In recent IRS summons litigation, a Federal District Court in New Mexico has ruled that the IRS may seek information from a bank, the New Mexico Department of Health – Medical Cannabis Program, and the Public Service Company of New Mexico, which was requested in order to determine whether the taxpayer was subject to Section 280E.  The taxpayer filed a motion to quash the summons on the basis that the IRS was engaging in a criminal investigation and did not have the authority to determine whether the taxpayer was violating the Controlled Substances Act (“CSA”).

The Court ruled that the summonses satisfied the Powell test and therefore should be enforced.  In response to the taxpayer’s allegation that the IRS is abusing its civil audit authority and is conducting a criminal investigation, the Court relied on the Revenue Agent’s statements that there was no criminal investigation.  The Revenue Agent stated that the IRS was enforcing the tax code and, in order to do so, needed to determine whether there were violations of the CSA.

The Court quoted the Alpenglow Botanical case (discussed here) in ruling that a criminal investigation is not required for the IRS to make a determination that the CSA was violated.  The Court stated that Section 280E “does not first require a determination by a non-IRS government official conducting a criminal investigation that the party claiming a deduction is trafficking in controlled substances.”  In short, Section 280E applies even if the taxpayer has not been charged or prosecuted for violating Federal law.

The opinion is available here: HDR NM Summons case.