Desert Organic Solutions v. Commissioner (T.C. Memo. 2021-22)

Deficiency, Illegal Substances, Marijuana

Income Tax Issues, Tax Opinions

On February 22, 2021, the Tax Court issued a Memorandum Opinion in the case of Desert Organic Solutions v. Commissioner (T.C. Memo. 2021-22). The primary issue presented in Desert Organic Solutions was whether the petitioner, a marijuana-based California business, was liable for a deficiency on the grounds that its activities were illegal under federal law.

Note on My Tax Court Hero

This is the first of Judge Holmes’ decisions with which I was a bit disappointed. On the one hand, I had four decisions to summarize this morning, and a three-page opinion was welcome. On the other, it lacked Judge Holmes’ wit and wisdom. Any opinion of his without a zinger is a lost opportunity in my opinion. Further, the marijuana jokes practically write themselves. Judge Holmes just let the potential for good puns go up in smoke…

The Appeal of Patients Mutual

Judge Holmes notes succinctly that “[w]e’ve been here before.” In Patients Mutual Assistance Collective Corp. v. Commissioner, 151 T.C. 176 (2018), appeal filed, No. 19-73078 (9th Cir. Dec. 3, 2019), the Tax Court extensively analyzed the taxation of this still relatively new industry. Patients Mutual is currently on appeal to the Ninth Circuit.

Judge Holmes does give a bit of a dig to the IRS when he notes that he had “suggested to the parties that it might be sensible to wait to see what happens to that appeal before taking this case to decision, but the IRS disagreed.” Not quite to the level of his best stuff, but still, the IRS should have waited. Jerks.

Holding

It’s not really much of a holding, as the petitioner conceded in its reply brief that the issues had been decided in the Patients Mutual case, but the Tax Court found that the petitioner was liable for the deficiencies, as it had in Patients Mutual.

(T.C. Memo. 2021-22) Desert Organic Solutions v. Commissioner