A day too late: US appellate court tosses marijuana tax bill challenge

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One day is critical when it comes to filing court appeals, especially if you don’t use an approved delivery service.

That’s what two California marijuana companies learned when the U.S. 9th Circuit Court of Appeals, based in San Francisco, threw out their challenge of a nearly $2 million combined tax bill.

Organic Cannabis Foundation and Northern California Small Business Assistants (NCSB) have been trying for years to appeal an IRS decision that they were subject to the onerous Section 280E, which doesn’t allow tax deductions related to marijuana because of its illegal status federally.

Their appeal to the IRS decision was due to the U.S. Tax Court in Washington DC on April 22, 2015. It was delivered via FedEx “First Overnight” at 7:35 ET on the morning of April 23, 2015, according to court records.

The Tax Court said the petition for a review of the IRS decision lacked jurisdiction because it came after the deadline, and the Circuit Court this week affirmed that decision.

In the opinion, Circuit Judge Daniel Collins framed the lesson for attorneys of cannabis companies.

“This unhappy case presents a cautionary tale about the need for lawyers to ensure that they have done exactly what is statutorily required to invoke a court’s jurisdiction,” Collins wrote.

Here’s the kicker: The cannabis case could have been rescued by the “mailbox” rule – that a document is deemed filed when dispatched – but only if the attorneys had used a delivery service the IRS had designated in its published notices.

FedEx Priority Overnight and FedEx Standard Overnight were approved at the time.

But it wouldn’t be until May 6, 2015 – two weeks after the late delivery – that FedEx First Overnight was designated as an approved service, according to court documents.

Organic Cannabis Foundation owed $1.1 million in taxes and $225,855 in penalties, and NCSB owed $531,707 in taxes and $106,341 in penalties, according to appellate-court documents.

Jeff Smith can be reached at jeffs@mjbizdaily.com