Opposition Brief — The Green Solution Retail, Inc., et al., Petitioners v. United States, et al.

No. 17-663

In the Supreme Court of the United States

THE GREEN SOLUTION RETAIL, INC., ET AL., PETITIONERS

v.

UNITED STATES OF AMERICA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

NOEL J. FRANCISCO

Solicitor General

Counsel of Record

RICHARD E. ZUCKERMAN

Principal Deputy

Assistant Attorney General

RICHARD FARBER

PATRICK J. URDA

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTIONS PRESENTED

1. Whether the Anti-Injunction Act, 26 U.S.C.

7421(a), and the tax exception to the Declaratory Judgment Act, 28 U.S.C. 2201(a), bar petitioners’ suit.

2. Whether the Internal Revenue Service is authorized to investigate and determine whether a business is

engaged in illegal drug-trafficking activity for purposes

of applying 26 U.S.C. 280E, which prohibits such businesses from claiming certain deductions and credits on

their federal income-tax returns.

(I)

TABLE OF CONTENTS

Page

Opinions below .............................................................................. 1

Jurisdiction .................................................................................... 1

Statement ...................................................................................... 1

Argument....................................................................................... 7

Conclusion ................................................................................... 19

TABLE OF AUTHORITIES

Cases:

Alexander v. “Americans United” Inc.,

416 U.S. 752 (1974)................................................................ 8

Blech v. United States, 595 F.2d 462

(9th Cir. 1979) ........................................................................ 9

Bob Jones Univ. v. Simon, 416 U.S. 725

(1974) ...................................................................... 8, 9, 12, 13

Californians Helping to Alleviate Med. Problems,

Inc. v. Commissioner, 128 T.C. 173 (2007) ...................... 17

Colangelo v. United States, 575 F.2d 994 (1st Cir.

1978) ....................................................................................... 9

Commissioner v. Glenshaw Glass Co.,

348 U.S. 426 (1955).............................................................. 15

Department of Revenue v. Kurth Ranch,

511 U.S. 767 (1994)........................................................ 15, 16

Dickens v. United States, 671 F.2d 969

(6th Cir. 1982) .................................................................. 9, 14

Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124

(2015) .................................................................... 6, 11, 12, 13

Eric Speidell v. United States, No. 16-mc-62

(D. Colo.) (filed July 29, 2016) ........................................... 14

Gonzales v. Raich, 545 U.S. 1 (2005) ..................................... 2

Green Solution, LLC. v. United States,

No. 16-mc-167 (D. Colo.) (filed Aug. 8, 2016) ................... 14

(III)

IV

Cases—Continued:

Page

Interstate Transit Lines v. Commissioner,

319 U.S. 590 (1943).............................................................. 18

Judicial Watch, Inc. v. Rossotti, 317 F.3d 401

(4th Cir.), cert. denied, 540 U.S. 825 (2003) ................. 9, 13

Kemlon Prods. & Dev. Co. v. United States, 638 F.2d

1315 (5th Cir.), cert. denied, 454 U.S. 863 (1981)......... 9, 14

Laing v. United States, 423 U.S. 161 (1976) ....................... 10

Leary v. United States, 395 U.S. 6 (1969) ........................... 18

Lipke v. Lederer, 259 U.S. 557 (1922) .................................. 15

Lowrie v. United States, 824 F.2d 827

(10th Cir. 1987) .................................................... 4, 6, 8, 9, 11

National Fed’n of Indep. Bus. v. Sebelius,

567 U.S. 519 (2012)................................................................ 8

New Colonial Ice Co. v. Helvering, 292 U.S. 435

(1934) .................................................................................... 15

Olive v. Commissioner, 792 F.3d 1146

(9th Cir. 2015) ...................................................................... 17

Shady Grove Orthopedic Ass’n v. Allstate Ins. Co.,

559 U.S. 393 (2010).............................................................. 12

The Green Solution Retail Inc. v. United States,

No. 16-mc-137 (D. Colo.) (filed June 27, 2016) ................. 14

United States v. American Friends Serv. Comm.,

419 U.S. 7 (1974) ................................................................... 8

United States v. Bisceglia, 420 U.S. 141 (1975).................. 10

United States v. Clarke, 134 S. Ct. 2361 (2014) .................. 10

United States v. Dema, 544 F.2d 1373 (7th Cir. 1976),

cert. denied, 429 U.S. 1093 (1977) ....................................... 9

United States v. Eaton, 144 U.S. 677 (1892) ....................... 17

United States v. Galletti, 541 U.S. 114 (2004) ...................... 9

United States v. Grimaud, 220 U.S. 506 (1911) ................. 17

United States v. La Franca, 282 U.S. 568 (1931) ............... 15

V

Case—Continued:

Page

Z Street, Inc. v. Koskinen, 44 F. Supp. 3d 48 (D.D.C.

2014), aff’d, 791 F.3d 24 (D.C. Cir 2015) ........................... 13

Statutes, rule, and regulations:

Anti-Injunction Act, 26 U.S.C. 7421(a) ....................... passim

Controlled Substances Act, 21 U.S.C. 801 et seq. ............. 2, 7

21 U.S.C. 812(c) (Sched. I(c)(10)) ..................................... 2

21 U.S.C. 841(a)(1)............................................................. 2

21 U.S.C. 871 .................................................................... 16

Declaratory Judgment Act, 28 U.S.C. 2201(a) .......... passim

Internal Revenue Code (26 U.S.C.):

§ 61(a) ........................................................................... 2, 15

§ 261 .................................................................................. 16

§ 280E ........................................................................... 2, 16

§ 6011 et seq...................................................................... 10

§ 6201(a) ..................................................................... 10, 16

§ 6203 ................................................................................ 10

§ 6301 ................................................................................ 11

§ 7601(a) ..................................................................... 10, 17

§ 7602 .......................................................................... 10, 17

§ 7602(a) ............................................................... 10, 16, 17

§ 7609(h)(1) ....................................................................... 14

Marihuana Tax Act of 1937, ch. 553, 50 Stat. 557 ............... 18

Tax Injunction Act, 28 U.S.C. 1341.............................. 5, 6, 11

26 C.F.R.:

Section 1.61-3(a) ................................................................ 2

Section 301.6003-1 ........................................................... 10

Fed. R. Civ. P. 23 ................................................................... 12

Miscellaneous:

1 S. Rep. No. 494, 97th Cong., 2d Sess. Pt. 2 (1982) ............. 2

In the Supreme Court of the United States

No. 17-663

THE GREEN SOLUTION RETAIL, INC., ET AL., PETITIONERS

v.

UNITED STATES OF AMERICA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. A4A30) is reported at 855 F.3d 1111. The order of the district court (Pet. App. A31-A36) is unreported but is

available at 2016 WL 7078635.

JURISDICTION

The judgment of the court of appeals was entered on

May 2, 2017. A petition for rehearing was denied on August 1, 2017 (Pet. App. A1-A3). The petition for a writ

of certiorari was filed on October 27, 2017. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. The Internal Revenue Code prohibits tax deductions or credits for expenditures made “in carrying on

any trade or business” that “consists of trafficking in

controlled substances (within the meaning of Schedule

(1)

2

I and II of the Controlled Substances Act) 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.

The Controlled Substances Act, 21 U.S.C. 801 et seq.,

classifies marijuana as a Schedule I controlled substance and makes it illegal to knowingly or intentionally

“manufacture, distribute, or dispense” it. 21 U.S.C.

812(c) (Sched. I (c)(10)), 841(a)(1). That prohibition applies even in States that have purported to legalize the

sale of marijuana in some circumstances. See Gonzales

v. Raich, 545 U.S. 1, 29 (2005).

Although Section 280E bars certain deductions and

credits for businesses that engage in drug trafficking, it

does not affect those businesses’ obligation to pay taxes

on their income, including income derived from the sale

of illegal drugs. See 26 U.S.C. 61(a) (defining “gross income” as “all income from whatever source derived”);

see also 1 S. Rep. No. 494(I), 97th Cong., 2d Sess. Pt. 2,

at 309 (1982) (explaining that Section 280E does not affect the obligation of covered businesses to pay taxes on

gross income). A business’s gross income includes “total sales, less the cost of goods sold.” 26 C.F.R. 1.613(a). In order to ascertain the tax liability of a business

that traffics in controlled substances, such as a marijuana dispensary, the Internal Revenue Service (IRS)

must examine the business’s proceeds, its cost of goods

sold, and whether its business activities trigger the application of Section 280E.

2. This case arises out of an IRS audit of the 2013

and 2014 tax returns filed by petitioners The Green Solution Retail, Inc. (Green Solution), a Colorado marijuana dispensary, and Kyle Speidell, one of its owners.

Pet. App. A5-A6. In those returns, petitioners claimed

deductions for business expenses. See D. Ct. Doc. 1, at

3

4 (Feb. 3, 2016) (Compl.). The IRS made an initial finding that petitioners’ business activities were among

those covered by Section 280E. Pet. App. A6. It asked

petitioners to provide documents and other information, including information about the nature and extent of Green Solution’s business activities as a marijuana dispensary, related to whether petitioners were

“disqualified from taking credits and deductions under

[Section] 280E.” Id. at A7.

Petitioners refused to comply with the IRS’s requests for information, and they filed suit seeking declaratory and injunctive relief. Pet. App. A7. Petitioners asserted that the IRS could not require them to disclose information about their business operations because the agency lacks authority to “investigate and

make findings that a taxpayer has violated the Controlled Substances Act.” Compl. 7. They requested a

declaratory judgment to that effect, and they sought an

injunction that would bar the agency “from conducting

investigations or making administrative findings * * *

that taxpayers have trafficked in a Schedule I or II Controlled Substance in violation of the Controlled Substances Act.” Ibid.

The government moved to dismiss petitioners’ suit

under the Anti-Injunction Act, 26 U.S.C. 7421(a), and

the tax exception to the Declaratory Judgment Act,

28 U.S.C. 2201(a). Pet. App. A8. Subject to enumerated

exceptions that are not at issue here, the Anti-Injunction Act bars suits brought “for the purpose of restraining the assessment or collection of any tax.” 26 U.S.C.

7421(a). The Declaratory Judgment Act prohibits suits

for declaratory relief “with respect to Federal taxes.”

4

28 U.S.C. 2201(a). The government argued that petitioners’ suit was foreclosed by those provisions. Pet.

App. A8.

3. The district court dismissed petitioners’ complaint, concluding that it lacked subject-matter jurisdiction over their suit. Pet. App. A31-A36. The court

determined that the “purpose” of petitioners’ suit was

“to prevent the IRS from applying [Section] 280E to

their 2013 and 2014 tax returns.” Id. at A33. It noted

that the Anti-Injunction Act 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,’ ” including “the gathering of information about [petitioners’] business.” Id. at

A34-A35 (quoting Lowrie v. United States, 824 F.2d

827, 830 (10th Cir. 1987)). The court held that the AntiInjunction Act therefore barred petitioners’ request to

enjoin the IRS from enforcing Section 280E. Id. at A35.

The district court further held that petitioners’ request for declaratory relief was barred by the tax exception to the Declaratory Judgment Act. Pet. App.

A35. The court also rejected petitioners’ contention

“that the IRS has no jurisdiction to enforce” the Controlled Substances Act. Ibid. The court explained that

“Congress has placed [Section] 280E in the Internal

Revenue Code and assigned enforcement of it to that

agency.” Ibid.

The district court did not address petitioners’ assertion that Section 280E “is not a tax but a penalty for

violating federal law.” Pet. App. A35. The court noted

that petitioners would have “ample opportunity to challenge the statute” in future proceedings, including in a

deficiency redetermination proceeding in the Tax Court

or in a refund suit in district court. Ibid.

5

4. The court of appeals affirmed. Pet. App. A4-A30.

Petitioners conceded on appeal that the IRS’s investigation of its tax liabilities was an “activity leading up to”

the assessment of taxes, and that their suit was barred

under the Tenth Circuit’s interpretation of the Anti-Injunction Act in Lowrie. Id. at A13 n.4; see id. at A13,

A17. Petitioners contended, however, that Lowrie’s

reasoning was inconsistent with this Court’s subsequent decision in Direct Marketing Ass’n v. Brohl,

135 S. Ct. 1124 (2015). Pet. App. A13. They further argued that the Anti-Injunction Act and the tax exception

to the Declaratory Judgment Act did not apply to their

claims because the IRS lacks statutory authority to conduct a criminal drug investigation and Section 280E is a

penalty, not a tax. Ibid.

The court of appeals rejected petitioners’ arguments. The court held that Brohl did not undermine the

reasoning of Lowrie, and that petitioners’ request for

an injunction was barred by the Anti-Injunction Act.

Pet. App. A22-A27. Brohl addressed the Tax Injunction

Act (TIA), 28 U.S.C. 1341, which provides that federal

courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law.”

This Court held that the TIA did not preclude a federal

court from enjoining the enforcement of a state law that

imposed reporting requirements on out-of-state businesses in order to facilitate the State’s collection of sales

and use taxes from the businesses’ in-state customers.

Brohl, 135 S. Ct. at 1131.

The court of appeals observed that, although the TIA

was “modeled on” the Anti-Injunction Act, the two statutes “contain different language” and “serve different

purposes.” Pet. App. A22-A23. In Brohl, this Court interpreted the word “restrain” in the TIA in light of the

6

“company [it] keeps”—“enjoin” and “suspend”—and

concluded that all three words were “terms of art * * *

that restrict or stop official action.” 135 S. Ct. at 1132;

see Pet. App. A25. The Court concluded that the TIA is

therefore limited to suits that seek to stop the assessment or collection of taxes directly, and that it does not

apply to efforts to impede preliminary informationgathering designed to facilitate a later assessment.

135 S. Ct. at 1133. The Anti-Injunction Act, in contrast,

uses the word “restrain[]” in isolation and precludes all

suits undertaken “for the purpose of restraining the assessment or collection of any tax.” 26 U.S.C. 7421(a)

(emphasis added). The court of appeals stated that,

“unlike in the TIA, the injunctive relief barred by the

[Anti-Injunction Act] need not actually restrain an assessment or collection, it need only have restraint of

those functions as its purpose.” Pet. App. A25. The

court held that Brohl’s interpretation of the TIA did not

abrogate Lowrie’s interpretation of the Anti-Injunction

Act because “suits barring ‘activities leading up to[] and

culminating in’ assessment” may violate the AntiInjunction Act “if they are filed for the purpose of restraining an assessment.” Ibid. (quoting Lowrie,

824 F.2d at 830) (internal quotation marks omitted).

The court of appeals noted that its conclusion was

consistent with Justice Ginsburg’s concurring opinion

in Brohl. Pet. App. A26-A27. That concurrence emphasized that the Court’s opinion did not address whether

the TIA would permit a taxpayer to sue to enjoin a reporting obligation imposed on him in lieu of bringing a

direct challenge to an assessment of his own tax liability, a claim ordinarily “suitable for a refund action” but

not for injunctive relief. 135 S. Ct. at 1136 (Ginsburg, J.,

concurring). In this case, the court of appeals observed

7

that, “[u]nlike Green Solution, the retailers in [Brohl]

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.” Pet.

App. A26. The court concluded that, under Lowrie, petitioners’ suit was barred by the Anti-Injunction Act.

Id. at A26-A27.

The court of appeals also rejected petitioners’ arguments that Section 280E is not a tax provision and that

the IRS lacks authority to enforce it. Pet. App. A27A29. The court explained that a tax deduction is “a matter of legislative grace,” “not a matter of right,” and

that “disallowance of a deduction is not an exaction imposed as punishment.” Id. at A29 (citation omitted).

The court concluded that “the IRS’s obligation to determine whether and when to deny deductions under [Section] 280E, falls squarely within its authority under the

Tax Code,” including the agency’s authority to make inquiries and request information concerning potential

tax liability. Id. at A28.

ARGUMENT

Petitioners contend (Pet. 11-16) that neither the

Anti-Injunction Act, 26 U.S.C. 7421(a), nor the tax exception to the Declaratory Judgment Act, 28 U.S.C.

2201(a), precludes their challenge to the enforcement of

26 U.S.C. 280E. They further argue (Pet. 16-21) that

the IRS lacks authority to determine whether deductions claimed on their tax returns are precluded by Section 280E, because such an inquiry necessarily requires

the agency to determine whether petitioners violated

the criminal provisions of the Controlled Substances

Act. The court of appeals correctly rejected those ar-

8

guments, and its decision does not conflict with any decision of this Court or of another court of appeals. Further review is not warranted.

1. The Anti-Injunction Act provides that “no suit for

the purpose of restraining the assessment or collection

of any tax shall be maintained in any court by any person, whether or not such person is the person against

whom such tax was assessed.” 26 U.S.C. 7421(a). The

language of that provision “could scarcely be more explicit”: it protects the government’s ability “to assess

and collect taxes as expeditiously as possible with a minimum of preenforcement judicial interference,” and it

“require[s] that the legal right to [any] disputed sums

be determined in a suit for refund.” Bob Jones Univ. v.

Simon, 416 U.S. 725, 736 (1974) (citation omitted); see

National Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519,

543 (2012) (“Because of the Anti-Injunction Act, taxes

can ordinarily be challenged only after they are paid, by

suing for a refund.”).

This Court has consistently held that the AntiInjunction Act precludes efforts to restrain the assessment or collection of taxes directly, see, e.g., United

States v. American Friends Serv. Comm., 419 U.S. 7, 10

(1974) (per curiam) (challenge to withholding of payroll

taxes), and indirectly, see, e.g., Alexander v. “Americans United” Inc., 416 U.S. 752, 761 (1974) (challenge

to revocation of organization’s charitable status, “the

objective” of which was to “reduce the level of taxes of

its donors”); Bob Jones Univ., 416 U.S. at 738-739 (same

where revocation of charitable status would likely increase tax liability of organization and donors). Consistent with those decisions, the courts of appeals have

uniformly held that the Anti-Injunction Act “is equally

9

applicable” to challenges directed at “the actual assessment or collection of a tax” and those directed at “activities leading up to, and culminating in, such assessment

and collection.” Lowrie v. United States, 824 F.2d 827,

830 (10th Cir. 1987); see, e.g., Judicial Watch, Inc. v.

Rossotti, 317 F.3d 401, 405 (4th Cir.), cert. denied, 540

U.S. 825 (2003); Dickens v. United States, 671 F.2d 969,

971 (6th Cir. 1982); Kemlon Prods. & Dev. Co. v. United

States, 638 F.2d 1315, 1320 (5th Cir.), cert. denied, 454

U.S. 863 (1981); Blech v. United States, 595 F.2d 462,

466 (9th Cir. 1979); Colangelo v. United States, 575 F.2d

994, 996 (1st Cir. 1978); United States v. Dema, 544 F.2d

1373, 1376 (7th Cir. 1976), cert. denied, 429 U.S. 1093

(1977).

The Declaratory Judgment Act similarly bars declaratory relief “with respect to Federal taxes.”

28 U.S.C. 2201(a). That provision “is at least as broad

as the Anti-Injunction Act,” Bob Jones Univ., 416 U.S.

at 733 n.7, and reflects the same “congressional antipathy for premature interference with the assessment or

collection of any federal tax,” id. at 732 n.7. Petitioners

acknowledge (Pet. 16) that, if the Anti-Injunction Act

bars their request for injunctive relief, the tax exception

to the Declaratory Judgment Act likewise bars their request for declaratory relief.

2. Petitioners contend (Pet. 11-16) that neither the

Anti-Injunction Act nor the Declaratory Judgment Act

bars their claims because, rather than challenging the

assessment or collection of taxes directly, they seek

only to prevent the IRS from determining whether they

are eligible for certain deductions claimed on their tax

returns. That argument lacks merit.

a. The federal system of taxation “is basically one of

self-assessment, whereby each taxpayer computes the

10

tax due and then files the appropriate form of return

along with the requisite payment” or request for a refund. United States v. Galletti, 541 U.S. 114, 122 (2004)

(citation and internal quotation marks omitted); see

26 U.S.C. 6011 et seq. The Internal Revenue Code vests

the IRS with wide authority “to make the inquiries, determinations, and assessments of all taxes” imposed by

the Code, 26 U.S.C. 6201(a), including by conducting audits and investigations to ensure that taxpayers’ self-reported tax liabilities are correct, 26 U.S.C. 7601(a),

7602; see United States v. Bisceglia, 420 U.S. 141, 145

(1975) (noting the IRS’s “broad mandate” under those

provisions “to investigate and audit persons who may be

liable for taxes”) (citation, emphasis, and internal quotation marks omitted). The agency is specifically authorized to issue summonses for “books, papers, records, or other data” relevant to “ascertaining the correctness of any return”; “determining the liability of

any person for any internal revenue tax”; and “collecting any such liability.” 26 U.S.C. 7602(a); see United

States v. Clarke, 134 S. Ct. 2361, 2365 (2014).

The investigation and calculation of tax liabilities

leads to an “assessment,” which the Internal Revenue

Code defines as the “recording [of] the liability of the

taxpayer” by the IRS. 26 U.S.C. 6203. Assessment is

“essentially a bookkeeping notation,” Laing v. United

States, 423 U.S. 161, 170 n.13 (1976), that is complete

when “an [IRS] assessment officer sign[s] the summary

record of assessment,” 26 C.F.R. 301.6203-1; see ibid.

(noting that a record of assessment “shall provide identification of the taxpayer, the character of the liability

assessed, the taxable period, if applicable, and the

amount of the assessment”). If the taxpayer owes tax,

the assessment is followed by collection efforts. See

11

26 U.S.C. 6301 (authorizing the IRS to “collect the taxes

imposed by the internal revenue laws”).

b. As the courts of appeals have consistently held,

the Anti-Injunction Act (and, by extension, the Declaratory Judgment Act) does not bar only those suits that

seek to directly enjoin IRS officials from engaging in

the specific act of recording an assessment. Rather, the

statute also bars efforts to restrain “activities leading

up to” the assessment of tax liability, Lowrie, 824 F.2d

at 830, including efforts to prevent the IRS from determining whether a taxpayer’s self-reported tax liability

is correct in order to fulfill the agency’s statutory obligation to accurately calculate and assess federal taxes.

Petitioners offer no persuasive reason for this Court to

review that uniform judgment.

i. Petitioners contend (Pet. 12) that the Tenth Circuit’s decisions below and in Lowrie conflict with this

Court’s construction of the TIA in Direct Marketing

Ass’n v. Brohl, 135 S. Ct. 1124 (2015). The court of appeals correctly explained why Brohl is inapposite here.

Pet. App. A22-A27.

The Court in Brohl held that the TIA’s prohibition

on district-court orders “enjoin[ing], suspend[ing] or

restrain[ing] the assessment, levy or collection” of state

taxes, 28 U.S.C. 1341, did not preclude a challenge to a

Colorado statute that required businesses to provide

tax authorities with information about customer transactions in order to facilitate the eventual assessment

and collection of sales and use taxes from those customers. 135 S. Ct. at 1131. The Court emphasized that its

interpretation of the TIA depended on the language of

that statute, including the TIA’s use of the words “enjoin, suspend or restrain” as “terms of art * * * that

restrict or stop official action.” Id. at 1132. The Court

12

explained that the reporting requirements at issue in

Brohl were intended merely to “improve [the] State’s

ability to assess and collect taxes” from third parties “at

some future point,” and that enjoining those requirements would not restrict or stop the “specific assessment and collection procedures” that would be “triggered” under Colorado law if those third parties later

filed deficient tax returns. Id. at 1131.

The Anti-Injunction Act, in contrast, states (with

enumerated exceptions that are not at issue here) that

“no suit for the purpose of restraining the assessment

or collection of any tax shall be maintained in any court

by any person.” 26 U.S.C. 7421(a) (emphasis added).

That language indicates that the statute’s applicability

turns on the “purpose” of the “person” (i.e., the plaintiff) who seeks to “maintain[]” a particular suit. Ibid.;

cf. Shady Grove Orthopedic Assoc., P. A. v. Allstate Ins.

Co., 559 U.S. 393, 400 (2010) (stating, with respect to the

proper interpretation of the word “maintained” in Federal Rule of Civil Procedure 23, that “[c]ourts do not

maintain actions; litigants do.”). An action therefore

“need not actually restrain an assessment or collection”

of tax to be barred by the Anti-Injunction Act; “it need

only have restraint of those functions as its purpose.”

Pet. App. A25. The district court found that the “purpose” of petitioners’ suit was “to prevent the IRS from

applying [Section] 280E to their 2013 and 2014 tax returns” in the course of determining their tax liabilities.

Id. at A33; see Compl. 6 (alleging that, if Section 280E

is applied to petitioners’ tax returns, it would effectively

require them to forfeit their income and capital to the

United States in the form of unpaid taxes). That is precisely the sort of “preenforcement judicial interference”

with the assessment and collection of taxes that the

13

Anti-Injunction Act prohibits.

Bob Jones Univ.,

416 U.S. at 736.

The Court’s opinion in Brohl, moreover, did not address whether the TIA bars federal courts from entertaining “a suit to enjoin reporting obligations imposed

on a taxpayer * * * in lieu of a direct challenge to an

‘assessment,’ ‘levy,’ or ‘collection’ ” of that taxpayer’s

own tax liability. 135 S. Ct. at 1136 (Ginsburg, J., concurring) (emphasis added). Unlike the third-party

reporting requirements imposed by the Colorado statute in Brohl, a taxpayer’s challenge to its own reporting

obligation would be “suitable for a refund action” once

any taxes were paid. Ibid. Similarly, as the district

court in this case noted, petitioners will have “ample opportunity to challenge” the IRS’s ability to enforce Section 280E in future proceedings, including in a deficiency redetermination proceeding in the Tax Court or

in a refund suit in district court. Pet. App. A35.

ii. Petitioners contend (Pet. 13-14) that the AntiInjunction Act does not preclude their suit because they

seek to prevent the IRS “ ‘from obtaining information’ ”

about their business activities in a manner that exceeds

the agency’s “constitutional powers” (citation omitted).

Petitioners do not identify what constitutional provision

would preclude the IRS from obtaining information

about the legitimacy of a taxpayer’s self-reported tax

deductions. In any event, this Court has construed the

Anti-Injunction Act to encompass claims of constitutional violations. See Bob Jones Univ., 416 U.S. at 736

(applying Anti-Injunction Act despite taxpayer’s claim

that “the [IRS’s] threatened action was outside its lawful authority and would violate petitioner’s [constitutional] rights”); cf. Judicial Watch, 317 F.3d at 405

(holding that Anti-Injunction Act barred suit to enjoin

14

an IRS audit, despite the plaintiff’s allegation that the

“audit [was being] conducted for unlawful purposes”).

The district court decision on which petitioners rely is

inapposite because it did not involve the assessment or

collection of taxes. See Z Street, Inc. v. Koskinen,

44 F. Supp. 3d 48, 59-60 (D.D.C. 2014) (holding that the

Anti-Injunction Act did not bar a claim that the IRS had

engaged in viewpoint discrimination by subjecting certain applications for tax-exempt status to heightened

scrutiny), aff’d, 791 F.3d 24 (D.C. Cir. 2015).

Courts have repeatedly rejected the argument that

the Anti-Injunction Act does not apply to challenges to

IRS requests for information. See, e.g., Judicial Watch,

317 F.3d at 405 (holding that a suit to “enjoin [an] audit”

is barred by the Anti-Injunction Act); Dickens, 671 F.2d

at 971 (“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

statute.”); Kemlon Prods., 638 F.2d at 1320 (holding

that Anti-Injunction Act barred taxpayer’s effort “to

prevent disclosure of information”). As in those cases,

“[i]t cannot be seriously contended that precluding the

assessment is not the end sought” by petitioners’ efforts

to prevent disclosure of information concerning the legality of deductions they have claimed on their tax returns. Dickens, 671 F.2d at 971 (citation omitted). *

In separate proceedings, petitioners and related parties have

challenged the validity of IRS summonses issued in connection with

its investigation into their tax liabilities. See The Green Solution

Retail Inc., et al. v. United States, No. 16-mc-137 (D. Colo.)

(filed June 27, 2016); Green Solution, LLC, et al. v. United States,

No. 16-mc-167 (D. Colo.) (filed Aug. 8, 2016); Eric Speidell v. United

States, No. 16-mc-162 (D. Colo.) (filed July 29, 2016). The Internal

Revenue Code vests federal district courts with jurisdiction to “hear

and determine” suits to quash IRS summonses, 26 U.S.C. 7609(h)(1),

*

15

iii. Petitioners assert (Pet. 14-16) that the AntiInjunction Act does not apply because Section 280E “is

penal in character” and thus does not qualify as a “tax”

provision. The court of appeals correctly rejected that

argument. Pet. App. A29. “The power to tax income

* * * is plain,” New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934), and Congress has unquestioned authority to “tax all gains except those specifically exempted,” Commissioner v. Glenshaw Glass Co., 348

U.S. 426, 430 (1955). “Whether and to what extent deductions shall be allowed depends upon legislative

grace; and only as there is clear provision therefor can

any particular deduction be allowed.” New Colonial Ice

Co., 292 U.S. at 440.

All businesses—including those engaged in illegal

drug trafficking—are required to report and pay taxes

on their income. See 26 U.S.C. 61(a) (defining “gross

income” as “all income from whatever source derived”);

see also Department of Revenue v. Kurth Ranch, 511

U.S. 767, 778 (1994) (“[T]he unlawfulness of an activity

does not prevent its taxation.”). Congress may limit the

ability of certain types of businesses to claim deductions

and credits that would reduce their gross income and

their corresponding tax liability. The decisions on

which petitioner relies (Pet. 15) involved statutes that

imposed excise taxes as punishment for certain crimes.

See Kurth Ranch, 511 U.S. at 781-784 (tax imposed on

individuals previously convicted of possessing marijuana); United States v. La Franca, 282 U.S. 568, 572

(1931) (tax imposed on individuals found to have illegally manufactured or sold alcohol); Lipke v. Lederer,

and thus the dismissal of petitioners’ requests for declaratory and

injunctive relief in this case does not affect those pending actions.

16

259 U.S. 557, 561-562 (1922) (same). None of those decisions suggests, however, that taxing illegal activity—

including by imposing a special excise tax—is impermissible as a general matter. See Kurth Ranch, 511 U.S.

at 778 (“Montana no doubt could collect its tax on the

possession of marijuana, for example, if it had not previously punished the taxpayer for the same offense, or,

indeed, if it had assessed the tax in the same proceeding

that resulted in his conviction.”). And none of those

cases involved limitations on a taxpayer’s ability to

claim a deduction or credit from otherwise taxable income.

3. Petitioners contend (Pet. 16-21) that the IRS exceeded its authority by seeking information about petitioners’ involvement in illegal drug trafficking. They

assert (Pet. 19-20) that, because enforcement of the

criminal provisions of the Controlled Substances Act is

vested in the Department of Justice, see 21 U.S.C. 871,

the IRS lacks power “to investigate and administratively determine that a person has violated federal criminal drug laws.” That argument is foreclosed by Section

280E. That Internal Revenue Code provision, which is

one of several such provisions identifying types of expenses that may not be deducted “[i]n computing taxable income,” 26 U.S.C. 261, provides that “[n]o deduction or credit shall be allowed” for expenses incurred in

connection with “any trade or business” that “traffic[s]

in controlled substances” in violation of federal or state

law, 26 U.S.C. 280E.

Section 280E thus regulates the calculation of income and income-tax liability under the Internal Revenue Code. Congress has authorized the IRS to make

“inquiries, determinations, and assessments of all

17

taxes” imposed by the Code, 26 U.S.C. 6201(a); to conduct audits and investigations to ensure that those taxes

are accurately assessed, 26 U.S.C. 7601(a), 7602; and to

request from taxpayers “books, papers, records, or

other data” relevant to “ascertaining the correctness of

any return,” “determining the liability of any person for

any internal revenue tax,” and “collecting any such liability,” 26 U.S.C. 7602(a). Those grants of authority

clearly encompass IRS efforts to investigate and determine whether deductions or credits should be disallowed under Section 280E. See, e.g., Olive v. Commissioner, 792 F.3d 1146, 1150 (9th Cir. 2015) (upholding

tax deficiency for medical-marijuana dispensary based

on the application of Section 280E); Californians Helping to Alleviate Med. Problems, Inc. v. Commissioner,

128 T.C. 173, 182-183 (2007) (same).

The decisions on which petitioners rely do not support their position. Both United States v. Grimaud, 220

U.S. 506 (1911), and United States v. Eaton, 144 U.S.

677 (1892), concern Congress’s ability to delegate to an

agency the authority to define a criminal offense. See

Grimaud, 220 U.S. at 518-519 (citing Eaton, 144 U.S. at

688). As explained, Congress has defined federal drug

offenses in the Controlled Substances Act. The relevant

Internal Revenue Code provisions do not authorize the

IRS to initiate or conduct criminal prosecutions under

the Controlled Substances Act, but simply authorize the

agency to determine, for civil tax purposes, whether

taxpayers may claim credits or deductions for particular expenses. The fact that this inquiry turns in part on

whether a business’s activities are among those Congress has prohibited does not mean that the IRS is enforcing the criminal laws as such. And, like other IRS

tax-assessment decisions, any IRS determination that

18

Section 280E precludes particular tax credits or deductions will be judicially reviewable in a taxpayer’s challenge to a consequent finding of a tax deficiency.

In Leary v. United States, 395 U.S. 6 (1969), the

Court held that the Fifth Amendment privilege against

compelled self-incrimination barred a criminal prosecution for failing to notify the IRS of taxable marijuana

transactions that were themselves illegal. Id. at 16-18,

27. That decision, however, involved an excise tax imposed under the now-repealed Marihuana Tax Act of

1937, ch. 553, 50 Stat. 551, see Leary, 395 U.S. at 14-15,

not deductions from gross income that a taxpayer voluntarily chose to claim on its tax return. Because petitioners were not compelled to claim those deductions, and

“the burden of clearly showing the right to [a] claimed deduction is on the taxpayer,” Interstate Transit Lines v.

Commissioner, 319 U.S. 590, 593 (1943), any objection on

grounds of self-incrimination would not save petitioners

from a deficiency determination. And petitioners’ ability

to press their claims in any judicial proceedings that may

follow such a determination provides a further reason for

this Court not to review those claims now.

19

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

NOEL J. FRANCISCO

Solicitor General

RICHARD E. ZUCKERMAN

Principal Deputy

Assistant Attorney General

RICHARD FARBER

PATRICK J. URDA

Attorneys

FEBRUARY 2018