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U.S. Supreme Court,

Jul. 8, 2021

Justice Thomas: No penchant for pot, but a talent for tax

There has been much buzz about the surprising loquaciousness of Supreme Court Justice Clarence Thomas in a statement regarding the denial of certiorari in a recent case. So what are the takeaways?

Julie A. Werner-Simon

Phone: (213) 894-5456


University of Wisconsin Law School

Julie is a former federal prosecutor who served the U.S. Department of Justice in Los Angeles as Deputy Chief of the Organized Crime Strike Force and Senior Litigation Counsel in Major Frauds, recently completed a constitutional law fellowship at Southwestern Law School, and was awarded an LLM from the law school. Werner-Simon, who simultaneously with her legal studies created a consulting company, "Persuade2Win," is currently a legal analyst at Drexel University's LeBow School of Business in the university's emerging industries program. She is also a law professor (adjunct) at Drexel University's School of Law where she teaches Marijuana Law: History, the Constitution & Best Business Practices.

New York Times News Service

There has been much buzz about the surprising loquaciousness of Supreme Court Justice Clarence Thomas in a statement regarding the denial of certiorari in Standing Akimbo LLC. et al, v. United States, 20-645, which issued on June 28. While Justice Thomas procedurally agreed with the court's decision, he lamented how confusing it must be to people who follow the marijuana rules in their home state, and whose conduct is purely intrastate activity, when the federal government uses an IRS administrative summons to gather evidence about whether the taxpayers are taking deductions that would be legal under state law but are illegal under federal law.

After recounting his laundry list of federal-state issues, Thomas harnesses his inner deus ex machina self and dead-stops with the words: "I could go on."

The mainstream media made it seem that if our nation's current longest-serving justice thinks there is a problem with the piecemeal approach to the treatment of marijuana, then federal illegality will soon be over.

Not so fast. The Supreme Court cannot make marijuana a federally legal substance. There are three ways that Congress and the executive branch can change things.

Method 1: Action By Congress

Congress can change or amend the Controlled Substances Act -- which made marijuana definitively an illegal substance in America during the Nixon administration -- or craft other legislation to change marijuana's federally illicit status.

Federal legalization of marijuana, to some degree, happened in December 2018 with Farm Bill legislation legalizing substances containing 0.3% or less THC. The marijuana plant and its derivatives with that amount of THC are now legal and in federal parlance, is called "hemp." 7 U.S.C. Section 1639o.

Method 2: Action By the Executive Branch

The executive branch can use the "scheduling-change-of-status" procedures set forth in the CSA. Marijuana could be rescheduled or descheduled from the CSA drug classification schedule by members of the president's cabinet, the attorney general, and the secretary of Health and Human Services -- with or without the attorney general's approval.

The CSA permits the attorney general to ask the HHS secretary for a written scientific and medical evaluation to downgrade or remove marijuana from the drug classification schedule. 21 U.S.C. Section 811. This means Attorney General Merrick Garland could ask HHS Secretary Xavier Becerra for a report to reschedule or deschedule marijuana from its Schedule I perch. The CSA also permits Becerra to independently generate a scheduling recommendation report that would be binding on Garland. Id. Section 811(b).

Method 3: Administrative Action By Petitioning the DEA for Rescheduling or Descheduling

Marijuana could be legalized a third way by "an interested-party-petition" through an administrative rulemaking process involving the attorney general and one of the agencies the attorney general oversees, specifically the Drug Enforcement Administration.

Any "interested party" can petition the attorney general to reschedule or deschedule a drug. For decades, the attorney general has "delegated" the DEA to "receive" the citizen-petitions. 28 C.F.R. Section 0.100.1. If the DEA denies the petition, or issues any other adverse order, the citizen-petitioner can appeal directly to a federal appellate court. 21 U.S.C. 811(a).

None of these methods involves the Supreme Court -- at least not yet, and Standing Akimbo does not implicate any of these three means to marijuana legalization.

Justice Thomas' Standing Akimbo Opinion

So why did Justice Thomas barnstorm in Standing Akimbo? It's not that he is not prolific; during his 30-year tenure he has authored in the neighborhood of 700 written opinions, with about a third being majority opinions. But sometimes Thomas has kept his sentiments to himself. Before Justice Antonin Scalia died in 2016, Thomas had not said a word during oral argument for the previous 10 years.

Thomas, often referred to as a jurist with a "taciturn" temperament, changed tunes during COVID. When the court decamped from One First Street NE and held remote oral arguments, Thomas' laconicism did not follow him home.

No jurist is assigned cert opinion writing duty; it's totally voluntary. Under former chief justices, such as William Rehnquist, cert opinion comments were disfavored. But not under Chief Justice John Roberts. Cert opinions show a jurist's "willingness to take on the additional authorial work of a dissent from or concurrence in the denial of certiorari" in matters where "the views being expressed are strongly held." Robert Yablon, "Justice Sotomayor and the Supreme Court's Certiorari Process," Yale Law Journal (March 24, 2014).

Tom Goldstein, the co-founder of SCOTUSblog who has argued before the Supreme Court over 40 times, has taken an interest in divining messages from denial of cert opinion commentary. Goldstein says these opinions can be viewed as a kind of "warning shot" -- a message to the greater world, that "practices" out there should be "stopped without the court ever having to get involved." "What you can learn from opinions regarding the denial of certiorari," SCOTUSblog (Nov. 18, 2013).

Why the Standing Akimbo Opinion?

Thomas' Standing Akimbo opinion -- one of three cert-denied opinions issued during COVID -- stands out. It's not personal; his confirmation hearings established that he has no penchant for pot. Rather, the cascade of states legalizing marijuana in recent years make the subject hard to ignore.

In the Supreme Court's last big marijuana case, a 2005 6-3 decision in Gonzales v. Raich, 545 U.S. 1, the court affirmed the federal government's broad commerce clause powers to regulate, criminalize and punish marijuana users regardless of compliance with state laws. Justice Thomas wrote his own "the-commerce-clause-has-been-swallowed-up" dissenting opinion. Justice Sandra Day O'Connor too authored a dissenting opinion and Chief Justice Rehnquist adopted parts of O'Connor's dissent, as did Thomas. And Justice Scalia crafted his own concurring opinion.

Standing Akimbo, however, is a tax case. And Thomas knows tax. He took his first job as an assistant attorney general in Missouri. After a stint in the appeals unit, Thomas was assigned to the state's tax division and spent several years there.

Justice Thomas' acceptance of the court's denial of cert shows that Thomas understands tax law. Standing Akimbo solely concerns the IRS' authority to get tax records and information about taxpayers through the use of an administrative summons.

Beverly Hills tax attorney Jonathan Kalinski said it best: "Standing Akimbo is about whether the IRS followed the long-established four-part test from the 1964 U.S. Supreme Court case, United States v. Powell, 379 U.S. 48. Cert was likely denied in Standing Akimbo because the IRS demonstrated that (i) its investigation was being conducted for a legitimate purpose (compliance with tax laws); (ii) the information sought (records and/or testimony) may be relevant to that purpose; (iii) the IRS does not have the information that is sought by the summons; and (iv) the statutory (notice-type) steps have been followed. In Standing Akimbo, the IRS met its burden."

Thomas well knows that to determine whether tax laws have been followed, the taxing authorities need, at a minimum, records to review.

Thomas Does Not Begrudge Taxing Authorities' Use of Administrative Summonses

While Thomas did not begrudge the taxing authorities for using the administrative summons process, the Standing Akimbo principals -- legally operating Colorado medical marijuana businesses -- did. When the IRS asked for records, they provided some but not all of those requested. When the IRS persisted, the principals informed the IRS that since it appeared that the agency's representative was investigating federal drug crimes, they declined to provide potentially incriminating evidence without receiving immunity from prosecution.

Standing Akimbo would not provide to the IRS information about the licenses it had acquired from the state, nor the reports required by the state to be kept and submitted to Colorado's Enforcement Division to include Marijuana Enforcement Tracking and Reporting Compliance forms.

As a result, IRS issued multiple-third party summonses to agencies of the state of Colorado and to the taxpayers to get the information to verify the accuracy of Standing Akimbo and the principals' tax returns.

The IRS followed the Powell requirements and provided to the taxpayers copies of all summonses, along with procedural notice of their right to petition to quash the summonses. The taxpayers sued in federal court to stop the process.

The district court assigned the matter to a U.S. magistrate judge who granted the federal government's motion to dismiss and denied the motions to quash. The summonses would stand and could be enforced.

The taxpayers appealed to the 10th U.S. Circuit Court of Appeals. The first sentence of the court's 39-page appellate opinion made clear what the outcome would be: "The Internal Revenue Service ... is responsible to enforce the federal tax code against marijuana businesses operating legally under state law." The 10th Circuit held that the Standing Akimbo principals had, "failed to overcome the IRS's showing of good faith under Powell and have failed to establish that enforcing the summonses would constitute an abuse of process."

Ultimately, on June 28, the U.S. Supreme Court agreed.

The Tortured Marijuana Federal-State Pas de Deux

So, what's caught in Thomas' craw? It is the contorted back story that undergirds the case, which is not limited to the tax context.

Justice Thomas took the cert denied megaphone and laid bare a funhouse-mirror-of-strangeness facing marijuana users and marijuana businesses. Not only have national, mainstream publications started talking about marijuana tax code provisions, so too has the greater world been informed of the federal government's "half-in-half-out" (Thomas' words) relationship with marijuana.

He uses the cert-denied platform to highlight a handful of tortured aspects of America's pas de deux with marijuana:

(i) Marijuana Businesses' Second-Class Tax Treatment

Marijuana businesses are treated as illegal businesses for federal tax purposes. Congress was miffed by the fact that a Minneapolis drug dealer who trafficked in marijuana, cocaine powder and amphetamines operating in the 1970s won his deductions case at U.S. Tax Court. Since businesses both legal and illegal are required to pay taxes, drug dealer-taxpayer Edmondson was permitted to deduct things such as his scale, his transportation delivery costs, rent and even the food and entertainment costs "necessary" to carry out his business. See Edmondson v. Commissioner, 42 T.C.M, 1533 (1981).

In response, in 1982, Congress changed the tax laws. The new law on the books was Internal Revenue Code 280E, ironically sponsored by a Colorado U.S. senator. No longer would those involved in the business of illicit drugs get to take ordinary and necessary business deductions.

Section 280E states: "No deduction or credit shall be allowed for ... any trade or business ... consist[ing] of trafficking in controlled substances." No more writing off rent, security, advertising, transportation and the host of other deductions afforded to "legit" businesses, even though the drug purveyors would continue to owe taxes on all legally and illegally acquired income.

This has been the death knell to many a marijuana business. Depending on the year, the application of 280E on state-legal marijuana businesses can result in a federal tax rate in the range of 60% to 90%. See "Tax Creativity Keeps Pot Industry Out of IRS Hot Water," (March 4, 2014).

It matters not that the business is legal under state or U.S. territorial law. On the business' federal income tax returns, federal tax law must be scrupulously followed.

(ii) Federal Budget Riders Ban Use of Federal Funds to Prosecute in State-Legal Medical Regimes

Another derided marijuana-related governmental oddity is the annual "tack-on" congressional budget rider device in which Congress "under-the-radar" blesses state-legal marijuana businesses.

Because of the Thomas marijuana commentary coverage, a broader audience now knows that since around December 2014, every federal budget has contained a rider barring the use of federal funds to prevent a state's implementation of its own medical marijuana program. The riders generally state: None of the funds made available in this Act to the Department of Justice may be used, with respect [medical legal states] to prevent such States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

Federal courts have enforced the terms of the rider. See United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016); United States v. Pisarski, 965 F.3d 738 (9th Cir. 2020).

Criminal defense attorneys who represent marijuana users and businesses nationwide make "McIntosh" dismissal motions. These require, among other things, that DOJ show that funds allocated in the annual budget have not been used to enforce federal drug laws in medical-legal regimes. Justice Thomas, in Standing Akimbo, cites to multiple pages in McIntosh at 833 F.3d at 1168, 1175-77.

(iii) Contradictory DOJ Policies on the Subject of Marijuana

Justice Thomas also references the yes-no-back-and-forth with successive presidential administrations. In a meaty footnote, he cites to DOJ Attorney General Memoranda from 2009 through 2018 in which President Barack Obama's DOJ, in successive memoranda, gave wide berth to state-legal regimes, and then to President Donald Trump's first Attorney General Jeff Sessions who in January 2018 rescinded the Obama marijuana-permissive DOJ policies. Then, curiously in the same footnote, Justice Thomas cites to an April 2019 Forbes magazine article (likely given the absence of an actual marijuana policy memo from Trump's second attorney general, Bill Barr) in which the then-attorney general is quoted as deciding to revert to the Obama DOJ marijuana policies.

(iv) What the Supreme Court Held Vis-à-vis Marijuana in 2005

Justice Thomas has done more than enlighten the public about the years of legislative and executive branch "marijuana contortions" in the years since 2005, when the Supreme Court over Thomas' dissent, endorsed marijuana's federal criminalization in Gonzales.

Of the justices who heard the government's argument, only Thomas and Justice Stephen Breyer remain. Thomas' Standing Akimbo commentary serves as a refresher to Breyer (who at the Gonzales oral argument asked questions about the commerce clause and the federal government's self-described regulatory scheme) and still voted with the majority.

Thomas' Standing Akimbo is also a marker for the other seven newer justices about governmental duplicity.

Acting Solicitor General Paul Clement took to the lectern on Nov. 29, 2004, and defended the anti-marijuana position of President George W. Bush's Attorney General Alberto Gonzales. Clement's first words in the argument: "Through the Controlled Substances Act, Congress has comprehensively regulated the national market in drugs with the potential for abuse. And with respect to Schedule I substances, like marijuana, that have both a high potential for abuse and no currently accepted medical use in treatment, Congress categorically prohibits interstate trafficking."

Clement stressed that the federal government's regulatory regime made no exception for patients or doctors to exempt themselves from the federal regime. He told the court, that "when the government thinks something is dangerous" (like marijuana) "it tries to prohibit it." He even referred to medical marijuana as "an oxymoron" because of its Federal Schedule I status. In rebuttal, Clement argued that giving license to California's intrastate, home-growing, medical marijuana users would "have a substantial impact on the government's ability to enforce the Controlled Substances Act."

Clement made the case, and the majority gave deference to the government's position that the federal prohibition of marijuana was a necessary part of a cohesive nationwide regulatory scheme.

What Now as to Marijuana Legalization and the Role of the Supreme Court?

Thomas did not buy the federal government's argument 16 years ago, and in Standing Akimbo he makes clear that intervening history has proven he was right. Thomas has amply demonstrated that the emperors of federal enforcement wear no clothes.

Thomas has shown that the federal government has exhibited no consistent regulatory scheme, let alone no cohesive federal regime that would direct agencies and their agents to act in unison across time and across the expanse of the United States.

Marijuana's original scheduling placement was to be temporary -- until the CSA commission completed a year of hearings, and even though upon completion the commission issued a government report heralding that marijuana use was misunderstood and that the drug was benign -- it remains listed as a Schedule I substance.

Instead of revamping the CSA, Congress has chipped away at what constitutes marijuana (e.g., exempting "hemp"), and spends time each year passing Band-Aid omnibus budget riders that address medical marijuana states but not recreational regimes, which aim to stop the federal government from using federal funds to interfere with rights reserved to the people of the nation.

Granted, the Biden administration has a full plate, but surely the current Attorney General Garland or Secretary Becerra can at least start on a marijuana scheduling or descheduling recommendation report. All the CSA requires is one based on science.

Justice Thomas has reminded us of what drove his Gonzales dissent. For him, the federal government failed to show that banning intrastate medical marijuana use was necessary to curtail interstate drug use. He explained that what happened was an overreach and usurped a state's police power. He dove into history to explain that if our federalist system is to be properly understood, California and other states must be allowed, "to decide for themselves how to safeguard the health and welfare of their citizens."

His words resonate today. They echo in Standing Akimbo where he describes a "disjuncture" between the government's recent hands-offish policies on marijuana and "the actual operation of specific laws" way beyond the tax-facts at bar.

A Call to Action

Citizen-petitioners, heat up your word processors and file your rescheduling or de-scheduling requests pronto with the DEA (28 C.F.R. Section 0.100.1) as any adverse order means a direct appeal to a federal appellate court. 21 U.S.C. 811(a).

Justice Thomas, now fully vaccinated and having hired his complement of judicial law clerks for the new term, has signaled in Standing Akimbo that he is ready to make things right -- for the states and for the people. 


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