review in considering the propriety of all of
    the district court judges’ decisions—that is, both the decisions related to
    the IRS’s motions and those pertaining to HDR’s petitions—is, as a
    practical matter, de novo. 4
    4
    We have, at times, evaluated whether the district court’s decision to
    enforce a summons was clearly erroneous. See United States v. Coopers &
    Lybrand, 
    550 F.2d 615
    , 620 (10th Cir. 1977); accord United States v.
    Wankel, 475 F. App’x 273, 275 (10th Cir. 2012) (unpublished). We use the
    “clearly erroneous” standard in resolving factual disputes, Anderson v. City of
    Bessemer City, N.C., 
    470 U.S. 564
    , 573 (1985) (“In applying the clearly erroneous
    standard to the findings of a district court sitting without a jury, appellate courts
    must constantly have in mind that their function is not to decide factual issues de
    novo.” (emphasis added) (quoting Zenith Radio Corp. v. Hazeltine Research, Inc.,
    
    395 U.S. 100
    , 123 (1969))); see F ED . R. C IV . P. 52(a)(6) (“Findings of fact . . .
    must not be set aside unless clearly erroneous . . . .”). Like the de novo standard
    of review, this deferential standard of review coexists harmoniously with an
    overarching abuse-of-discretion standard: just as a district court may abuse its
    discretion by making an error of law, which we review de novo, it can abuse its
    discretion by making findings of fact that we determine to be clearly erroneous.
    See, e.g., In re Ford, 
    492 F.3d 1148
    , 1153 (10th Cir. 2007) (“A [ ] court abuses
    its discretion where it commits a legal error or relies on clearly erroneous factual
    findings, or where there is no rational basis in the evidence for its ruling.”
    (alteration in original) (quoting Davis v. Mineta, 
    302 F.3d 1104
    , 1111 (10th Cir.
    2002))); Rutter & Wilbanks Corp. v. Shell Oil Co., 
    314 F.3d 1180
    , 1187 (10th Cir.
    (continued...)
    14
    2
    Notwithstanding the government’s effort to demonstrate its
    satisfaction of the Powell factors through the vehicle of motions for
    summary judgment, see supra note 3, the government contends that “in the
    summons context” our authority instructs that traditional summary-
    judgment standards should not apply insofar as they instruct courts to view
    4
    (...continued)
    2002) (“In reviewing a court’s determination for abuse of discretion, we will not
    disturb the determination absent a distinct showing it was based on a clearly
    erroneous finding of fact or an erroneous conclusion of law or manifests a clear
    error of judgment.” (quoting Cartier v. Jackson, 
    59 F.3d 1046
    , 1048 (10th Cir.
    1995))). The relevance of these subsidiary standards is determined by the matters
    at issue in a summons-enforcement proceeding. See Harry T. Edwards & Linda
    A. Elliott, F EDERAL S TANDARDS OF R EVIEW : R EVIEW OF D ISTRICT C OURT AND
    A GENCY A CTIONS , Ch. V(A), Westlaw (database updated Feb. 2018) (“Although
    ‘deference . . . is the hallmark of abuse of discretion review,’ the variety of
    matters committed to the discretion of district judges means that the standard is
    necessarily variable. It implies no single level of scrutiny by the appellate
    courts.” (emphasis added) (citation omitted) (quoting Gen. Elec. v. Joiner, 
    522 U.S. 136
    , 143 (1997))). Thus, the clearly erroneous standard may be relevant and
    have work to do when the court is obliged to resolve factual disputes in the
    enforcement proceeding following an evidentiary hearing. See Coopers &
    Lybrand, 
    550 F.2d at 617
     (“[The] IRS filed its petition for judicial enforcement of
    the summonses . . . . A show cause order was issued and a full evidentiary
    hearing followed.”); Wankel, 475 F. App’x at 274 (following the IRS’s
    “submi[ssion] [of] a declaration from the [Revenue] officer,” “[t]he district court
    held a hearing on the petition to enforce the summons, with the officer being
    called to testify for both sides”). Here, the district court judges’ rulings in favor
    of the IRS pertain solely to issues of law—which we review de novo—and the
    clearly erroneous standard is thus not implicated.
    15
    the evidence in the light most favorable to the nonmovant. Aplee.’s Resp.
    Br. at 31. In other words, the government appears to reason that, in this
    context, where summary judgment in its favor would be based on a
    determination that it had satisfied its burden under Powell and would serve
    as the predicate for enforcing its summonses, this traditional summary-
    judgment principle does not apply.
    The authority that the government relies on in making this argument
    is an unpublished decision from our court, Villarreal v. United States, 524
    F. App’x 419 (10th Cir. 2013) (unpublished), which the district court
    judges here cited to support similar reasoning. Specifically, the Villarreal
    panel held that, in the summons-enforcement context, “the traditional
    summary judgment standards such as viewing the facts in [the taxpayer’s]
    favor, do not apply. Instead, [the taxpayer’s] burden ‘is significantly more
    stringent than that of a party opposing a motion for summary judgment.’”
    Id. at 423 (quoting United States v. Kis, 
    658 F.2d 526
    , 543 (7th Cir. 1981)).
    HDR contests the government’s Villarreal-based argument, arguing that
    there is no reason to deviate from the traditional summary-judgment
    framework.
    We conclude that our published disposition in Jewell undercuts the
    government’s argument, and, based on Jewell, the district court judges were
    16
    mistaken in relying on Villarreal. In Jewell, we held that the traditional
    summary-judgment standard applies in the summons context when the
    taxpayer presents a challenge to the government’s prima facie case under
    Powell. See 749 F.3d at 1297 n.1 (“The government argues that the
    summary judgment standard does not apply when the government makes its
    prima facie case under [Powell]. But the issue here is whether the
    government presented a prima facie case under Powell.” (emphasis added)).
    Jewell thus provides the proper summary-judgment standard in this instance
    because, like the taxpayer in Jewell, HDR disputes the government’s prima
    facie case under Powell.
    Although the district court judges were mistaken in applying the
    modified summary-judgment standard that the Villarreal panel articulated,
    it is axiomatic that we may affirm on any basis that the record adequately
    supports. See, e.g., Safe Streets All. v. Hickenlooper, 
    859 F.3d 865
    , 879
    (10th Cir. 2017); Champagne Metals v. Ken-Mac Metals, Inc., 
    458 F.3d 1073
    , 1088 (10th Cir. 2006). Accordingly, in our assessment of whether the
    district court judges properly entered judgment against HDR, see infra, we
    will apply traditional Rule 56 summary-judgment standards and carefully
    consider the record de novo.
    More specifically, we will view the record in the light most favorable
    17
    to HDR and ask whether the IRS has shown that there are no genuine
    disputes of material fact and that it is entitled to judgment as a matter of
    law. See Jewell, 749 F.3d at 1297. Notably, “[t]he substantive law at issue
    determines which facts are material in a given case.” Beaird v. Seagate
    Tech., Inc., 
    145 F.3d 1159
    , 1165 (10th Cir. 1998). Accordingly, as
    explicated infra, the substantive rubric that the Supreme Court defined in
    Powell, 
    379 U.S. at
    57–58, is of central importance in our determination of
    whether there are genuine disputes of material fact here.
    Notably, the traditional summary-judgment standard will not permit
    HDR to rest on conclusory statements in the summary-judgment record;
    such statements “do not suffice to create a genuine issue of material fact.”
    Adler v. Wal-Mart Stores, Inc., 
    144 F.3d 664
    , 674 (10th Cir. 1998); see
    Mitchell v. City of Moore, Okla., 
    218 F.3d 1190
    , 1199–1200 (10th Cir.
    2000) (noting that the plaintiff’s “conclusory statement” was “woefully
    inadequate to survive a summary judgment motion”).
    3
    We now address the substantive legal framework governing the
    enforcement of administrative summonses. “Congress has ‘authorized and
    required’ the IRS ‘to make the inquiries, determinations, and assessments of
    all taxes’ the [IRC] imposes.” Clarke, 573 U.S. at 249–50 (quoting 26
    
    18 U.S.C. § 6201
    (a)), accord Codner v. United States, 
    17 F.3d 1331
    , 1332
    (10th Cir. 1994). “[I]n support of that authority,” Congress has given the
    IRS “broad latitude” to issue summonses “[f]or the purpose of ascertaining
    the correctness of any return, making a return where none has been made,
    [and] determining the liability of any person for any internal revenue tax.”
    Clarke, 573 U.S. at 250 (quoting 
    26 U.S.C. § 7602
    (a)). These summonses
    may be issued not only to the taxpayer being investigated, but also to third-
    parties who may hold relevant information. See 
    26 U.S.C. § 7602
    (a)(2). If
    a summonsed person or entity fails to comply with a summons, the IRS can
    bring an enforcement proceeding in a district court. See 
    id.
     at § 7604.
    However, the taxpayer is not entirely without defenses. For instance,
    Congress requires the IRS to give notice of a third-party summons, id. at
    § 7609(a), and has granted the taxpayer the right to petition a district court
    to quash such a summons. Id. at § 7609(b)(2). That said, in proceedings to
    quash a third-party summons, the government can counterclaim for
    enforcement. Id. at § 7609(b)(2)(A). The proceedings associated with
    these dueling motions “should be summary in nature and discovery should
    be limited.” United States v. Stuart, 
    489 U.S. 353
    , 369 (1989) (quoting S.
    R E P . N O . 97–494, Vol. I, at 285 (1982), as reprinted in 1982 U.S.C.C.A.N.
    781, 1031).
    19
    “Regardless of who initiates the action, the court follows a familiar
    structured analysis in a summons enforcement proceeding.” Sugarloaf
    Funding, 
    584 F.3d at 345
    . As a threshold matter, 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. See Anaya v. United States, 
    815 F.2d 1373
    , 1377 (10th Cir. 1987) (citing United States v. LaSalle Nat’l
    Bank, 
    437 U.S. 298
     (1978)); see also 
    26 U.S.C. § 7602
    (d). 5 Assuming it
    can make this showing, the IRS thereafter “need only demonstrate good
    faith in issuing the summons.” Clarke, 573 U.S. at 250 (quoting Stuart,
    5
    This showing seemingly has some overlap with the first Powell factor,
    i.e., whether the IRS had a “legitimate purpose,” and the Supreme Court has
    occasionally bypassed this issue and only referred to the Powell factors, see, e.g.,
    Clarke, 573 U.S. at 250. However, the Supreme Court’s decisions and our own
    appear to typically treat this criminal-referral factor as an analytically distinct issue.
    For instance, when speaking explicitly regarding the criminal-referral issue in
    LaSalle Nat’l Bank, the Court clearly treated this question as a distinct requirement
    from the Powell factors. See 
    437 U.S. at 318
     (“[S]everal requirements emerge for
    the enforcement of an IRS summons. First, the summons must be issued before the
    [IRS] recommends to the [DOJ] that a criminal prosecution . . . be undertaken.
    Second, the [IRS] at all times must use the summons authority in good-faith pursuit
    of the congressionally authorized purposes of § 7602. This second prerequisite
    requires the [IRS] to meet the Powell standards of good faith.” (footnote omitted)).
    Moreover, in Anaya, we also set this question out as a separate inquiry. 
    815 F.2d at 1377
     (stating that “the government must first show” that no referral has been
    made, and it “then must show” that the Powell factors are met). We do not believe
    that Clarke’s recitation of the Powell factors without reference to this criminal-
    referral requirement reflects a change in the law on this point, 573 U.S. at 250, and
    so we continue to follow LaSalle Nat’l Bank and Anaya in viewing this as a distinct
    inquiry.
    20
    
    489 U.S. at 359
    ). The IRS demonstrates good faith by establishing that:
    [1] the investigation will be conducted pursuant to a
    legitimate purpose, that [2] the inquiry may be relevant to
    the purpose, that [3] the information sought is not already
    within the Commissioner’s possession, and that [4] the
    administrative steps required by the [IRC] have been
    followed—in particular, that the ‘Secretary or his delegate,’
    after investigation, has determined the further examination
    to be necessary and has notified the taxpayer in writing to
    that effect.
    Powell, 
    379 U.S. at
    57–58. These four requirements “have become known
    as the Powell factors,” Clarke, 573 U.S. at 250, and the IRS must make this
    prima facie case irrespective of which side initially brought the summons
    issue to court. Compare Powell, 
    379 U.S. at
    57–58 (considering a petition
    to enforce an IRS summons), with Jewell, 749 F.3d at 1297–98 (applying
    the Powell framework to the taxpayer’s petitions to quash summonses).
    In recognition of the importance of the administrative summons as a
    “crucial backstop in a tax system based on self-reporting,” Clarke, 573 U.S.
    at 254, the Supreme Court has instructed that we “may ask only whether the
    IRS issued a summons in good faith, and must eschew any broader role of
    ‘overseeing the IRS’s determinations to investigate.’” Id. (quoting Powell,
    
    379 U.S. at 56
     (alteration marks omitted)). And so the burden on the
    government to prove that it has not made a criminal referral to the DOJ and
    that it meets the Powell factors “is a slight one,” primarily because the tax
    21
    code “must be read broadly in order to ensure that the enforcement powers
    of the IRS are not unduly restricted.” United States v. Balanced Fin.
    Mgmt., Inc., 
    769 F.2d 1440
    , 1443 (10th Cir. 1985); accord Anaya, 
    815 F.2d at 1377
    . Thus, “[t]he requisite showing is generally made by affidavit of
    the agent who issued the summons and who is seeking enforcement.”
    Balanced Fin. Mgmt., 
    769 F.2d at 1443
     (quoting United States v. Garden
    State Nat’l Bank, 
    607 F.2d 61
    , 68 (3d Cir. 1979)); see also Sugarloaf
    Funding, 
    584 F.3d at 345
     (“An affidavit of the investigating agent that the
    Powell requirements are satisfied is sufficient to make the prima facie
    case.”).
    Once the IRS has made out its prima facie case, “the onus of going
    forward shifts to the taxpayer to show enforcement of the summons would
    ‘constitute an abuse of the court’s process,’ or that in issuing the summons
    the IRS lacks ‘institutional good faith.’” Anaya, 
    815 F.2d at 1377
     (quoting
    first United States v. Genser, 
    582 F.2d 292
    , 302 (3d Cir. 1978), and then
    United States v. Moll, 
    602 F.2d 134
    , 138 (7th Cir. 1979)). While we
    mentioned these two potential avenues of rebutting the Powell factors in
    Anaya, the Supreme Court has since clarified that a taxpayer may “urge the
    court to quash the summons ‘on any appropriate ground,’” and so we do not
    limit HDR to the categories of argument set out in Anaya. Clarke, 
    573 U.S. 22
    at 250 (quoting Reisman v. Caplin, 
    375 U.S. 440
    , 449 (1964)).
    Regardless of the specific rebuttal argument made, “[t]he [taxpayer’s]
    burden is a heavy one.” Balanced Fin. Mgmt., 
    769 F.2d at 1444
    ; see also
    Anaya, 
    815 F.2d at 1378
     (“[T]he [Supreme] Court declared that a taxpayer
    contending the [IRS] has not acted in good faith in the issuance of a
    summons has a heavy burden in proving his contention.”). To defeat the
    government’s prima facie case, “it is clear that a taxpayer must factually
    oppose the Government’s allegations by affidavit. Legal conclusions or
    mere memoranda of law will not suffice.” Balanced Fin. Mgmt., 
    769 F.2d at 1444
     (quoting Garden State Nat’l Bank, 
    607 F.2d at 71
    ). Indeed,
    “[a]llegations supporting a ‘bad faith’ defense are . . . insufficient if
    conclusionary.” 
    Id.
     (quoting Garden State Nat’l Bank, 
    607 F.2d at 71
    ).
    Finally, only where the taxpayer’s affidavits present a “disputed
    factual issue, or . . . proper affirmative defenses . . . [is] the taxpayer
    entitled to an evidentiary hearing.” Id. at 1445 (quoting Garden State Nat’l
    Bank, 
    607 F.2d at 71
    ). “[I]f . . . the taxpayer cannot refute the
    government’s prima facie Powell showing or cannot factually support a
    proper affirmative defense, the district court,” in the interest of judicial
    efficiency, “should dispose of the proceeding on the papers before it and
    without an evidentiary hearing.” Id. at 1444 (quoting Garden State Nat’l
    23
    Bank, 
    607 F.2d at 71
    ).
    4
    In applying these legal standards, we address whether the IRS has put
    forward sufficient evidence to satisfy its “slight” burden on both the
    threshold criminal-referral question and the Powell factors. Balanced Fin.
    Mgmt., 
    769 F.2d at 1443
    . As we address each item, we also consider
    whether HDR has established a genuine dispute of material fact as to any of
    these requirements. We conclude both that the IRS met its initial burden
    and that HDR failed thereafter to rebut that evidence.
    a
    We start with the threshold matter of whether the IRS has shown “that
    [it] has not made a referral of the taxpayer’s case to the [DOJ] for criminal
    prosecution.” Anaya, 
    815 F.2d at
    1377 (citing LaSalle Nat’l Bank, 
    437 U.S. 298
    ). We have no difficulty concluding that the IRS has met its “slight”
    burden. Agent Turk’s affidavits state that there was no “[DOJ] referral, as
    defined by 
    26 U.S.C. § 7602
    (d)” with respect to HDR or either of its
    shareholders for the tax periods at issue. Aplt.’s App. at 243; 
    id. at 624
    (Decl. of Lisa Turk, dated Jan. 17, 2017). Such an “affidavit of the agent
    who issued the summons and who is seeking enforcement” is sufficient to
    make the “[t]he requisite showing.” Balanced Fin. Mgmt., 
    769 F.2d at
    1443
    24
    (quoting Garden State Nat’l Bank, 
    607 F.2d at 68
    ).
    As part of its discussion of the Powell factors, HDR alludes to the
    DOJ’s presence in the litigation involving the summonses and the IRS’s
    admissions that it was investigating whether § 280E applied. Aplt.’s
    Opening Br. at 27. But HDR offers no evidence contradicting the affidavit.
    This failure of proof, alone, is sufficient for us to decline to give serious
    consideration to any contrary argument by HDR. See Balanced Fin. Mgmt.,
    
    769 F.2d at 1444
     (“[I]t is clear that a taxpayer must factually oppose the
    Government’s allegations by affidavit. Legal conclusions or mere
    memoranda of law will not suffice.” (quoting Garden State Nat’l Bank, 
    607 F.2d at 71
    )). Furthermore, the mere presence of the DOJ’s attorneys as
    advocates litigating for the enforcement of the summonses does not
    establish a criminal referral. Cf. LaSalle Nat’l Bank, 
    437 U.S. at
    314–18
    (describing robust referral processes before concluding “[n]o
    recommendation to the [DOJ] for criminal prosecution has been made,”
    despite the fact that the IRS was represented by the Solicitor General’s
    office and had been represented by the DOJ in the court of appeals, see 
    554 F.2d 302
    , 303 (7th Cir. 1977)). Likewise, an IRS investigation into whether
    § 280E applied does not tell us anything about whether it made a criminal
    referral to the DOJ. Thus, HDR has failed to rebut the IRS’s evidence or
    25
    create a genuine dispute of material fact on this issue.
    b
    We turn next to the first Powell factor—that is, whether “the
    investigation will be conducted pursuant to a legitimate purpose.” 
    379 U.S. at
    57–58. We agree with the district court that the IRS carried its initial
    “slight” burden on this factor. And while HDR raises three arguments
    relating to this factor, none of them establish a genuine dispute of material
    fact.
    As with the threshold referral issue, Agent Turk’s statements amply
    demonstrate that the IRS satisfied this factor. Agent Turk declared that the
    investigation’s purpose was to examine “the federal tax liabilities . . . of
    [HDR] . . . for the tax periods ending June 30, 2014, and June 30, 2015.”
    Aplt.’s App. at 236–37 (emphasis added). Agent Turk also explained that
    the IRS issued the third-party summonses because she believed that the
    information requested therein “may be relevant to determ[ining] the
    correctness of the HDR’s federal tax returns and its correct federal tax
    liabilities.” Id. at 242. The summonses requested information about HDR’s
    bank accounts, financial records and statements, electricity consumption,
    and general business operations. As explicated in connection with our
    discussion of the second Powell factor, infra, this information was all
    26
    relevant to whether § 280E applied to HDR, and, in turn, whether HDR had
    improperly taken certain deductions. Agent Turk’s attestation to this effect
    is sufficient to establish that the IRS acted with a legitimate purpose.
    In response, HDR argues that the investigation did not have a
    legitimate purpose because § 280E requires the IRS to conduct a criminal
    investigation, which exceeds the bounds of the agency’s statutory authority.
    More specifically, HDR’s argument proceeds in three parts. First, HDR
    argues that a court must conclude that the taxpayer’s conduct is illegal
    under the federal criminal drug laws—i.e., the CSA—before § 280E can
    apply. Second, it contends that the IRS possesses no authority to make a
    determination as to the legality of the taxpayer’s conduct under the CSA.
    Third, HDR posits that the IRS’s attempt to enforce § 280E notwithstanding
    this lack of statutory authority reveals that its investigation is actually an
    illegitimate, ultra vires attempt to administer the CSA under the guise of
    enforcing the tax code. We address, and reject, these contentions in turn.
    i
    HDR’s first proposition—that § 280E requires a predicate, judicial
    determination of illegality—is easily dismissed. To address this argument,
    we return to the relevant section of the tax code, which provides as follows:
    No deduction or credit shall be allowed for any amount paid
    or incurred during the taxable year in carrying on any trade
    27
    or business if such trade or business . . . consists of
    trafficking in controlled substances (within the meaning of
    schedule I and II of the [CSA]) 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. According to HDR, the IRS does not have the authority
    to disallow deductions under this section without an antecedent criminal
    conviction pursuant to the CSA. But two of our recent decisions foreclose
    HDR’s argument. In Green Solution, we noted, albeit in a different
    procedural context, that Ҥ 280E has no requirement that the [DOJ] conduct
    a criminal investigation or obtain a conviction before § 280E applies.” 855
    F.3d at 1121. 6 Then, in
    6
    In footnote 8 of that opinion, we restricted the scope of our holding:
    To the extent Green Solution argues the IRS exceeded its authority under
    the [IRC], we lack subject matter jurisdiction to consider the merits of
    the argument. We decide here only that the IRS’s efforts to assess taxes
    based on the application of § 280E fall within the scope of the AIA [i.e.,
    Anti-Injunction Act].
    Green Solution, 855 F.3d at 1121 n.8. Significantly, however, this restrictive
    language did not stop us in Alpenglow Botanicals, LLC v. United States, 
    894 F.3d 1187
     (10th Cir. 2018), from concluding that Green Solution’s reading of § 280E
    was “persuasive.” Id. at 1196. Our reasoning in reaching this conclusion is worthy
    of explication. We began by recounting the procedural context and basic holding
    of Green Solution:
    Green Solution sued to enjoin the IRS from investigating Green
    Solution’s business records in connection with an audit focused on
    whether certain business expenses should be denied under § 280E.
    (continued...)
    28
    Alpenglow Botanicals, LLC v. United States, we applied Green Solution’s
    “persuasive” analysis to reject a claim made by the taxpayers in that case
    that is similar to the one that HDR makes here—namely that “the IRS could
    not use § 280E to deny . . . deductions in the absence of a conviction from a
    criminal court.” 
    894 F.3d 1187
    , 1196 (10th Cir. 2018), aff’g Alpenglow
    Botanicals, LLC v. United States, No. 16-CV-00258-RM-CBS, 
    2016 WL 7856477
    , at *4 (D. Colo. Dec. 1, 2016) (unpublished). Indeed, as the
    district court in Alpenglow stated in a helpful opinion: “If Congress had
    (...continued)
    We concluded the Anti-Injunction Act (“AIA”) prevented the court
    from exercising jurisdiction over Green Solution’s “suit for the
    purpose of restraining the assessment or collection of any tax.”
    
    Id.
     (emphasis added) (quoting Green Solution, 855 F.3d at 1119). We further
    noted that “[i]n an attempt to avoid that conclusion, Green Solution [had] argued
    that the AIA did not preclude the action because a determination” of whether it had
    engaged in illegal drug trafficking in violation of the CSA is a matter within the
    investigative purview of the United States Attorney, and therefore the IRS did not
    have authority to determine whether it violated the CSA. Id. As recounted in
    Alpenglow, “[i]n rejecting this argument,” the Green Solution panel observed that
    § 280E did not oblige the IRS to conduct a criminal investigation or to obtain a
    criminal conviction before it assessed the propriety of business deductions under
    § 280E’s rubric. Id. In other words, as we described in Alpenglow, the Green
    Solution panel determined that “the IRS’s obligation to determine whether and
    when to deny deductions under § 280E[ ] falls squarely within its authority under
    the Tax Code.” Id. (alteration in original) (quoting Green Solution, 855 F.3d at
    1121). All of this led the Alpenglow panel to reason in turn: “Although not directly
    on point, our analysis in Green Solution is persuasive. Alpenglow offers no reason
    why we should conclude the IRS has the authority to assess taxes under § 280E, but
    cannot impose excess tax liability under § 280E.” Id.
    29
    wanted such an investigation to be carried out or conviction to be obtained,
    then it could easily have placed such language in § 280E.” 
    2016 WL 7856477
    , at *4; accord Green Solution, 855 F.3d at 1121 (quoting
    Alpenglow, 
    2016 WL 7856477
    , at *4 in parenthetical).
    As such, we break no new ground by concluding—based on the
    decisions of this court in Green Solution and Alpenglow, as well as the
    district court’s persuasive opinion in the latter case—that “[§] 280E does
    not require that a criminal investigation be pursued against a taxpayer, or
    even that § 280E only applies if a criminal conviction under the CSA has
    been obtained.” Alpenglow, 
    2016 WL 7856477
    , at *4. Thus, the IRS’s
    showing as to its legitimate purpose is not undermined by want of a
    conviction (or criminal investigation) against HDR under the CSA.
    ii
    HDR’s related second contention is that the IRS lacks the institutional
    authority—not to mention regulatory competency—to make the requisite
    determinations under § 280E. See Aplt.’s Opening Br. at 21 (noting that
    “IRS has expertise only in the Tax Code, and has neither the knowledge nor
    the expertise to determine a violation of law outside of its jurisdiction”);
    Aplt.’s Reply Br. at 9 (“There has been no specific delegation of authority
    by Congress to the IRS to determine under what circumstances a taxpayer
    30
    violates the CSA – or other federal criminal drug laws.”). In other words,
    HDR asserts that the IRS’s authority is strictly limited to the administration
    and enforcement of the tax code, and, more specifically, that Congress has
    not delegated to the IRS the authority to determine the circumstances under
    which a taxpayer violates a federal criminal statute, like the CSA.
    According to HDR, had Congress authorized the IRS to administratively
    determine criminal conduct, it would have spoken “distinctly” on the issue.
    Aplt.’s Reply Br. at 8 (citing United States v. Grimaud, 
    220 U.S. 506
    , 519
    (1911); United States v. Eaton, 
    144 U.S. 677
    , 688 (1892)).
    Again, HDR faces an uphill climb for the simple reason that we have
    twice rejected such an argument in similar or related contexts. We held in
    Alpenglow 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.” 894 F.3d at 1197 (emphasis added). And previously in Green
    Solution, 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.” 855 F.3d at 1121. To be sure, Green Solution
    expressly qualified this observation by noting that it was not deciding in
    that case whether “the IRS exceeded its authority under the [IRC]” by its
    “efforts to assess taxes based on the application of § 280E,” because
    31
    directly at issue there was whether we had jurisdiction over the taxpayer’s
    suit to enjoin those assessment efforts. Id. at 1121 n.8. However, just as
    we found Green Solution’s understanding of the IRS’s scope of authority
    under the tax code—with respect to the determination of taxpayer drug-
    trafficking activity—“persuasive” in Alpenglow, we also find that
    understanding to be cogent here. Alpenglow, 894 F.3d at 1196. Thus, the
    reasoning of our controlling precedent in both Alpenglow and Green
    Solution works to fatally undercut HDR’s argument here.
    Furthermore, as the Supreme Court underscored in Clarke, Congress
    has “‘authorized and required’ the IRS ‘to make the inquiries,
    determinations, and assessments of all taxes’ the [IRC] imposes.” 573 U.S.
    at 249–50 (emphasis added) (quoting 
    26 U.S.C. § 6201
    (a)). Speaking
    plainly and distinctly, Congress “granted the [IRS] broad latitude to issue
    summonses ‘[f]or the purpose of . . . determining the liability of any person
    for any internal revenue tax.’” 
    Id. at 250
     (emphasis added) (quoting 
    26 U.S.C. § 7602
    (a)).
    Because one of the requisite determinations to ascertaining the full
    scope of a taxpayer’s tax liability is the § 280E question of whether the
    taxpayer trafficked in controlled substances, it follows that Congress, in
    § 6201(a), has necessarily authorized the IRS to make that determination.
    32
    As the district court in Alpenglow observed:
    Section 280E is placed in the Internal Revenue Code, and
    instructs that deductions should be disallowed if certain
    circumstances exist in a taxpayer’s business. It would
    certainly be strange if the Internal Revenue Service was not
    charged with enforcing that provision. The fact that selling
    marijuana may also constitute a violation of the CSA is
    simply a byproduct of § 280E using the CSA’s definition of
    “controlled substances.”
    Alpenglow, 
    2016 WL 7856477
    , at *4. In other words, the IRS does not
    exceed its statutory authority by making 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. As we noted in our own
    Alpenglow decision, this view of the IRS’s authority is far from novel;
    “other courts have upheld tax deficiencies against state-sanctioned
    marijuana dispensaries based on application of § 280E, without questioning
    the IRS’s authority on this issue.” Alpenglow, 894 F.3d at 1196 (collecting
    cases).
    Moreover, it is noteworthy that the IRC in other instances requires the
    IRS to determine whether a taxpayer has engaged in unlawful conduct as
    part of its tax assessment and collection duties. See 
    26 U.S.C. § 162
    (c)(1)
    (disallowing business deductions for the taxpayer’s payments to government
    officials “if the payment constitutes an illegal bribe or kickback or, if the
    33
    payment is to an official or employee of a foreign government, [when] the
    payment is unlawful under the Foreign Corrupt Practices Act of 1977,” and
    placing the burden on the Treasury Secretary or its delegate, see 
    26 U.S.C. § 7701
    (a)(11)(B), to establish that the payment was in fact unlawful “for
    the purposes of this paragraph” (emphasis added)); 
    26 U.S.C. § 6663
    (imposing a civil tax penalty for a taxpayer’s underpayment if such
    underpayment “is due to fraud” which may be established by the Treasury
    Secretary or its delegate, see 
    26 U.S.C. § 7701
    (a)(11)(B)).
    We acknowledge a related, late-blooming argument made by HDR.
    This argument, based on HDR’s reading of Leary v. United States, 
    395 U.S. 6
     (1969), is waived because, while it was raised in HDR’s reply brief and
    Rule 28(j) letter, it was not mentioned in its opening brief. See Medina v.
    Catholic Health Initiatives, 
    877 F.3d 1213
    , 1227 n.6 (10th Cir. 2017)
    (“[I]ssues raised by an appellant for the first time on appeal in a reply brief
    are generally deemed waived.” (quoting Wheeler v. Comm’r, 
    521 F.3d 1289
    ,
    1291 (10th Cir. 2008))); Flores-Molina v. Sessions, 
    850 F.3d 1150
    , 1172
    n.16 (10th Cir. 2017) (“It is well established that we will not consider
    issues raised for the first time in a Rule 28(j) letter.” (alteration omitted)
    (quoting Thacker v. Workman, 
    678 F.3d 820
    , 842 (10th Cir. 2012))).
    However, even were we to excuse that waiver, the argument would
    34
    fail on the merits. HDR relies on Leary and related Supreme Court
    decisions for the proposition that “[i]f Congress delegates its tax power to
    allow the IRS to investigate inherently criminal activity for tax
    administration purposes, it must . . . (1) [p]rohibit the IRS from sharing the
    incriminating information with law enforcement; or (2) [p]rovide absolute
    immunity from prosecution.” Case No. 17-2083, Aplt.’s Supp. Authority at
    1–2, No. 10540166 (10th Cir., filed Mar. 2, 2018) (emphasis omitted).
    Without these procedural restrictions, as the argument goes, there would be
    a constitutional difficulty in vesting administrative agencies with the power
    to investigate facts with criminal implications. But we have previously
    rejected a similar argument. See Alpenglow, 894 F.3d at 1197 (rejecting the
    taxpayer’s attempt to rely on the Leary line of cases and concluding that
    “th[o]se decisions do not prohibit the IRS from applying § 280E to deny . . .
    deductions”).
    Moreover, the cited Supreme Court cases are inapposite, as they were
    predicated on natural-person taxpayers’ “invocation of the privilege against
    self-incrimination.” Id.; see, e.g., Marchetti v. United States, 
    390 U.S. 39
    ,
    41–49, 60–61 (1968) (concluding that natural-person taxpayer’s invocation
    of the Fifth Amendment privilege barred prosecution under federal
    wagering tax statutes requiring taxpayers, inter alia, to register with the
    35
    IRS their compliance with said statutes); Leary, 
    395 U.S. at 15, 27
     (holding
    the same with respect to conviction of a natural-person taxpayer for
    violating a marijuana tax law that obligated the taxpayer to file a written
    order form with the IRS detailing the amount of marijuana received). HDR,
    however, is not a natural-person taxpayer and, consequently, has no Fifth
    Amendment privilege that it can properly invoke. 7 See Braswell v. United
    States, 
    487 U.S. 99
    , 104–05 (1988) (stating that “we have long recognized
    that, for purposes of the Fifth Amendment, corporations and other
    collective entities are treated differently from individuals,” and that it is
    “settled that a corporation has no Fifth Amendment privilege”); United
    States v. Richardson, 
    469 F.2d 349
    , 350, 352 (10th Cir. 1972) (“[W]e hold
    that Richcon Enterprises, Inc. [‘treated for tax purposes under the
    provisions of Subchapter S’] has retained its corporate character, and
    7
    In any event, even if HDR could avail itself of a Fifth Amendment privilege
    (which it cannot), it would lend no meaningful succor to HDR in seeking to avoid
    disallowance of its business expenses under § 280E. In this regard, we have recently
    rebuffed the “contention” of natural-person taxpayers who were shareholders of a
    business that the state had licensed to sell medical marijuana “that bearing the burden of
    proving the IRS erred in rejecting [their company’s] business deduction under § 280E
    violated the Taxpayers’ Fifth Amendment privilege.” Feinberg v. Comm’r (“Feinberg
    II”), --- F.3d ----, 
    2019 WL 926088
    , at *6 (10th Cir. 2019). We observed that “[t]he
    Taxpayers fail to explain how requiring them to bear the burden of proving the IRS erred
    in applying § 280E to calculate their civil tax liability is a form of compulsion equivalent
    to a statute that imposes criminal liability for failing to provide information subjecting the
    party to liability under another criminal statute.” Id. at *5. And we concluded that in fact
    such a “burden is not ‘compulsion’ for purposes of the Fifth Amendment.” Id. at *6.
    36
    therefore its records are not within the ambit of [a stockholder’s] Fifth
    Amendment privilege”); Amato v. United States, 
    450 F.3d 46
    , 48 n.2 (1st
    Cir. 2006) (noting that “corporations and collective entities have no Fifth
    Amendment privilege against self-incrimination”). Indeed, as in
    Alpenglow, HDR wisely “has not raised a Fifth Amendment challenge on
    appeal.” Alpenglow, 894 F.3d at 1197. Thus, the Leary line of cases is
    inapposite here. Furthermore, akin to Alpenglow, HDR is relying on these
    cases to question the propriety of vesting the IRS with the “authority to tax
    based on its conclusion that the taxpayer is engaged in illegal conduct,”
    whereas the Leary line of cases evinced a “challenge[] to ‘the methods
    employed by Congress’ in enforcing these [tax] statutes, not the authority
    of the IRS to investigate and tax illegal activity.” Id. (citation omitted)
    (quoting Marchetti, 
    390 U.S. at 44
    ). Accordingly, even were we to put
    aside any waiver concerns, HDR’s Leary-related contentions explicated
    above would fail on the merits.
    In a variation on this theme, HDR further argues that Congress’s
    repeal, after Leary, of the Narcotics Drugs Import and Export Act and
    Marijuana Tax Act “shows that Congress took away any IRS authority to
    investigate and find violations of federal criminal drug laws.” Aplt.’s
    Reply Br. at 9. According to HDR, Leary and the subsequent repeal of
    37
    these statutes militate against the conclusion that Congress would have, in
    § 280E, given to the IRS the “authority to investigate and administratively
    determine that a person has violated federal criminal drug laws – even for
    the determination of tax liability.” Id. at 11. This argument, too, is waived
    because HDR raises it for the first time in its reply brief. See, e.g., Medina,
    877 F.3d at 1227 n.6.
    Even if HDR could overcome this waiver obstacle, we would still
    conclude that the argument is misguided. As the district court in Alpenglow
    observed, Ҥ 280E provides the IRS with the authority to make the factual
    determinations necessary to decide whether that provision applies to a
    taxpayer’s trade or business,” and no more. 
    2016 WL 7856477
    , at *4
    (emphasis added). Congress can authorize the IRS to make an
    administrative determination that the taxpayer regularly bought or sold
    marijuana during the course of its business without simultaneously
    authorizing the IRS to determine, for purposes of imposing criminal
    liability, whether the taxpayer violated federal drug laws. Cf. Apenglow,
    894 F.3d at 1196 (noting that “[a]t the core of Alpenglow’s argument is the
    assumption that a determination a person trafficked in controlled substances
    under tax law is essentially the same as a determination the person
    trafficked in controlled substances under criminal law,” and showing that
    38
    assumption to be mistaken (first emphasis added)). And that’s exactly what
    Congress did in enacting § 280E.
    In sum, none of HDR’s arguments provide us with a persuasive reason
    for straying, in the context of the IRC, from our observation in Green
    Solution that “the IRS’s obligation to determine whether and when to deny
    deductions under § 280E[] falls squarely within its authority under the Tax
    Code.” 855 F.3d at 1121. We agree with the district court that the IRS in
    fact “has the authority to investigate whether a party is trafficking in
    controlled substances in order to apply Section 280E.” Aplt.’s App. at 438
    (Order, dated Mar. 31, 2017). HDR does not succeed in creating a genuine
    dispute of material fact about the IRS’s good faith on this ground.
    iii
    Finally, in its third bid to undermine the government’s showing on the
    first Powell factor, HDR argues that the IRS proceeded without a legitimate
    purpose because it sought to “apply[] the criminal penalty imposed by the
    statute.” Aplt.’s Opening Br. at 22. According to HDR, under the guise of
    a routine civil audit intended to effectuate § 280E, the IRS was actually
    engaging in a backdoor enforcement of the CSA. The evidence, however,
    simply fails to show that the IRS was focused on criminal prosecution in its
    investigation of HDR. On this point, we agree with the district court that,
    39
    “though HDR characterizes the investigation here as criminal or
    pseudo-criminal . . . HDR alleges no facts by which this Court could
    conclude that the IRS was investigating a purported violation of the CSA
    for purposes of a criminal investigation.” Aplt.’s App. at 434.
    HDR’s contentions to the contrary are unavailing. HDR asserts that
    “statements made by Ms. Turk[] indicate the [IRS’s] true purpose is not
    simply to routinely audit [HDR’s] tax returns.” Aplt.’s Opening Br. at 22
    (emphasis added). However, HDR fails to identify Agent Turk’s ostensibly
    problematic comments. Yet, as the appellant, it is clearly HDR’s burden to
    do so. See United States v. Rodriguez-Aguirre, 
    108 F.3d 1228
    , 1237 n.8
    (10th Cir. 1997) (“refus[ing] to determine the prejudicial effect, if any, of
    the uncited evidence”); accord WildEarth Guardians v. U.S. Fish and
    Wildlife Serv., 
    784 F.3d 677
    , 692 n.12 (10th Cir. 2015); see also Schaede v.
    Boeing Co., 
    72 F.3d 138
    , at *1 (10th Cir. 1995) (unpublished table
    decision) (noting that “it is the appellant’s responsibility to tie the salient
    facts, supported by specific record citation, to [its] legal contentions”). In
    any event, our independent study of Agent Turk’s declarations reveals no
    such problematic statements. Therefore, we decline to give credence to
    HDR’s contentions.
    HDR also alleges that statements made by the IRS during the course
    40
    of the litigation suggest that the IRS’s investigation was motivated by an
    “improper purpose (to investigate violation of a criminal statute, . . . the
    [CSA]).” Aplt.’s Opening Br. at 13. In particular, HDR contends that the
    distinction that the IRS purports to draw between “mak[ing]
    determination[s] about whether [a] business illegally trafficked in Schedule
    [I] substances” for tax purposes, on the one hand, and enforcing the
    criminal aspects of the CSA, on the other, is untenable. 
    Id.
     at 24 (citing
    Aplt.’s App. at 140–41 (Aplee.’s Mot. to Dismiss Pet. to Quash, dated Jul.
    13, 2016)). According to HDR, the IRS’s contention that it may “make
    independent determinations regarding illegal activity” indicates that the IRS
    is, in effect, enforcing the CSA. 
    Id.
     (citing Aplt.’s App. at 142).
    We are unpersuaded. HDR fails to present any evidence that the IRS
    has operated with criminal prosecution in mind. For one, as Agent Turk
    stated in her declarations, the IRS had not referred the matter to the DOJ
    for prosecution under the CSA. For another, there is no plausible reading
    of the record that would indicate that HDR had in fact been investigated,
    charged, or prosecuted criminally under the CSA for business activities
    stemming from fiscal year 2014 or 2015. Even the traditional summary-
    judgment standard cannot save HDR from the adverse legal consequences of
    such bald averments unsupported by evidence. On the contrary, the record
    41
    indicates, as the district court found, that the IRS proceeded on its own
    investigation in this matter with the sole object of ascertaining HDR’s tax
    liability.
    In sum, we agree with the district court that there is no indication in
    the record that the IRS investigated HDR with an illegitimate purpose.
    c
    In satisfaction of the second Powell factor, whether “the inquiry [is]
    relevant to the [legitimate] purpose,” 
    379 U.S. at
    57–58, Agent Turk
    explained how each of the four summonses were relevant to the
    investigation. Specifically, the information sought from the New Mexico
    Department of Health would be used to determine whether HDR was
    growing or selling marijuana, and to substantiate gross receipts and income
    information. The information sought from the Public Service Company of
    New Mexico, concerning electricity use, would help to determine the
    amount of marijuana grown during the fiscal years under investigation,
    which would, in turn, substantiate gross receipts. The bank account
    information sought from My Bank and Southwest Capital Bank also would
    be used to substantiate gross receipts and income information. Agent
    Turk’s affidavit satisfies the IRS’s “slight” burden. Because HDR puts
    42
    forward no further argument or evidence on this factor, we conclude that
    there is no genuine dispute of material fact here.
    d
    As to the third Powell factor, whether “the information sought is []
    already within the Commissioner’s possession,” Powell, 
    379 U.S. at
    57–58,
    Agent Turk stated that the IRS did not already possess the information
    sought and had not received the documents it had requested from HDR
    pursuant to its repeated Document Requests. Aplt.’s App. at 239 (“To date,
    HDR has not responded to [Document Requests] 1 or 2 or provided any
    information to substantiate the figures shown on its tax returns for the
    periods ending June 30, 2014, and June 30, 2015.”). 8 This statement
    satisfies the IRS’s initial burden.
    HDR responds by arguing that it had offered the IRS the summonsed
    documents—albeit conditionally—and so the documents should be
    considered “constructively in control” of the IRS. Aplt.’s Opening Br. at
    8
    In the interest of completeness, two matters are worthy of mention here.
    First, as the district court explained, the IRS was ultimately able to obtain the information
    sought from the New Mexico Department of Health through a public records request, and
    thereafter withdrew its request to enforce that summons. Second, Agent Turk stated in
    her declaration that she had received a bundle of documents in response to her summons
    to the Public Service Company of New Mexico, but that she would decline to open the
    package while HDR’s petition to quash remained pending. Notably, HDR makes no
    argument that either of these events is relevant to our analysis of the third Powell factor.
    43
    13. HDR further argues that the IRS’s rejection of its conditional tender of
    the requested materials “casts doubt upon its stated limited purpose of
    merely ‘determining [the] correctness of HDR’s tax return.’” Id. at 27.
    We begin by noting that nothing in the record indicates that HDR ever
    physically furnished the IRS with the information it sought. Indeed, Agent
    Turk specifically stated that the IRS was not in possession of the materials
    it requested from HDR. Although HDR’s briefing conclusorily suggests
    that Agent Turk’s testimony does not tell the full story, HDR fails to cite to
    any part of the record as proof that it did in fact deliver the requested
    materials to the IRS. The burden of disproving the government’s prima
    facie showing “rests squarely on the taxpayer,” Balanced Fin. Mgmt., 
    769 F.2d at 1444
     (quoting Kis, 658 F.2d at 538–39), and HDR has not
    adequately carried its burden on this point, see id. (“[I]t is clear that a
    taxpayer must factually oppose the Government’s allegations by affidavit.
    Legal conclusions or mere memoranda of law will not suffice.” (quoting
    Garden State Nat’l Bank, 
    607 F.2d at 71
    )).
    Nor does HDR get credit for “constructively” complying with the
    IRS’s Document Requests. As the district court observed, HDR’s “offer” to
    release information to the IRS came with significant strings attached. Prior
    to the issuance of the summonses, HDR agreed to
    44
    “furnish documentation . . . provided that [HDR is] given assurance from
    the IRS, that the IRS will use the information furnished for this civil audit,
    and not to support the IRS’s determination that the Taxpayer’s business
    consists of illegal activities.” Aplt.’s App. at 79. An IRS attorney
    responded that the IRS did not have the authority to agree to HDR’s
    conditions, as the IRS was bound by 
    26 U.S.C. § 6103
    (i), which requires
    the IRS to turn tax-return documents over to other agencies in certain
    circumstances.
    On appeal, the government argues that HDR’s “condition was a plain
    attempt to preclude the IRS’s investigation as to Section 280E,” which the
    IRS was authorized to conduct. Aplee.’s Resp. Br. at 47. Be that as it may,
    what is patent is that HDR’s conditional offer to furnish the documents put
    the IRS in an objectionable and unsuitable position. And, contrary to
    HDR’s suggestion—see Aplt.’s Opening Br. at 13 (noting that “[t]he
    necessary documents requested were originally tendered [to the IRS] by
    [HDR’s] representative” and “are available and constructively in control of
    the IRS”)—its conditional offer was not tantamount to placing the
    documents in the IRS’s constructive possession in satisfaction of Powell’s
    third factor. The IRS was “under no obligation to circumscribe its
    examination—or to ignore statutory complications—in order to obtain
    45
    relevant documents.” Aplee.’s Resp. Br. at 47.
    HDR further argues that the IRS could have given it “use immunity” 9
    pursuant to 
    18 U.S.C. § 6004
    , 10 and so the IRS’s protestation that it did not
    9
    See, e.g., United States v. Fishman, 
    645 F.3d 1175
    , 1185 n.6 (10th Cir.
    2011) (“Use immunity ‘confers immunity [with regard to possible criminal
    prosecution] only against the use of testimony compelled under the immunizing
    order; it does not confer transactional immunity under which the witness could not
    be prosecuted at all for the transactions about which he testifies.’” (quoting In re
    Madison Guar. Sav. & Loan, 
    352 F.3d 437
    , 443 (D.C. Cir. 2003) (per curiam)));
    Use Immunity, BLACK ’S LAW DICTIONARY (10th ed. 2014) (“Immunity from the use
    of compelled testimony (or any information derived from that testimony) in a future
    prosecution against a witness.”); see also United States v. Schmidt, 
    816 F.2d 1477
    ,
    1480–81 (10th Cir. 1987) (discussing the act-of-production doctrine, whereby “the
    act of producing the subpoenaed documents would involve testimonial
    self-incrimination”).
    10
    In pertinent part, this statute provides:
    (a) In the case of any individual who has been or who may be
    called to testify or provide other information at any proceeding
    before an agency of the United States, the agency may, with the
    approval of the Attorney General, issue, in accordance with
    subsection (b) of this section, an order requiring the individual
    to give testimony or provide other information which he refuses
    to give or provide on the basis of his privilege against
    self-incrimination . . . .
    (b) An agency of the United States may issue an order under
    subsection (a) of this section only if in its judgment--
    (1) the testimony or other information from such
    individual may be necessary to the public interest; and
    (2) such individual has refused or is likely to refuse to
    testify or provide other information on the basis of his
    privilege against self-incrimination.
    (continued...)
    46
    have the authority to accept HDR’s proposed conditions was legally
    erroneous. Aplt.’s Opening Br. at 25–26. HDR seems to reason that the
    IRS has constructive possession of the documents because, if it granted
    “use immunity” to HDR, HDR would have been willing to turn the
    documents over. However, even assuming that the IRS is “an agency of the
    United States” within the meaning of § 6004, and thus authorized under
    certain circumstances to grant “use immunity,” and even assuming that it
    could confer such immunity on a corporation like HDR, the IRS could not
    do so without “the approval of the Attorney General.” 
    18 U.S.C. § 6004
    (a).
    Therefore, the IRS would not have been entirely free of its own accord to
    comply with HDR’s conditions. Furthermore, even if the IRS could have
    granted HDR “use immunity,” HDR cites no legal authority that indicates
    that the IRS was required to do so to secure HDR’s compliance with its
    Document Requests. In sum, we are not persuaded that any ostensible
    power that the IRS possessed to grant HDR “use immunity” gave it
    constructive possession over the documents it sought from HDR.
    We thus agree with the district court that the IRS satisfied the third
    Powell factor. HDR has not demonstrated the existence of a genuine
    (...continued)
    
    18 U.S.C. § 6004
    .
    47
    factual dispute that the IRS did not have the sought-after information in its
    possession.
    e
    Finally, we conclude that the fourth Powell factor—which requires
    the IRS to prove that it “followed” “the administrative steps required by the
    [IRC],” Powell, 
    379 U.S. at
    58—is satisfied here. To meet this
    requirement, the IRS must comply with the procedures outlined in
    § 7602(c), requiring it to give “reasonable notice in advance to the taxpayer
    that contacts with persons other than the taxpayer may be made.” 
    26 U.S.C. § 7602
    (c)(1). In this regard, Agent Turk’s declarations establish that
    proper notice was provided to HDR. Her declarations explain how she
    twice sent HDR copies of IRS Publication 1, which informs the taxpayer,
    under a section entitled “Potential Third Party Contacts,” that the IRS will
    “sometimes talk with other persons if we need information that you have
    been unable to provide, or to verify information we have received.”
    Several district courts have concluded that IRS Publication 1 provides
    sufficient notice to satisfy § 7602(c). See, e.g., Gangi v. United States, 
    2 F. Supp. 3d 12
    , 21–22 (D. Mass. 2014), aff’d, 638 F. App’x 16 (1st Cir. 2016)
    (unpublished); Bible Study Time, Inc. v. United States, 
    240 F. Supp. 3d 409
    ,
    422–23 (D.S.C. 2017). We acknowledge that the Ninth Circuit has recently
    48
    held that IRS Publication 1 did not provide sufficient notice to satisfy
    § 7602(c) based on the circumstances of the case before it but noted that
    Publication 1 might provide sufficient notice in other circumstances. See
    J.B. v. United States, --- F.3d ----, 
    2019 WL 923717
     at *1 (9th Cir. 2019)
    (“We reject a categorical approach to this question. We conclude that
    ‘reasonable notice in advance’ means notice reasonably calculated, under
    all the relevant circumstances, to apprise interested parties of the
    possibility that the IRS may contact third parties, and that affords interested
    parties a meaningful opportunity to resolve issues and volunteer
    information before third-party contacts are made.”). However, HDR does
    not dispute that IRS Publication 1 provided the notice required by §
    7602(c)(1). Therefore, for purposes of assessing whether the IRS satisfied
    the notice requirement here, we assume without deciding that Publication 1,
    in substance, did provide sufficient notice under § 7602(c)(1).
    However, HDR appears to argue that the IRS ran afoul of Powell by
    sending IRS Publication 1 prior to its “investigation” and determination
    that further examination was necessary. See Aplt.’s Opening Br. at 28
    (“The use of Publication 1 sent early i[n] the proceedings prior to
    investigation is insufficient.”). But we reject this argument because the
    IRS gave HDR advance notice of potential third-party contacts multiple
    49
    times, including after the investigation was underway. In addition to the
    initial copy of IRS Publication 1 that Agent Turk sent on February 1, 2016,
    Agent Turk also explained the contents of “taxpayer’s rights as outlined in
    Publication 1” in a subsequent telephone conference with one of HDR’s
    shareholders, during which she informed the shareholder that HDR was
    under audit and that the IRS believed that information as to HDR’s costs of
    goods sold, gross receipts, and total deductions were necessary to its
    inquiry. Aplt.’s App. at 340. Moreover, the IRS investigation was well
    underway by the time IRS Publication 1 was again transmitted to HDR in
    May of 2016.
    Thus, we conclude the district judges correctly determined that there
    is no genuine dispute of material fact concerning whether the IRS complied
    with the requirement of § 7602(c)(1)—and thereby satisfied Powell’s fourth
    factor—to provide reasonable notice in advance that it may contact persons
    other than HDR.
    ***
    In light of the above, the district judges correctly concluded that “the
    United States demonstrated a prima facie case that it acted in good faith as
    required by Powell.” Aplt.’s App. at 438. In response, HDR has not borne
    its “heavy burden” of rebutting this showing, Balanced Fin. Mgmt., 769
    50
    F.2d at 1449; it has not “point[ed] to specific facts or circumstances
    plausibly raising an inference of bad faith.” Clarke, 573 U.S. at 254. And
    because HDR’s affidavits did not present a “disputed factual issue, or . . .
    proper affirmative defenses,” Balanced Fin. Mgmt., 
    769 F.2d at 1445
    (quoting Garden State Nat’l Bank, 
    607 F.2d at 71
    ), the district judges
    rightly denied an evidentiary hearing. See Stuart, 
    489 U.S. at 369
    (“[S]ummons enforcement proceedings should be summary in nature and
    discovery should be limited.” (alteration in original) (quoting S. R E P . N O .
    97–494, Vol. I, at 285 (1982), as reprinted in 1982 U.S.C.C.A.N. 781,
    1031). Because there is no genuine dispute of material fact, we conclude
    that the district judges properly entered summary judgment in favor of the
    IRS.
    B
    HDR alternatively contends that the IRS cannot deny HDR deductions
    for its ordinary and necessary business expenses because the underlying
    public policy that § 280E purports to vindicate as to marijuana
    trafficking—that is, the policy regarding marijuana trafficking embodied in
    the CSA—is a “dead letter.” We disagree. First, we set the stage with
    some background information regarding the role of public policy in the tax-
    deduction context. Second, we reject HDR’s argument that the presumption
    51
    against judicially-recognized public policy exceptions applies to § 280E.
    And, third and lastly, we express our disagreement with HDR’s suggestion
    that the DOJ’s ostensible policy of non-enforcement of CSA in the
    marijuana context could render that statute’s proscription of marijuana
    trafficking a “dead letter.”
    1
    As previously noted, taxpayers are generally permitted to claim
    deductions for “all the ordinary and necessary expenses paid or incurred
    . . . in carrying on any trade or business.” 
    26 U.S.C. § 162
    (a). However,
    courts have recognized a public policy exception to this general rule: “A
    finding of ‘necessity’ cannot be made . . . if allowance of the deduction
    would frustrate sharply defined national or state policies proscribing
    particular types of conduct, evidenced by some governmental declaration
    thereof.” Tank Truck Rentals, Inc. v. Comm’r, 
    356 U.S. 30
    , 33 (1958)
    (citing Comm’r v. Heininger, 
    320 U.S. 467
    , 473 (1943)). But this exception
    has been tightly circumscribed, with the Supreme Court articulating a
    presumption against the public policy exception that counsels the IRS
    “against invoking public-policy exceptions to the Code too freely.” Estate
    of Petter v. Comm’r, 
    98 T.C.M. (CCH) 534
    , at *12 (T.C. 2009) (describing
    the effect of Comm’r v. Tellier, 
    383 U.S. 687
     (1966)), aff’d, 
    653 F.3d 1012
    52
    (9th Cir. 2011).
    This presumption arose out of an understanding that the tax code
    should not be used as a “mandate for extirpating evil,” and that liberal
    application of the public policy exception “would result in a tax on gross
    rather than net income, and thus be ‘inconsistent with a tax system geared
    to the latter concept.’” Dixie Mach. Welding & Metal Works, Inc. v. United
    States, 
    315 F.2d 439
    , 441 (5th Cir. 1963) (quoting Business Expenses,
    Disallowance, and Public Policy: Some Problems of Sanctioning with the
    Internal Revenue Code, 72 Y A LE L.J. 108, 112, 114 (1962)); cf. Tank Truck,
    
    356 U.S. at 33
     (observing that the presumption effectuates Congress’s
    “broad basic policy of taxing ‘net not . . . gross, income’” (quoting
    McDonald v. Comm’r, 
    323 U.S. 57
    , 66–67 (1944))). To overcome the
    presumption, the “frustration [of public policy] resulting from allowance of
    the deduction” must be “sever[e] and immedia[te].” Tank Truck, 
    356 U.S. at 35
    .
    2
    HDR acknowledges that § 280E is a public policy exception to the
    general background rule of § 162(a) that permits deductions for trade and
    business expenses, but it argues that § 280E should no longer be recognized
    in the marijuana context because the public policy it serves—purportedly, a
    53
    public policy against marijuana trafficking—has lessened over time and
    become a “dead letter.” Under the logic of HDR’s argument, given the
    “dead letter” status of the policy against marijuana trafficking, there would
    be no frustration of public policy if companies, like HDR, were permitted to
    take their business-expense deductions. Consequently, reasons HDR, the
    presumption against the public policy exception should be given full effect
    here and HDR should be allowed its deductions.
    More specifically, by HDR’s reckoning, both the DOJ and Congress
    have de-prioritized enforcement of the CSA with regard to marijuana
    trafficking. Therefore, no public policy would be frustrated if the IRS
    simply overlooked marijuana dispensaries in its administration of § 280E.
    In support of this contention, HDR points to the “Ogden Memo,” and “Cole
    Memo,” in which two consecutive Deputy Attorneys General encouraged
    federal prosecutors to decline prosecutions of state-regulated marijuana
    dispensaries in most circumstances. 11
    HDR also refers to Congress’s appropriations bills for fiscal years
    2015 and 2016 as evidence of Congress’s intent not to seek enforcement of
    11
    See Memorandum from David W. Ogden, Deputy Att’y Gen., U.S.
    Dep’t of Justice, Memorandum for Selected United States Attorneys (Oct. 19,
    2009), revised by Memorandum from James M. Cole, Deputy Att’y Gen., U.S.
    Dep’t of Justice, Memorandum for all United States Attorneys (Aug. 29, 2013).
    54
    the CSA in states that have legalized certain marijuana-related activities.
    These bills prevented the DOJ from using appropriated funds to stop states
    that legalized marijuana “from implementing their own State laws that
    authorize the use, distribution, possession, or cultivation of medical
    marijuana.” Consolidated and Further Continuing Appropriations Act,
    2015, Pub. L. No. 113–235, 
    128 Stat. 2130
    , 2217 (2014); see also
    Consolidated Appropriations Act, 2016, Pub. L. No. 114–113, 
    129 Stat. 2242
    , 2332–33 (2015).
    The government, for its part, has countered with a more recent
    memorandum from then-Attorney General Jeff Sessions that rescinded the
    Ogden and Cole memos, to support its position that the federal policy
    against marijuana trafficking embodied in the CSA was never a “dead
    letter.” See Memorandum of Att’y Gen. Jefferson B. Sessions Regarding
    Marijuana Enforcement (Jan. 4, 2018). 12
    HDR’s argument here fails because it is clear that the presumption
    against public policy exceptions cannot be applied to § 280E. As the
    12
    In November 2018, following briefing and oral argument in this case,
    Jefferson B. Sessions resigned from his post as Attorney General, was replaced on
    an acting basis by Matthew G. Whitaker, and then replaced on a permanent basis by
    William P. Barr. The parties have not informed us of any action by the DOJ to
    rescind or materially alter the referenced Sessions memo, and we are not aware of
    any such action.
    55
    Supreme Court has held, the presumption against public policy exceptions
    applies only where “Congress has been wholly silent” as to whether
    deductions should be disallowed as a matter of public policy. Tellier, 
    383 U.S. at
    693–94. Absent this circumstance, “[d]eductions . . . may . . . be
    disallowed by specific legislation, since deductions ‘are a matter of grace
    and Congress can, of course, disallow them as it chooses.’” 
    Id.
     (quoting
    Comm’r v. Sullivan, 
    356 U.S. 27
    , 28 (1958)). Indeed, “[s]pecific
    legislation denying deductions for payments that violate public policy is not
    unknown.” 
    Id.
     at 693 n.10. Section 280E is precisely such a congressional
    disallowance by specific legislation.
    Like the provisions cited by the Tellier Court, 
    383 U.S. at
    693 n.10
    (referencing, inter alia, § 162(c) (providing disallowance of deductions for
    certain unlawful bribes), and § 165(d) (restricting wagering deductions to
    the extent of wagering gains)), § 280E is a formal expression of federal
    public policy—or, put another way, a codification of a public policy
    exception—regarding drug trafficking activities that the CSA condemns.
    Those condemned activities include marijuana trafficking. See Californians
    Helping to Alleviate Med. Problems, Inc. v. Comm’r, 
    128 T.C. 173
    , 181
    (T.C. 2007); see also Alpenglow, 894 F.3d at 1206 (“Congress has not been
    silent here; by enacting § 280E, Congress has spoken expressly on its intent
    56
    to prohibit the deduction of business expenses related to drug trafficking
    illegal under federal law.”). The Senate Finance Committee report
    accompanying § 280E makes the connection explicit. See S. R E P . N O .
    97–494, Vol. 1, at 309 (1982), as reprinted in 1982 U.S.C.C.A.N. 781, 1050
    (noting that “[t]here is a sharply defined public policy against drug
    dealing,” and that deductions for drug-related business expenses “must be
    disallowed on public policy grounds”).
    By codifying through specific legislation the federal public policy
    against the allowance of business expenses for certain drug-trafficking
    activity that the CSA condemns—including marijuana
    trafficking—Congress necessarily rendered the presumption against the
    operation of the public policy exception inapplicable in this context. See
    Tellier, 
    383 U.S. at 693
    . In other words, the common-law presumption
    disfavoring public policy exceptions does not apply to § 280E. See
    Alpenglow, 894 F.3d at 1206 (concluding the same).
    3
    In resisting this outcome, HDR relies on a 1964 district court case
    from Alabama, Sterling Distribs. v. Patterson, 
    236 F. Supp. 479
     (N.D. Ala.
    57
    1964). 13 In Sterling Distributors, the IRS attempted to disallow deductions
    for costs the taxpayer incurred in providing free beer as part of its
    promotional campaign; at the time, Alabama had statutes which outlawed
    such conduct. 
    Id. at 482
    . The district court, however, found for the
    taxpayer and denied the disallowance after it determined that the Alabama
    statutes in question had fallen into desuetude and become, in effect, a “dead
    letter.” 
    Id.
     at 483–84 (“It would be an apparent anachronism for this court
    now to hold that the expenses actually incurred by plaintiff in carrying on
    [its] . . . business violate or frustrate the public policy of the State of
    Alabama . . . [when] the State, through its authorized officers, long ago
    determined [that the public policy] should not be enforced.”).
    Sterling Distributors, however, is clearly not binding on us, and,
    furthermore, is readily distinguishable. There, Congress had been silent as
    to whether costs associated with providing free beer in (technical)
    contravention of state law were properly deductible under § 162(a), thus
    13
    Besides Sterling Distributors, the only case that HDR cites that
    purportedly applied a “dead letter” doctrine is Brown v. Comm’r, 
    63 T.C.M. (CCH) 1866
     (T.C. 1992). But in that case the tax court was addressing 
    26 U.S.C. § 162
    (c)(2), which critically prevents deductions for bribes that are made illegal
    by state law “only if such State law is generally enforced.” 
    Id.
     (emphasis added).
    This unique statutory provision then does not support a more generalized “dead
    letter rule” based on non-enforcement—particularly with respect to § 280E, which
    has no analogous language that makes its application turn on whether the federal
    Executive Branch generally enforces the CSA.
    58
    providing the court with “flexib[le]” discretion to determine whether a
    public policy exception should apply. 
    236 F. Supp. at 482
     (quoting Tank
    Truck, 
    356 U.S. at 35
    ); see also Alpenglow, 894 F.3d at 1206 (“[T]he
    Supreme Court has held that a public policy analysis on the disallowance of
    deductions under the Tax Code is only appropriate ‘where Congress has
    been wholly silent[.]” (quoting Tellier, 
    383 U.S. at 693
    )). And, in applying
    this discretion, the court considered the fact that the Alabama statute in
    question had not been enforced. Here, however, there is no such silence,
    and thus no discretion for a court to engage in an analysis to determine
    whether or not a public policy exception should apply. 14 Congress has
    expressly determined that such an exception does apply, and it is embodied
    in § 280E. Specifically, Congress, through § 280E, has expressly
    disallowed the deductions in question, i.e., deductions of business expenses
    when the underlying business “consists of trafficking in controlled
    substances (within the meaning of schedule I and II of the [CSA]) which is
    prohibited by Federal law.” 26 U.S.C. § 280E. See also Alpenglow, 894
    F.3d at 1206 (similarly distinguishing Sterling Distributors on the ground
    14
    Therefore, we have no occasion to opine here on whether—as in Sterling
    Distributors—the nonenforcement of a statutory proscription could be a proper variable
    in any such public policy exception analysis.
    59
    that, unlike in that case, “Congress has not been silent here; by enacting §
    280E, Congress has spoken expressly on its intent to prohibit the deduction
    of business expenses related to drug trafficking illegal under federal law”
    (emphasis added)).
    Furthermore, even if we could elide Congress’s clear statement of
    public policy embodied in § 280E and thus open the discretionary door to
    consideration of a purported “dead letter” rule—which we cannot—there is
    reason to seriously question whether such a rule would have any space to
    operate in this context. Cf. Feinberg v. Comm’r, 
    808 F.3d 813
    , 816 (10th
    Cir. 2015) (Gorsuch, J.) (“Feinberg I”) (“[I]n our constitutional order it’s
    Congress that passes the laws, Congress that saw fit to enact 
    21 U.S.C. § 841
    , and Congress that in § 841 made the distribution of marijuana a
    federal crime. And, frankly, it’s not clear whether informal agency
    memoranda guiding the exercise of prosecutorial discretion by field
    prosecutors may lawfully go quite so far in displacing Congress’s policy
    directives as these memoranda seek to do.”). More generally, like the
    taxpayer in Alpenglow, HDR simply “has failed to demonstrate any
    widespread acceptance of adoption of the ‘[d]ead [l]etter [r]ule’ announced
    in Sterling Distributors.” 894 F.3d at 1206.
    In sum, HDR has failed to demonstrate that the CSA—as to marijuana
    60
    trafficking—has succumbed to its proposed “dead letter rule,” let alone in a
    manner that would render § 280E inoperative. Aplt.’s Opening Br. at
    32–33.
    III
    Based on the foregoing, we conclude that HDR is unable to overcome
    the government’s demonstration of good faith under Powell, and its
    alternative “dead letter” argument is without merit. Accordingly, we
    AFFIRM the judgments of the two district court judges in these
    consolidated cases. 15
    15
    As with the taxpayers in Feinberg II, HDR is “understandably frustrated”
    by the potential loss of “business expense deductions under § 280E.” 
    2019 WL 926088
    ,
    at *7 n.3. “Despite operating in accordance with state law” that controls the distribution
    of marijuana, marijuana dispensaries like HDR “are subject to greater federal tax liability
    than other legitimate state businesses.” 
    Id.
     But as we stated in Feinberg II, any remedy
    for this perceived problem is beyond our purview; it “must come from Congressional
    change to § 280E or 
    21 U.S.C. § 812
    (c)(Schedule I) rather than from the courts.” 
    Id.
    61
    

Document Info

Docket Number: 17-2083 & 17-2095

Citation Numbers: 917 F.3d 1170

Judges: Lucero, Holmes, Eid

Filed Date: 3/5/2019

Precedential Status: Precedential

Modified Date: 10/19/2024

Authorities (45)

united-states-of-america-and-robert-h-mccorry-special-agent-of-the , 607 F.2d 61 ( 1979 )

Fox v. Vice , 131 S. Ct. 2205 ( 2011 )

United States v. Eaton , 12 S. Ct. 764 ( 1892 )

United States v. LaSalle National Bank , 98 S. Ct. 2357 ( 1978 )

Commissioner v. Sullivan , 78 S. Ct. 512 ( 1958 )

Reisman v. Caplin , 84 S. Ct. 508 ( 1964 )

United States v. Lester Genser and Lawrence Forman , 582 F.2d 292 ( 1978 )

Dixie MacHine Welding & Metal Works, Inc. v. United States , 315 F.2d 439 ( 1963 )

John E. Codner v. United States , 17 F.3d 1331 ( 1994 )

Gillman v. Ford (In Re Ford) , 492 F.3d 1148 ( 2007 )

united-states-of-america-and-jerry-shea-special-agent-internal-revenue , 469 F.2d 349 ( 1972 )

Braswell v. United States , 108 S. Ct. 2284 ( 1988 )

United States v. Stuart , 109 S. Ct. 1183 ( 1989 )

General Electric Co. v. Joiner , 118 S. Ct. 512 ( 1997 )

Thacker v. Workman , 678 F.3d 820 ( 2012 )

Davis v. Mineta , 302 F.3d 1104 ( 2002 )

united-states-of-america-and-anthony-butzek-special-agent-internal , 602 F.2d 134 ( 1979 )

united-states-of-america-and-john-f-olivero-special-agent-of-the-internal , 554 F.2d 302 ( 1977 )

Tank Truck Rentals, Inc. v. Commissioner , 78 S. Ct. 507 ( 1958 )

Sterling Distributors, Inc. v. Patterson , 236 F. Supp. 479 ( 1964 )

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