Green Solution Retail, Inc. v. United States

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS May 2, 2017
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
THE GREEN SOLUTION RETAIL, INC.,
a Colorado corporation; KYLE
SPEIDELL,
Plaintiffs - Appellants,
v. No. 16-1281
UNITED STATES OF AMERICA;
INTERNAL REVENUE SERVICE; JOHN
KOSKINEN, Internal Revenue Service
Commissioner; DAVID HEWLETT, in
his official capacity, Auditor for the
Internal Revenue Service,
Defendants - Appellees.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:16-CV-00257-RPM)
_________________________________
James D. Thorburn, Thorburn Walker, LLC, Greenwood Village, Colorado (Richard
Walker, with him on the briefs), for Plaintiffs-Appellants.
Patrick J. Urda, Attorney, Tax Division (Caroline D. Ciraolo, Principal Deputy Assistant
Attorney General; Diana L. Erbsen, Deputy Assistant Attorney General; Gilbert S.
Rothenberg, Attorney; Richard Farber, Attorney; and Robert C. Troyer, Acting United

Mr. Hewlett was referred to as such throughout the proceedings, including the
district court’s judgment and the subsequent notice of appearance filed with this court.
However, there is mention (and accompanying exhibits demonstrating) that his name is
actually David Hewell. Because it is unclear, and neither party moved to amend the
name, we retain the designation of David Hewlett for purposes of this decision.
States Attorney, with him on the brief), United States Department of Justice, Washington,
D.C., for Defendants-Appellees.
_________________________________
Before HARTZ, MATHESON, and McHUGH, Circuit Judges.
_________________________________
McHUGH, Circuit Judge.
_________________________________
I. INTRODUCTION
The Green Solution Retail, Inc. and one of its owners, Kyle Speidell (collectively,
Green Solution), sued to enjoin the Internal Revenue Service (IRS) and related parties
from investigating Green Solution’s business records. The district court dismissed Green
Solution’s complaint for lack of subject matter jurisdiction, concluding the Anti-
Injunction Act and the Declaratory Judgment Act bar this action. The court relied on our
decision in Lowrie v. United States, where we held that lawsuits challenging “activities
leading up to and culminating in” an assessment are barred. 824 F.2d 827, 830 (10th Cir.
1987). On appeal, Green Solution contends the district court had jurisdiction to hear its
claims because the Supreme Court has implicitly overruled Lowrie in its recent decision
Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (2015). We conclude we are still
bound by Lowrie and affirm.
II. BACKGROUND
Green Solution is a Colorado-based marijuana dispensary with several locations
across the state. The IRS is currently auditing Green Solution’s tax returns for the 2013
and 2014 tax years to determine whether it should apply 26 U.S.C. § 280E (I.R.C.
2
§ 280E), which forbids federal tax deductions and credits to companies trafficking in a
“controlled substance” as defined by the Controlled Substances Act (CSA). The IRS
made initial findings that Green Solution trafficked in a controlled substance and is
criminally culpable under the CSA. The IRS then requested that Green Solution turn over
documents and answer questions related to whether Green Solution is disqualified from
taking credits and deductions under § 280E.1 It is undisputed the IRS has not made an
assessment or begun collection proceedings.
Green Solution sued the IRS and related parties in the United States District Court
for the District of Colorado, seeking to enjoin the IRS from investigating whether it
trafficked in a controlled substance in violation of federal law, and seeking a declaratory
judgment that the IRS is acting outside its statutory authority when it makes findings that
a taxpayer has trafficked in a controlled substance. Green Solution claimed it would
suffer irreparable harm if the IRS were allowed to continue its investigation because a
denial of deductions would (1) deprive it of income, (2) constitute a penalty that would
effect a forfeiture of all of its income and capital, and (3) violate its Fifth Amendment
rights.
The IRS moved to dismiss for lack of subject matter jurisdiction under Federal
Rule of Civil Procedure 12(b)(1). According to the IRS, Green Solution’s claim for
1
In connection with its investigation of Green Solution, the IRS issued a summons
to Colorado’s Marijuana Enforcement Division seeking “information about the type of
products sold, the weight of the products sold and the identity of [Green Solution’s]
purchasers.” Green Solution filed a petition to quash the motion, which is currently
pending in the United States District Court for the District of Colorado. See No. 1:16-
mc-00137 (D. Colo., filed June 27, 2016).
3
injunctive relief is foreclosed by the Anti-Injunction Act (AIA), which bars suits “for the
purpose of restraining the assessment or collection of any tax.” I.R.C. § 7421(a).
Similarly, the IRS asserted that the claim for declaratory relief violated the Declaratory
Judgment Act (DJA), which prohibits declaratory judgments in certain federal tax
matters. 28 U.S.C. § 2201.
The district court agreed with the IRS that the AIA and DJA barred Green
Solution’s claims, relying on Lowrie v. United States, where we held that the AIA applies
“not only to the actual assessment or collection of a tax, but [also] to activities leading up
to, and culminating in, such assessment and collection.” 824 F.2d 827, 830 (10th Cir.
1987). The court further concluded that Green Solution’s request for declaratory relief on
the ground the IRS was acting outside of its authority was similarly barred by the DJA.
Accordingly, the court dismissed the action with prejudice for lack of subject matter
jurisdiction. Green Solution timely appealed. We have jurisdiction under 28 U.S.C.
§ 1291.
III. DISCUSSION
The Controlled Substances Act (CSA) makes it unlawful to knowingly or
intentionally “manufacture, distribute, or dispense . . . a controlled substance.” 21 U.S.C.
§ 841(a)(1). Despite its legalization in twenty-eight states (and Washington, D.C.) for
medical use and in eight states (and Washington, D.C.) for recreational use, marijuana is
still classified as a federal “controlled substance” under schedule I of the CSA. Id.§ 812(c)(10); 21 C.F.R. § 1308.11 (Schedule I); see also Denial of Petition to Initiate
Proceedings to Reschedule Marijuana, 81 Fed. Reg. 53,688, 53,688 (Aug. 12, 2016)
4
(“[M]arijuana continues to meet the criteria for Schedule I.”). Schedule I drugs have “a
high potential for abuse” and are classified as those for which there is “no currently
accepted medical use in treatment in the United States.” 21 U.S.C. § 812(b)(1)(A)–(B).
Although still illegal federally, the Justice Department has declined to enforce
§ 841 when a person or company buys or sells marijuana in accordance with state law. In
2015 and 2016, Congress reinforced this arrangement by defunding the Justice
Department’s prosecution of the exchange of medical marijuana where it is legal under
state law. Consolidated and Further Continuing Appropriations Act, 2015 Pub. L. No.
113-235, § 538, 128 Stat. 2130, 2217 (2014); Consolidated Appropriations Act, 2016,
Pub. L. No. 114-113, § 542, 129 Stat. 2242, 2332–33 (2015); see also United States v.
McIntosh, 833 F.3d 1163, 1169–70 (9th Cir. 2016).
But while “today prosecutors will almost always overlook federal marijuana
distribution crimes in Colorado,” it does not mean the “tax man” is willing to turn a blind
eye. Feinberg v. C.I.R., 808 F.3d 813, 814 (10th Cir. 2015). Section 280E of the Internal
Revenue Code provides:
No deduction or credit shall be allowed for any amount paid or incurred
during the taxable year in carrying on any trade or business if such trade or
business . . . consists of trafficking in controlled substances (within the
meaning of schedule I and II of the Controlled Substances Act) which is
prohibited by Federal law . . . .
As discussed, marijuana is still a controlled substance under the CSA, and the IRS has
pursued numerous marijuana dispensaries in Colorado and elsewhere to recoup unlawful
business deductions. See, e.g., Feinberg, 808 F.3d at 814; Olive v. C.I.R., 792 F.3d 1146,
1147 (9th Cir. 2015).
5
Green Solution’s lawsuit seeks to enjoin the IRS from obtaining information
related to its initial findings that Green Solution is dispensing marijuana in violation of
the CSA and is thus ineligible for deductions under § 280E. But under the AIA, a litigant
may not bring a “suit for the purpose of restraining the assessment or collection of any
tax . . . in any court by any person, whether or not such person is the person against
whom such tax was assessed.” I.R.C. § 7421(a). The Supreme Court has long held the
AIA is jurisdictional.2 See Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 5
(1962) (AIA’s purpose “is to withdraw jurisdiction from the state and federal courts to
entertain suits seeking injunctions prohibiting the collection of federal taxes”); see also
2
We “have an independent obligation to determine whether subject-matter
jurisdiction exists, even in the absence of a challenge from any party.” Arbaugh v. Y&H
Corp., 546 U.S. 500, 514 (2006). The issue of subject matter jurisdiction may not be
forfeited or waived. Id. The Supreme Court has also instructed that “drive-by
jurisdictional rulings . . . have no precedential effect.” Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 91 (1998). In Hobby Lobby Stores, Inc. v. Sebelius, a three-judge
concurring opinion in our en banc panel would have found the AIA not jurisdictional, but
a “waivable defense.” 723 F.3d 1114, 1157–59 (10th Cir. 2013) (en banc) (Gorsuch, J.,
concurring), aff’d sub nom. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014).
But that position did not garner a majority of the en banc court, perhaps because we have
held to the contrary that the AIA is jurisdictional. See, e.g., Sterling Consulting Corp. v.
United States, 245 F.3d 1161, 1167 (10th Cir. 2001); Kirtley v. Bickerstaff, 488 F.2d 768,
769 (10th Cir. 1973); Williams v. Wiseman, 333 F.2d 810, 811 (10th Cir. 1964). This
position is consistent with the conclusion of every circuit to examine this question. See,
e.g., Hotze v. Burwell, 784 F.3d 984, 991 (5th Cir. 2015), cert. denied, 136 S. Ct. 1165(2016); Liberty Univ., Inc. v. Lew, 733 F.3d 72, 87 (4th Cir. 2013); RYO Mach., LLC v.
U.S. Dep’t of Treasury, 696 F.3d 467, 470 (6th Cir. 2012); Hansen v. Dep’t of Treasury,
528 F.3d 597, 601 (9th Cir. 2007). This combined weight of authority amounts to more
than “drive-by jurisdictional rulings” and, without contrary en banc or Supreme Court
authority, we cannot conclude the AIA is a “waivable defense” and not a jurisdictional
bar.
6
Jefferson Cty. v. Acker, 527 U.S. 423, 434–35 (1999). Thus, if the AIA applies, we may
not reach the merits of Green Solution’s claims.
Nor may Green Solution make an end-run around the AIA through its request for
declaratory relief. The DJA allows a federal district court to grant declaratory relief “[i]n
a case of actual controversy within its jurisdiction, except with respect to Federal
taxes . . .” 28 U.S.C. § 2201 (emphasis added). The DJA’s tax exception is
“coterminous” with the AIA’s prohibition. Cohen v. United States, 650 F.3d 717, 730–31
(D.C. Cir. 2011) (en banc). In other words, “with respect to Federal taxes” means
“restraining the assessment or collection of any tax.” Id. at 727.
On appeal, Green Solution first contends that a suit to enjoin an investigation into
whether a business trafficked in a controlled substance is a step removed from a suit to
“restrain[] the assessment or collection of any tax” and is accordingly not precluded by
the AIA.3 Although Green Solution acknowledges that this Circuit in Lowrie held that the
AIA bars “activities leading up to, and culminating in assessment,” it contends the
Supreme Court in Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015), implicitly
overruled Lowrie.4 Green Solution next argues the AIA does not preclude this suit, even
3
And if the AIA bars this suit, the DJA claims are likewise barred because the two
Acts are coterminous. See Cohen v. United States, 650 F.3d 717, 730–31 (D.C. Cir. 2011)
(en banc).
4
At oral argument, Green Solution conceded that the IRS’s investigation is an
“activity leading up to” the assessment, which under Lowrie is barred by the AIA.
Because it is uncertain whether Green Solution intended also to concede its arguments
that § 280E is a penalty, and the IRS is acting outside its authority, we address those
arguments on the merits.
7
if Lowrie controls, because (1) the IRS is acting outside its authority by investigating
whether Green Solution violated criminal law, and (2) section 280E is a penalty and not a
“tax” subject to the AIA. We reject Green Solution’s arguments and affirm the district
court’s dismissal of the action.
A. Whether Direct Marketing Implicitly Overruled Lowrie
Green Solution asks us to depart from our holding in Lowrie that the AIA bars
“activities leading up to, and culminating in, . . . assessment,” Lowrie, 824 F.2d at 830, in
favor of a holding that the AIA has no application unless the lawsuit restrains—meaning
in some degree stops—the assessment or collection of a tax. But “we are bound by the
precedent of prior panels absent en banc reconsideration or a superseding contrary
decision by the Supreme Court.” Barnes v. United States, 776 F.3d 1134, 1147 (10th Cir.
2015) (internal quotation marks omitted). Although the Supreme Court decision need not
be “on all fours with our precedent,” it must “contradict[] or invalidate[] our prior
analysis” to be considered superseding authority. United States v. Brooks, 751 F.3d 1204,
1209–10 (10th Cir. 2014); compare Barnes, 776 F.3d at 1147 (refusing to overrule our
prior precedent because the Supreme Court authority was not “so indisputable and
pellucid . . . that it constitutes intervening (i.e., superseding) law that would permit us to
hold (without en banc consideration)” to the contrary), with Auraria Student Hous. at the
Regency, LLC v. Campus Vill. Apartments, LLC, 843 F.3d 1225, 1242 (10th Cir. 2016)
(concluding intervening Supreme Court authority “undermine[d] the rationale of our
decision . . . and warrant[ed] our retreat from its holding”). Green Solution contends that
8
the Supreme Court has provided just such superseding authority in Direct Marketing
Ass’n v. Brohl, 135 S. Ct. 1124 (2015).
To determine whether Direct Marketing has implicitly overruled Lowrie such that
this panel is not horizontally bound by it, we begin with a discussion of our AIA
precedent. We then examine the Supreme Court’s decision in Direct Marketing to
determine whether it has clearly undermined the rationale of our decision in Lowrie.
Ultimately, we conclude Green Solution has failed to show that Direct Marketing’s
reasoning so undermines Lowrie that this panel is not bound by that precedent. “Whether
the Declaratory Judgment and Anti-Injunction Acts bar [a plaintiff’s] claim is a question
of law that we review de novo.” Ambort v. United States, 392 F.3d 1138, 1140 (10th Cir.
2004).
1. AIA and Lowrie
Congress designed the AIA to enable “a minimum of preenforcement judicial
interference” and “to require that the legal right to the disputed sums be determined in a
suit for refund.” Bob Jones Univ. v. Simon, 416 U.S. 725, 736 (1974) (internal quotation
marks omitted); Lowrie v. United States, 824 F.2d 827, 830 (10th Cir. 1987) (“The intent
behind the [AIA] is the protection of the government’s need to assess and collect taxes as
expeditiously as possible without preenforcement judicial interference and to require that
disputed sums of taxes due be determined in suits for refund.”); see also Fla. Bankers
Ass’n v. U.S. Dep’t of the Treasury, 799 F.3d 1065, 1074 (D.C. Cir. 2015) (“If taxpayers
could challenge the validity of a tax and forego payment during the pendency of the
9
lawsuit, it would so interrupt the free flow of revenues as to jeopardize the Nation’s fiscal
stability.” (internal quotation marks omitted)).
Accordingly, we held in Lowrie that the AIA applies “not only to the actual
assessment or collection of a tax, but is equally applicable to activities leading up to, and
culminating in, such assessment and collection.” 824 F.2d at 830. Several other circuits
agree. See, e.g., Cohen v. United States, 650 F.3d 717, 727 (D.C. Cir. 2011) (en banc)
(“[The AIA] requires a careful inquiry into the remedy sought, the statutory basis for that
remedy, and any implication the remedy may have on assessment and collection.”
(emphasis added)); Dickens v. United States, 671 F.2d 969, 971 (6th Cir. 1982) (“A suit
designed to prohibit the use of information to calculate an assessment is a suit designed
for the purpose of restraining an assessment under the [AIA].” (internal quotation marks
omitted)); Kemlon Prods. & Dev. Co. v. United States, 638 F.2d 1315, 1320 (5th Cir.
1981) (“[T]his ban against judicial interference is applicable not only to the assessment or
collection itself, but is equally applicable to activities which are intended to or may
culminate in the assessment.” (internal quotation marks omitted)); Koin v. Coyle, 402
F.2d 468, 469 (7th Cir. 1968) (“True, the suit does not directly and expressly aim at the
assessment. But it is directed expressly at the means to that end, and in our view is
substantially aimed at restraining the assessment.”); 14 Mertens Law of Federal Income
Taxation § 49E:45 (2007) (“Administrative determinations and investigations necessary
to an assessment are part of that process, for purposes of [the AIA].”).
10
Thus, as Green Solution concedes, the district court’s decision dismissing the
action for lack of subject matter jurisdiction was correct, if Lowrie still controls. We now
consider that question.
2. Direct Marketing and the Tax Injunction Act
Green Solution contends the Supreme Court implicitly overruled the Lowrie line
of cases in Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015). In Direct Marketing,
a group of online retailers sued in federal court to enjoin the Colorado state taxing
authority from requiring the retailers to, among other things, disclose certain information
about their customers, including names, home addresses, and amounts spent. Id. at 1128.
The district court concluded this requirement violated the Commerce Clause because it
discriminated against and placed undue burdens on interstate commerce. Id. at 1128–29.
On appeal, the Tenth Circuit did not reach the merits of the retailers’ claim.
Instead, we concluded the Tax Injunction Act (TIA) deprived the district court of subject
matter jurisdiction. Direct Mktg. Ass’n v. Brohl, 735 F.3d 904, 906 (10th Cir. 2013). The
TIA protects against federal interference in state tax matters, but contains similar
language to the AIA, providing: “district courts shall not enjoin, suspend or restrain the
assessment, levy or collection of any tax under State law where a plain, speedy and
efficient remedy may be had in the courts of such State.” 28 U.S.C. § 1341. Using an
argument similar to Green Solution’s here, the retailers argued that Colorado’s reporting
requirement merely “related” to the use tax, which was not enough to bring their suit
“under the umbrella of the TIA as a suit seeking to enjoin the collection of a state tax.”
Direct Mktg., 735 F.3d at 912.
11
We focused on the word “restrain,” defining it as “to limit, restrict, or hold back”
the assessment, levy, or collection of taxes. Id. at 913; see also id. at 912 (“[T]he TIA
bars more than suits that would enjoin tax collection. It also prohibits federal lawsuits
that would ‘restrain the . . . collection’ of a state tax.”). Applying that definition to the
facts, we concluded the “lawsuit, if successful, would limit, restrict, or hold back the
state’s chosen method of enforcing its tax laws and generating revenue” because it would
“hamper Colorado’s ability to raise revenue.” Id. at 913–14. Because the lawsuit had the
“potential to restrain tax collection,” we held that it “trigger[ed] the jurisdictional bar” in
the TIA. Id. at 913 (emphasis added).
The Supreme Court reversed. Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015).
In doing so, the Court referred to the AIA to guide its interpretation of the TIA, noting
that “[a]lthough the TIA does not concern federal taxes, it was modeled on the Anti-
Injunction Act (AIA), which does.” Id. at 1129. The Court explained: “We assume that
words used in both Acts are generally used in the same way, and we discern the meaning
of the terms in the AIA by reference to the broader Tax Code.” Id.First, the Court defined the term “assessment” as “an official action taken based on
information already reported to the taxing authority.” Id. at 1130. While the Court
explained that assessment “might also be understood more broadly to encompass the
process by which [an] amount is calculated,” it clarified that assessment is “the official
recording of a taxpayer’s liability, which occurs after information relevant to the
calculation of that liability is reported to the taxing authority.” Id. (emphases added).
Accordingly, the Court explained that, historically, “assessment was understood as a step
12
in the taxation process that occurred after, and was distinct from, the step of reporting
information pertaining to tax liability.” Id. After defining “assessment,” the court then
defined the words “levy” and “collection,” and concluded “the three terms refer to
discrete phases of the taxation process that do not include informational notices or private
reports of information relevant to tax liability.” Id. at 1129; see also id. (“[T]he Federal
Tax Code has long treated information gathering as a phase of tax administration
procedure that occurs before assessment, levy, or collection.”).
The Supreme Court then rejected our definition of “restrain”—to include any suit
that would “limit, restrict, or hold back”—as too broad. Id. at 1132. The Court did this for
two reasons. First, because the word “restrain” acts on “assessment,” “levy,” and
“collection,” and “not on an all-encompassing term like ‘taxation,’” the Court reasoned
that:
To give “restrain” the broad meaning selected by the Court of Appeals
would be to defeat the precision of that list, as virtually any court action
related to any phase of taxation might be said to “hold back” “collection.”
Such a broad construction would thus render “assessment and levy”—not to
mention “enjoin and suspend”—mere surplusage, a result we try to avoid.
Id. The Supreme Court also rejected our definition of “restrain” because it would “lead[]
the TIA to bar every suit” “that would have a negative impact on States’ revenues.” Id. at
1133. Second, the Court rejected our definition because the word “restrain” is paired with
the words “enjoin” and “suspend,” which are remedies that “restrict or stop official action
to varying degrees, strongly suggesting that ‘restrain’ does the same.” Id. at 1132.
In applying these definitions to the facts of the case, and noting that we favor
“clear boundaries in the interpretation of jurisdictional statutes,” the Supreme Court
13
concluded the retailers’ reporting requirements were not an act of “assessment,” “levy,”
or “collection” because, although “[e]nforcement of the notice and reporting
requirements may improve Colorado’s ability to assess and ultimately collect its sales and
use taxes from consumers,” “the state still needs to take further action to assess the
taxpayer’s use-tax liability and to collect payment from him.” Id. at 1131. The Court
elaborated that “[t]he question—at least for negative injunctions—is whether relief to
some degree stops ‘assessment, levy or collection,’ not whether it merely inhibits them.”
Id. at 1133 (emphases added).
Justice Ginsburg concurred, but emphasized that the retailers were “not
challenging [their] own or anyone else’s tax liability or tax collection responsibilities.”
Id. at 1136 (Ginsburg, J., concurring). The concurrence explained that “[a] different
question would be posed . . . by a suit to enjoin reporting obligations imposed on a
taxpayer . . . in lieu of a direct challenge to an ‘assessment.’” Id. And Justice Ginsburg
noted the “Court does not reach today the question whether the claims in such a suit, i.e.,
claims suitable for a refund action, are barred by the [TIA].” Id.
3. Application
The question we must answer today is whether Direct Marketing contradicts,
invalidates, or undermines our reasoning in Lowrie, such that this panel is no longer
bound by horizontal stare decisis. See Auraria Student Hous. at the Regency, LLC v.
Campus Vill. Apartments, LLC, 843 F.3d 1225, 1242 (10th Cir. 2016); Barnes v. United
States, 776 F.3d 1134, 1147 (10th Cir. 2015); United States v. Brooks, 751 F.3d 1204,
14
1209–10 (10th Cir. 2014). We conclude that while Direct Marketing calls our holding in
Lowrie into question, that question cannot be answered by this panel acting alone.
The differences between the two opinions are significant. Direct Marketing
involved the TIA, while Lowrie considered the AIA. The TIA and the AIA are different
statutes located in different titles of the United States Code. See I.R.C. § 7421 (AIA); 28
U.S.C. § 1341 (TIA). Although the TIA was modeled on the AIA, the Acts serve
different purposes. The TIA is designed to protect against federal interference in state tax
matters, while the AIA serves to protect the IRS’s ability to collect taxes without
interference, requiring taxpayers in most cases to challenge the taxes in a refund suit.5
And although the Supreme Court in Direct Marketing “assume[d] that words used
in both Acts are generally used in the same way,” 135 S. Ct. at 1129, the Acts contain
different language. The AIA provides that, subject to certain exceptions, “no suit for the
purpose of restraining the assessment or collection of any tax shall be maintained in any
court by any person.” I.R.C. § 7421(a). The TIA provides that “district courts shall not
enjoin, suspend or restrain the assessment, levy or collection of any tax under State law
where a plain, speedy and efficient remedy may be had in the courts of such State.” 28
U.S.C. § 1341.
The Supreme Court concluded the word “restrain” in the TIA refers to suits that to
some degree stop, not merely inhibit, the assessment, levy, or collection of taxes. It came
5
I.R.C. § 6213(a) is an exception to the refund requirement, allowing a taxpayer to
petition the Tax Court prepayment for redetermination within ninety days of receiving a
notice of deficiency.
15
to this conclusion for two reasons, the first of which supports the argument that Direct
Marketing implicitly overruled Lowrie, the second of which does not.
First, the Supreme Court reasoned that the word “restrain” in the TIA “acts on a
carefully selected list of technical terms—‘assessment, levy, collection’—not on an all-
encompassing term, like ‘taxation.’” 135 S. Ct. at 1132. The Court explained that “any
court action related to any phase of taxation might be said to ‘hold back’ ‘collection,’”
rendering “assessment and levy” a “mere surplusage.” Id. (emphasis added). Like the
TIA, in the AIA the word “restrain” acts on the words “assessment” and “collection.”
Lowrie construed the AIA to preclude suits that challenge “activities leading up
to” an assessment or collection, which could potentially include suits only tangentially
related to assessment or collection, and that thereby merely inhibit assessment, rather
than stop it to some degree. See id. (rejecting our definition of “restrain” as “to hold
back” because “virtually any court action related to any phase of taxation might be said to
hold back collection” (internal quotation marks omitted)). Green Solution argues that
because the AIA, like the TIA, uses the words “assessment” and “collection” rather than
“taxation,” we should reject Lowrie’s inclusion of “activities leading up to, and
culminating in, such assessment and collection” and instead require that the lawsuit
would in some degree stop an assessment or collection.
But the Supreme Court also provided a second rationale for interpreting “restrain”
in the TIA to mean suits that to some degree stop, rather than merely inhibit, the
assessment, levy, or collection of taxes. The Court reasoned that “‘[r]estrain,’ standing
alone, can have several meanings,” so it looked “to the company ‘restrain’ keeps” in the
16
TIA. Id. The Court explained that “restrain” keeps company with “enjoin” and
“suspend,” both “terms of art in equity . . . that restrict or stop official action to varying
degrees, strongly suggesting that ‘restrain’ does the same.” Id.Unlike in the TIA, “restrain” in the AIA stands alone. Recall that the AIA states:
“[N]o suit for the purpose of restraining the assessment or collection of any tax shall be
maintained in any court by any person.” I.R.C. § 7421(a). To the extent it keeps
company, it does so with the phrase “for the purpose of restraining the assessment or
collection.” Thus, unlike in the TIA, the injunctive relief barred by the AIA need not
actually restrain an assessment or collection, it need only have restraint of those functions
as its purpose. This language comports with our reasoning in Lowrie, that the AIA applies
“not only to the actual assessment and collection of a tax, but is equally applicable to
activities leading up to, and culminating in, such assessment and collection. 824 F.2d at
830 (emphasis added). That is, suits barring “activities leading up to[] and culminating
in” assessment may be barred if they are filed “for the purpose of restraining” an
assessment.
In addition, Justice Ginsburg’s concurrence in Direct Marketing would limit that
case to its unique facts.6 It noted that the retailers were “not challenging [their] own or
anyone else’s tax liability or tax collection responsibilities,” and explained that “[a]
different question would be posed . . . by a suit to enjoin reporting obligations imposed
6
Justice Breyer and Justice Sotomayor joined in the relevant portion of Justice
Ginsburg’s concurrence. Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124, 1135–36 (2015)
(Ginsburg, J., concurring).
17
on a taxpayer . . . in lieu of a direct challenge to an ‘assessment.’” Direct Mktg., 135 S.
Ct. at 1136 (Ginsburg, J., concurring). Justice Ginsburg explained, the “Court does not
reach today the question whether the claims in such a suit, i.e., claims suitable for a
refund action, are barred by the [TIA].” Id. Unlike Green Solution, the retailers in Direct
Marketing could not seek relief in a state refund action because the inquiries to the
retailers were aimed at increasing the tax liability of their customers, not themselves.
Thus, it is uncertain whether a majority of the Supreme Court would hold the TIA bars a
federal action seeking to enjoin the state taxing authority from enforcing reporting
obligations against the taxpayer. And it is therefore even more unsettled how the Court
would assess a similar action to enjoin federal taxing authorities under the distinct
language of the AIA. When three concurring Justices say that Direct Marketing did not
reach the situation now before us, and no Justice disputed that statement, we can hardly
say that Direct Marketing so undermined the authority of Lowrie in this context that we
must retreat from its holding.
B. Additional Arguments
Green Solution asserts that even if Lowrie is still good law, the AIA does not
preclude this suit. First, Green Solution contends the IRS was acting outside its authority
in investigating whether Green Solution trafficked in a controlled substance, which it
claims is a criminal investigation properly carried out by the United States Attorney.7
7
After oral argument, Green Solution submitted supplemental authority pursuant
to Federal Rule of Appellate Procedure 28(j), raising two new arguments with respect to
the IRS’s authority: (1) Congress did not provide the IRS with standards to determine
whether to deny deductions under § 280E, and (2) the IRS failed to go through a formal
18
According to Green Solution, “While § 280E is within the Tax Code, the CSA is not.
Thus, a determination of whether a taxpayer violated the CSA is not within the authority
of the IRS.” Green Solution claims it is not seeking to enjoin the IRS from enforcing
§ 280E, which it acknowledges would be precluded by the AIA, but that it seeks only to
enjoin the IRS’s investigation of alleged federal drug law violations, which Green
Solution claims falls outside the protection of the AIA.
But § 280E has no requirement that the Department of Justice conduct a criminal
investigation or obtain a conviction before § 280E applies. See Alpenglow Botanicals,
LLC v. United States, No. 16-cv-00258-RM-CBS, 2016 WL 7856477, at *4 (D. Colo.
Dec. 1, 2016) (unpublished) (“If Congress had wanted such an investigation to be carried
out or conviction to be obtained, then it could easily have placed such language in
§ 280E.”). Instead, the IRS’s obligation to determine whether and when to deny
deductions under § 280E, falls squarely within its authority under the Tax Code. See
I.R.C. § 6201(a) (authorizing and requiring the IRS “to make the inquiries,
determinations, and assessments of all taxes . . . imposed by this title”); I.R.C. § 7602(a)
(authorizing the IRS to “examine any books, papers, records, or other data which may be
relevant or material to” “determining the liability of any person for any internal revenue
tax”); see also United States v. Clarke, 134 S. Ct. 2361, 2364 (2014) (holding the IRS
rulemaking process before enforcing § 280E. But Green Solution never raised these
arguments in the district court or in its appellate briefs, and “it is well established that we
will not consider issues raised for the first time in a Rule 28(j) letter.” Flores-Molina v.
Sessions, 850 F.3d 1150, 1172 n.16 (10th Cir. 2017) (internal quotation marks omitted).
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“has broad statutory authority to summon a taxpayer to produce documents or give
testimony relevant to determining tax liability”). Thus, the AIA is implicated here.8
Second, Green Solution argues that § 280E is a penalty, not a tax subject to the
AIA. Again we disagree. A “penalty” is defined as “an exaction imposed by statute as
punishment for an unlawful act.” United States v. La Franca, 282 U.S. 568, 572 (1931).
The disallowance of a deduction is not an exaction imposed as punishment. “Deductions
. . . are not a matter of right. Neither do they turn upon equitable considerations. They are
a matter of legislative grace.” See United States v. Akin, 248 F.2d 742, 743 (10th Cir.
1957). Moreover, Green Solution does not cite a single case that holds the disallowance
of a deduction constitutes a “penalty” and falls outside the AIA’s reach. Bob Jones
University v. Simon, 416 U.S. 725, 738 (1974), and Alexander v. Americans United, Inc.,
416 U.S. 752, 760–61 (1974), both involved the disallowance of deductions for charitable
contributions, and neither was held to be a penalty. Section 280E is not a penalty.
IV. CONCLUSION
The Supreme Court’s decision in Direct Marketing Ass’n v. Brohl did not clearly
undermine our reasoning in Lowrie. Thus, because the IRS’s investigation of Green
Solution’s business records is an “activity leading up to” an assessment, we conclude
Green Solution’s lawsuit was filed for the purpose of restraining any such assessment and
is therefore barred by the AIA and DJA. We affirm.
8
To the extent Green Solution argues the IRS exceeded its authority under the
Internal Revenue Code, 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.
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