Two California-based marijuana companies had their petition thrown out of appeals court after it was delivered to court a day late by an unapproved delivery service. Organic Cannabis Foundation and Northern California Small Business Assistants (“NCSB”) were challenging a nearly $2 million combined tax bill at the U.S. 9th Circuit Court of Appeals based in San Francisco. However, in a ruling, the judge said this should be a lesson to lawyers representing cannabis companies; the petition was thrown out for arriving at court a day late.
For years, the two firms had been trying to appeal a ruling by the IRS stating that they are subject to Section 280E which doesn’t allow tax deductions related to marijuana because it is still federally prohibited. According to appellate-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.
Their appeal to the IRS decision was due to the U.S. Tax Court in Washington DC on April 22, 2015. According to court records, it was delivered via FedEx “First Overnight” at 7:35 on the morning of April 23, 2015. At the time, the Tax Court said the petition for a review of the IRS decision lacked jurisdiction because it came after the deadline, and the firms’ were hoping to have this verdict appealed at the U.S. 9th Circuit Court of Appeals. However, the Appeals court upheld the Tax Court’s initial verdict.
“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,” Circuit Judge Daniel Collins wrote, framing it as a lesson for attorneys of cannabis companies. Ironically, if the attorneys had used a delivery service the IRS had designated in its public notices, the court would have considered their petition.
The IRS mailbox rule states that: “If any return, claim, statement, or other document required to be filed…on or before a prescribed date under authority of any provision of the internal revenue laws is, after…such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed,…the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document…is mailed shall be deemed to be the date of delivery…”
This mailbox rule confirms that a tax document is timely filed with the IRS even though it is not physically delivered to the IRS in time, as long as it is delivered by an approved delivery service.
Although FedEx Priority Overnight and FedEx Standard Overnight were approved by the IRS at that time, court documents state that it wouldn’t be until May 5, 2015, two weeks after the late delivery, that FedEx First Overnight was designated as an approved service.
This unfortunate turn of events is likely to give other industry players, such as SinglePoint, Inc. (OTCQB: SING), vital lessons should they ever have to go to court on issues that affect them.
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