3 COURT CASES
3
Court
Cases
That May Affect Your
Marijuana Business
BY: MARC E. SEYBURN
OVER THE summer months, there were
three cases—two Tax Court cases and a
10th District Court case—that were decided
that impact tax and business planning for
marijuana businesses, each in its own unique
way.
(I) ALTERMAN V COMMISSIONER T.C.
MEMO. 2018-83 JUNE 13, 2018
The most enlightening of the three
cases was Alterman, where the Tax
Court denied the taxpayer’s use of a
segregated business strategy—the
taxpayer claimed there was both a
marijuana business and nonmarijuana
business operating at same location
and that the nonmarijuana business
was not subject to IRC §280E. The
taxpayers claimed the nonmarijuana
business involved the sale of marijuana
paraphernalia,
store
clothing,
magazines, and chicken soup. The
Tax Court held that the facts did not
establish a separate business for
sale of nonmarijuana merchandise,
and thus, IRC §280E applied to all
sales. Despite this case not providing
a taxpayer-favorable ruling, it is not
alarming due to bad facts. However,
bad facts can make bad law, and the
taxpayer did not do a good job in
planning its strategies.
(II) LOUGHMAN V COMMISSIONER T.C.
MEMO. 2018-85 JUNE 18, 2018
Loughman is the most interesting of
the three cases because the result was
easily avoidable, but at the same time,
it involved an issue that requires a tax
specialist. Since the taxpayer was an
S corporation and its shareholders
received officer compensation, by
applying IRC §280E, the deductions
for officer compensation were denied.
This increased the income that came
through the shareholders’ K-1s.
Additionally, these same taxpayers
were paying income on their officer
compensation. These shareholders
were thus double taxed after
application of IRC §280E. The tax
court upheld IRS assessment and the
double taxation result stating that the
result was easily avoidable.
(III) ALPENGLOW BOTANICALS, LLC V.
UNITED STATES, NO. 17-1223 (10TH
CIR. JULY 3, 2018)
The most intriguing of the three cases
is Alpenglow Botanicals because of
the court’s confirmation that the IRS
has broad discretion to determine if
a taxpayer is “trafficking” as required
under IRC §280E, without requiring
criminal charges of any kind. If it
wasn’t already clear, the Alpenglow
Botanicals case has now made it
crystal clear that the IRS has broad
discretion in determining if a taxpayer
is engaged in “trafficking” of a
controlled substance for purposes of
denying deductions under IRC §280E.
These cases further illustrate the
importance of proper planning, both from
a technical tax perspective and a failed
compliance standpoint. Planning and
compliance cannot be underestimated.
Each time a new piece of authority comes
out, the planners gain better insight so
that the same mistakes shouldn’t be made
by others in the future. Poor compliance
can easily lead to IRC §280E civil tax
adjustments for failure to comply with a
properly designed business structure. A
worse result is a criminal fraud tax audit.
Therefore, don’t wait. Engage your tax
professional as early on as possible once
you’ve decided to enter into a marijuana
business.
27
Marc E. Seyburn
Marc E. Seyburn has been developing his
professional skills for over 20 years, which
has allowed him to cultivate his unique
talents as a creative thinker in legal, tax and
financial planning. Throughout his career
he has gained valuable experience in all
phases of transactional work, utilizing his
unique skill set from capital raise through
startup in a wide variety of industries. His
primary technical expertise is in structural
planning, partnership taxation, estate
planning, jet acquisition structuring,
cash flow modeling, and analyzing and
structuring investment opportunities.
In February 2010, Marc opened his
current practice with the goal of taking
advantage of up-to-date technology, as
well as leveraging a new business plan
that promotes increased efficiencies
and flexibility in its fee arrangements.
The sky is the limit for opportunities.
seyburnlawpllc.com