PUBLISH UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

_________________________________ ALPENGLOW BOTANICALS, LLC, a Colorado Limited Liability Company; CHARLES WILLIAMS; JUSTIN WILLIAMS, Plaintiffs - Appellants,

v. UNITED STATES OF AMERICA, Defendant - Appellee. No. 17-1223

_________________________________ Appeal from the United States District Court for the District of Colorado (D.C. No. 1:16-CV-00258-RM-CBS)

_________________________________ James D. Thorburn (Richard Walker with him on the briefs), Thor burn Walker LLC, Greenwood Village, Colorado, fo r Plaintiffs - Appellants. Patrick J. Urda, Attorney, Tax Division (Gilb ert S. Rothenberg and Michael J. Haungs, Attorneys, Tax Division, and Counsel Robert C. Troyer, Un ited States Attorney, with him on the brief), Department of Justice, Wa shington, D.C., for Defendant - Appellee.

_________________________________ Before HARTZ , MURPHY , and McHUGH , Circuit Judges.

_________________________________ McHUGH , Circuit Judge.

_________________________________ FILED United States Court of Appeals Tenth Circuit 

### July 3, 2018 Elisabeth A. Shumaker Clerk of Court2 Alpenglow Botanicals, LLC (“Alpenglow”) sued the Internal Revenue Service (“IRS”) for a tax refund, alleging the IR S exceeded its statutory and constitutional authority by denying Alpenglow ’s business tax deductions under 26 U.S.C. § 280E. The district court dismisse d Alpenglow’s suit under Federa l Rule of Civil Procedure 12(b)(6) for failure to stat e a claim upon which relief coul d be granted, and denied Alpenglow’s subsequent mo tion under Federal Rule of Civil Procedure 59(e) to reconsider the judgment. Exercising jurisd iction under 28 U.S.C. § 1291, we affirm. I. BACKGROUND Although twenty-eight states and Washi ngton, D.C. have le galized medical or recreational marijuana use, the federal government cl assifies marijuana as a “controlled substance” under schedule I of the Controlled Substances Act (“CSA”). Green Sol. Retail, Inc. v. United States , 855 F.3d 1111, 1113 (1 0th Cir. 2017); see 21 U.S.C. § 812(c), Schedule I(c)(10); 21 C.F. R. § 1308.11(d)(23). The CSA makes it unlawful to knowingly or intentionally “ma nufacture, distribute, or dispense . . . a controlled substance.” 21 U.S.C. § 841(a)(1 ). Under former Pr esident Obama, the Justice Department had declined to enfo rce § 841(a)(1) against marijuana businesses acting in accordan ce with state law, 1 but the IRS has shown no similar inclination to

1 This policy encouraging federal prosecu tors not to prosecute these cases was implemented through memoranda of the prior Attorneys General. See, e.g. , Memorandum from David W. Ogden, Deputy Att’y Gen., U.S. De p’t of Justice for Selected U.S. Att’ys (Oct. 19, 2009), revised by Memorandum from James M. Cole, Deputy Att’y Gen., U.S. Dep't of Justice for all U.S. Att’ys (Aug. 29, 2013). The current Attorney General has since re scinded this policy. Memorandum from Jefferson B. Sessions, Att’y Gen., U.S. Dep’ t of Justice for all U.S. Att’ys (Jan. 4, 2018).3 “overlook federal marijuan a distribution crimes.” Feinberg v. Comm’r , 808 F.3d 813, 814 (10th Cir. 2015). Instead, the IRS consistently deni es business deductions to state-sanctioned marijuana disp ensaries under 26 U.S.C. § 280E, 2 which prohibits any “deduction or credit” for any business that “consists of trafficking in controlled substances (within the meaning of . . . the Controlled Substances Act).” E.g. , id. ; Olive v. Comm’r , 792 F.3d 1146, 1147 (9th Cir. 2015). This appeal is the product of the clash between these state and federal policies. Alpenglow is a medical marijuana busine ss owned and operated by Charles Williams and Justin Williams, doing bus iness legally in Colorado. See Alpenglow Botanicals, LLC v. United States (Alpenglow I) , No. 16-cv-00258-RM- CBS, 2016 WL 7856477, at *2 (D. Colo. 2016) (unpublished). After an audit of Alpengl ow’s 2010, 2011, and 2012 tax returns, however, the IRS issued a Notice of Deficiency concluding that Alpenglow had “committed the crime of tr afficking in a controlled substance in violation of the CSA” and denying a va riety of Alpenglow’s claimed business deductions under § 280E. Id. Alpenglow’s income and re sultant tax liability were increased based on the denial of these deductions. Because Alpenglow is a “pass

2 26 U.S.C. § 280E states in full: No deduction or credit shall be allo wed for any amount paid or incurred during the taxable year in carrying on any trade orbusiness if such trade or business (or the activ ities which comprise su ch trade or business) consists of trafficking in controlle d substances (within the meaning of schedule I and II of the Controlled S ubstances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.4 through” entity, the increased tax liability was passed on to Charles Williams and Justin Williams. As a result , Charles Williams owed the IRS an additional $24,133 in taxes and Justin Williams owed an a dditional $28,961. The two men paid the increased tax liability under protest and fi led for a refund, which the IRS denied. Id. The men then filed a compla int in the United States District Court for the District of Colorado seeking to overturn the IRS’s decision. Id. at *1. The United States filed a Motion to Dismiss the Compla int under Federal Rule of Civil Procedure 12(b)(6) for failure to stat e a claim upon which relief can be granted (“Motion to Dismiss”). In its Motion to Di smiss, the United States iden tified four claims raised by Alpenglow, three of which are relevant to this appeal: (1 ) the IRS does not have the authority to disallow deductions under 26 U.S.C. § 280E without a criminal conviction; (2) § 280E viol ates the Sixteenth Amendm ent’s definition of gross income; and (3) § 280E is an excessive fi ne that violates the Eighth Amendment. 3 Following oral argument on the Motion to Dismiss, Alpenglow filed a Motion to Amend the Complaint “to alle ge further detail as to the specific deductions that the IRS denied.” Id. The Amended Complaint alleged “t he deductions denied were: rent for where the business was conducted; co sts of labor; compensation of officers;

3 The Motion to Dismiss also asserted that the district court did not have subject matter jurisdiction to issue the in junctive relief requested by Alpenglow in the complaint. Alpenglow Botanicals, LLC v. United States (Alpenglow I) , No. 16-cv00258-RM-CBS, 2016 WL 7856477, at *1 (D. Colo. 2016) (unpublished). The district court denied Alpengl ow’s request for injunctive relief without addressing the subject matter jurisdiction argument, id. at *6 n.3, and Alpenglow does not challenge this ruling on appeal. Thus, the jurisdic tional issue, which was limited to the injunction claim, is not before us.5 advertising; taxes and licenses for doing bu siness; depreciation; and other wages and salaries.” Id. at *2. Alpenglow also filed a Motion for Partial Summary Judgment Refund Claim (“Motion for Partial Summary Judgment”). In add ition to the claims identified in the Motion to Dismiss, Alpenglow’s Motion for Partial Summary Judgment asserted two new claims: (1) the IRS’s decision to apply § 280E was arbitrary because it had no evidence Alpenglow trafficked in a controlled substance; and (2) the IRS incorrectly disallowed excl usions for Alpenglow ’s costs of goods sold under 26 U.S.C. § 263A. 4 In its December 1, 201 6 Opinion and Order, the district court granted Alpenglow’s Moti on to Amend the Complaint, granted the United States’ Motion to Dismiss, and denied Alpenglow’s Motion for Partial Summary Judgment (“Rule 12(b)(6) Dismissal”). 5 Id. at *8. Twenty-eight days after the entry of final judgment, Alpenglow filed a Motion to Alter or Amend the Judgment pursuant to Federal Rule of Civil Procedure 59(e) (“Rule 59(e) Motion”). Alpenglow Botanicals, LLC v. United States (Alpenglow II) , No. 16-cv-00258-RM-CBS , 2017 WL 1545659, at *1 (D. Colo. 2017) (unpublished). The motion contained a proposed Second Ame nded Complaint and asserted that the

4 In the Amended Complaint and Mo tion for Partial Summary Judgment briefing, Alpenglow also rais ed a Fifth Amendment claim, “alleg[ing] that the IRS should have informed plaintiffs that they were under investigation for violating the CSA.” Alpenglow I , 2016 WL 7856477, at *6. The district cour t denied this claim, id. , and Alpenglow does not raise it on appeal.

5 Alpenglow also filed a Motion fo r Order to Certify Question of Constitutionality of Colorado’s Medical Mar ijuana Laws to Colorado State Attorney General Pursuant to 28 U.S.C. § 2403(b). Alpenglow I , 2016 WL 7856477, at *1. The district court denied this motion, id. at *8, and Alpenglow does not challenge that ruling on appeal.6 district court “misa pprehended controlling law” by fail ing to consider the three new claims Alpenglow raised as a request to amend the complain t—specifically, that (1) the IRS improperly disallowed costs of goods sold; (2) the IRS produced no evidence of trafficking; and (3) § 28 0E violates the Eighth Amendment. Id. Alpenglow argued the district court should grant leave to amend because the United States would not be prejudiced by allowi ng Alpenglow to file the Second Amended Complaint. Id. The district court denied the motion, concluding it was not required to consider arguments not alleged in the Amended Complaint and Alpenglow was not entitled to amend because the request was untimely. Id. at *1–3. Alpenglow appeals both the Rule 12(b)(6) Dismissal and the c ourt’s denial of its Rule 59(e) Motion. We address each or der in turn, beginni ng with the Rule 12(b)(6) Dismissal. II. DISCUSSION A. Federal Rule of Civil Procedure 12(b)(6) Dismissal “We review a district court’s dismissa l under Federal Rule of Civil Procedure 12(b)(6) de novo.” Khalik v. United Air Lines , 671 F.3d 1188, 1190 (10th Cir. 2012). “Under Federal Rule of Civil Procedure 8(a )(2), a pleading must contain ‘a short and plain statement of the clai m showing that the pleader is entitled to relief.’” Id. While “the pleading standard Rule 8 announ ces does not require ‘detailed factual allegations,’” Ashcroft v. Iqbal, 556 U.S. 662, 67 8 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)), the “comp laint must contain enough allegations of fact, taken as true, ‘to state a claim to re lief that is plausible on its face,’” Khalik ,7 671 F.3d at 1190 (quoting Twombly, 550 U.S. at 570). “A clai m has facial plausibility when the plaintiff pleads factual content th at allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal , 556 U.S. at 678. Under the Twombly /Iqbal pleading standard, courts take a two-prong approach to evaluating the suffici ency of a complaint. Iqbal , 556 U.S. at 678–79. The first prong of the test requires the court to identify which pleadi ngs “are not entitled to the assumption of truth.” Id. at 679. This includes “leg al conclusions” as well as “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Id. at 678. The second prong of the test requires the court to “assume th[e] veracity” of the well-pleaded factual alle gations “and then determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. “Accordingly, in examining a complaint under Rule 12(b) (6), we will disregard conclusory statements and look only to whether the remaining, factual allegations plausibly suggest the defenda nt is liable.” Khalik , 671 F.3d at 1191. Alpenglow argues it raised three legal th eories that plausi bly stated a claim and therefore precluded the district cour t’s dismissal of the Amended Complaint under Rule 12(b)(6). First, Alpenglow asse rts the IRS lacks the general authority to investigate and deny tax deduc tions under § 280E without a criminal conviction, and that, even if it had such au thority, the IRS has insufficien t evidence of trafficking to apply § 280E in this case. Second, Alpe nglow claims the IRS’s calculation of Alpenglow’s income violates the Sixteenth Amendment. Third, Alpenglow contends8 § 280E violates th e Eighth Amendment. 6 We now explain why none of these arguments supports a conclu sion that the district c ourt erred in dismissing the complaint, beginning with th e IRS’s application of § 280E. Denial of Deductions Under 26 U.S.C. § 280E 1. As indicated, Alpenglow raises two argumen ts relating to the IRS’s denial of its business deductions under § 280E: the IRS (1) lacks the author ity to investigate whether Alpenglow trafficked in controlled substances because such a determination requires the IRS to conclude that the business violated federal drug laws and (2) acted in an arbitrary manne r because it did not have any evidence that Alpenglow trafficked in controlled substances.

a. Authority to investigate Alpenglow claims the IRS could not use § 280E to deny the deductions in the absence of a conviction from a criminal court that its owners had violated federal drug trafficking laws. At the core of Alpengl ow’s argument is th e assumption that a determination a person trafficked in controlled substances under taxlaw is essentially the same as a determination the person t rafficked in controlle d substances under criminallaw. Because Alpenglow sees the two as inextricably linked, it contends the IRS lacks the authority to apply § 280E until after a federal prosecutor has

6 Although the district court based its dismissal of these claims on the United States’ Motion to Dismiss, it also deni ed Alpenglow’s Motion for Partial Summary Judgment under Federal Rule of Civil Proc edure 56 “with respect to whether the IRS improperly denied the cost of goods sold, whether the IRS has authority to apply § 280E, and whether the application of § 280E violates the Sixteenth Amendment.” Alpenglow I , 2016 WL 7856477, at *7.9 investigated and charged the taxpayer with violating federal crim inal law and a judge or jury in a criminal proceeding has issued a verdict of guilty. We recently rejected this argument in Green Solution , 855 F.3d at 1120–21. There, Green Solution sued to enjoin th e IRS from investigating Green Solution’s business records in connection with an audit focused on whether certain business expenses should be denied under § 280E. We concluded the Anti-Injunction Act (“AIA”) prevented the court from exercisi ng jurisdiction over Green Solution’s “suit for the purpose of restraining the asse ssment or collection of any tax.” Id. at 1119 (quoting 26 U.S.C. § 7421(a)). In an attempt to avoid th at conclusion, Green Solution argued the AIA did not preclude the action b ecause a determination of “whether [it] trafficked in a controlled substance . . . is a criminal investig ation properly carried out by the United States Attorney,” id. at 1120, and thus “a determination of whether a taxpayer violated the CSA is not within the authority of the IRS,” id. at 1121 (internal quotation marks omitted). In rejec ting this argument, we noted that “§ 280E has no requirement that the Department of Ju stice conduct a criminal investigation or obtain a conviction befo re § 280E applies.” Id. at 1121. And we noted that under 26 U.S.C. § 6201(a), “the IRS’s obligation to determine whether and when to deny deductions under § 280E[] fall s squarely within its aut hority under the Tax Code.” Id. But because our analysis wa s limited to determining th at the AIA precluded Green Solution’s suit, we lacked s ubject matter jurisdiction to address the merits of the claim that “the IRS exceeded its authority under the Internal Revenue Code.” Id.10 at 1121 & n.8. Instead, we decided “only that the IRS’s efforts to assess taxes based on the application of § 280E fall within the scope of the AIA.” Id. at 1121 n.8. Although not directly on po int, our analysis in Green Solution is persuasive. Alpenglow offers no reason w hy we should conclude the IRS has the authority to

assess taxes under § 280E, but cannot impose excess tax liability under § 280E. There is also no evidence th at Congress intended to limit the IRS’s investigatory power. Indeed, the Tax Code contains othe r instances where th e applicability of deductions or tax liability turns on wh ether illegal conduct has occurred. See 26 U.S.C. § 162(c)(2) (denying deductions for illegal br ibes, kickbacks, etc.); id. § 6663 (imposing civil tax penalty for fraud); id. § 165(e) (allowing dedu ction for theft loss). And other courts have upheld tax deficiencies against state-sanctioned marijuana dispensaries based on appli cation of § 280E, without qu estioning the IRS’s authority on this issue. See Olive , 792 F.3d at 1151; Beck v. Comm’r , 110 T.C.M. (CCH) 141, *5–6 (2015); Canna Care, Inc. v. Comm’r , 110 T.C.M. (CCH) 408, *3–4 (2015), aff'd , 694 F. App’x 570 (9th Cir. 2017); Californians Helping to Alleviate Med. Problems, Inc. v. Comm’r (C.H.A.M.P.) , 128 T.C. 173, 181–82 (2007). Nonetheless, Alpenglow argues that because Congress has not expressly delegated the IRS authority to investigate violations of federa l drug laws, the IRS cannot make the predicate finding necessary for a denial of deductions under § 280E. In support of this proposition, Alpenglow points to a series of cases from the Supreme Court striking regulations i nvolving the taxation of illegal conduct: Leary v. United States , 395 U.S. 6 (1969); Grosso v. United States , 390 U.S. 62 (1968);11 Haynes v. United States , 390 U.S. 85 (1968); and Marchetti v. United States , 390 U.S. 39 (1968). But these cases concern the invocation of the privilege against selfincrimination where the IRS investigation involved gambling, marijuana, or, in Haynes , possession of an unregistered firearm. See Leary , 395 U.S. at 13. Critically, these cases struck down IRS regulations th at required the taxpayers to disclose information such as the names and addr esses of the sellers and buyers, their registration numbers, and the qu antity of the products sold. See id. at 15; see also Marchetti , 390 U.S. at 42–49. The Supreme C ourt concluded these tax provisions violated the Fifth Amendment due to the “substantial and ‘real’ . . . hazards of incrimination.” Marchetti , 390 U.S. at 53 (quoting Rogers v. United States , 340 U.S. 367, 374 (1951)); Leary , 395 U.S. at 15. For example, in Marchetti , the Court noted that the regulation in question required th e taxpayer to obtain a tax stamp, which necessarily “declar[ed] . . . a present intent” to viol ate gambling laws, and that federal and state courts had consistently relied on payment of the tax in subsequent criminal cases against the taxpayer. Marchetti , 390 U.S. at 47–48, 53. Indeed, some states and municipalities criminalized th e mere possession of a tax stamp, making it impossible to comply with both laws. Id. at 48 n.10. Alpenglow’s case is easily distinguish able from these cases. First, Alpenglow has not raised a Fifth Amendment challenge on appeal and is instead citing these cases for the IRS’s authority to tax based on its conclu sion that the taxpayer is engaged in illegal conduct. But the Suprem e Court has repeatedly asserted, including in the cited opinions, that “the unlawfuln ess of an activity does not prevent its12 taxation.” Id. at 44. The cases cited by Alpe nglow were challenges to “the methods employed by Congress” in enforcing these statutes, id. (emphasis added), not the authority of the IRS to investig ate and tax illegal activity . Second, these statutes involved the imposition of a taxfor specific illegal conduct, not the denialof a tax deduction . Third, the tax information at issue in the cited cases wa s routinely shared with the Department of Justice and frequen tly used to support criminal charges, creating a tax provision that served as a proxy for a criminal investigation. Here, Alpenglow has failed to cite a single case in which the government relied on a denial of deductions under § 280E as evidence of gu ilt in a criminal trial. Accordingly, these decisions do not prohibit the IRS fro m applying § 280E to deny Alpenglow’s deductions. In summary, it is within th e IRS’s statutory authority to determine, as a matter of civil tax law, whether taxpa yers have trafficked in c ontrolled substances. Thus, the IRS did not exceed its authority in de nying Alpenglow’s bus iness deductions under § 280E.13 b. Evidence of trafficking 7 Alpenglow also contends the IRS’s deni al of its deducti ons was arbitrary because the IRS had no proof Alpenglow traffi cked in a controlled substance. But in an action to recover taxes paid to the IRS, the “taxpayer has the burden to show not merely that the IRS’s assessment was errone ous, but also the amount of the refund to which the taxpayer is entitled.” Dye v. United States , 121 F.3d 1399, 1408 (10th Cir. 1997). Under this rule, the burden falls on Alpenglow to show error, not on the IRS to prove trafficking. See Green Sol. , 855 F.3d at 1121; Feinberg , 808 F.3d at 815. Alpenglow has not satisfied this burden. As the distri ct court noted, the “Amended Complaint contains no allega tions related to the IRS’ [s] lack of evidence for disallowing plaintiffs’ busines s expenses” and is instead “entirely premised upon the IRS’[s] alleged lack of authority to disallow” them. Alpenglow I , 2016 WL 7856477, at *7. Rather than challenge the district c ourt’s conclusion, Alpenglow relies on 26 U.S.C. § 7491 and argues that once it ra ised the allegation that the IRS lacked

7 Unlike Alpenglow’s other arguments, the district court dism issed this claim solely within the context of Alpenglow ’s Motion for Partia l Summary Judgment. See Alpenglow I , 2016 WL 7856477, at *7 (“The only argument . . . remaining in the motion for summary judgment is whether the IRS has failed to produce sufficient evidence that plaintiffs traffi cked in a controlled substan ce.”). “We review a district court’s grant of summ ary judgment de novo.” Amparan v. Lake Powell Car Rental Cos. , 882 F.3d 943, 947 ( 10th Cir. 2018). “Summary judgm ent is appropriate ‘if the movant shows that there is no genuine dispute as to any ma terial fact and the movant is entitled to judgment as a matter of law.’” Id. (quoting Fed. R. Civ. P. 56(a)). “On appeal, we examine the reco rd and all reasonable infere nces that might be drawn from it in the light most favor able to the non-moving party.” Id. (internal quotation marks omitted).14 evidence of Alpenglow’s purported traff icking, “the burden shifted to the Government as a matter of la w to show it actually had th e evidence.” Aplt. Br. at 29 (citing 26 U.S.C. § 7491) . But § 7491 states: If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue rel evant to ascertainin g the liability of the taxpayer . . . , the Secretary sha ll have the burden of proof with respect to such issue. 26 U.S.C. § 7491(a)(1 ) (emphasis added). Alpenglow did not make an arbitrarines s argument in the Amended Complaint or allege any “credible eviden ce” that it is not engaged in marijuana trafficking. Thus, even if we assume the burden shifts to the IRS to prove its action was not arbitrary, Alpenglow is not relieved of its initial oblig ation to provide “credible evidence” that it does not t raffic in a controlled substa nce. By choosing not to advance this theory, or allegations s upporting it, in the Amended Complaint, Alpenglow has waived the claim. See J.V. v. Albuquerque Pub. Sch. , 813 F.3d 1289, 1299 (10th Cir. 2016) (holding that “Appellants waived [a di sparate impact] basis for ADA liability by omitting it fr om their complaint”). Taxable Income Under th e Sixteenth Amendment 2. Alpenglow next raises a Sixteenth Amendment claim c onsisting of two arguments: (1) under the constitutional defin ition of income, ordinary and necessary business expenses must be excluded from gr oss income calculati ons; and (2) the IRS improperly disallowed Alpenglow “costs of goods sold” exclusions under § 263A.15 a. Ordinary and necessary business expenses The Sixteenth Amendment grants Congres s the power “to lay and collect taxes on incomes, from whatever source derive d, without apportionment among the several States, and without regard to any census or enumeration.” For pur poses of calculating tax liability, the Internal Revenue Code includes two types of income: “gross income” and “taxab le income.” The Tax Code codified the Sixteenth Amendment’s definition of income by defining gross income as “al l income from whatever sour ce derived, including . . . [g]ross income derived from business.” 26 U.S.C. § 61(a); see Comm’r v. Glenshaw Glass Co. , 348 U.S. 426, 432 n.11 (1955) (S ection 61(a) “is ba sed upon the 16th Amendment and the word ‘income’ is used in its constitutional sense.” (internal quotation marks omitted)); Samples v. Comm’r , 98 T.C.M. (CCH) 27, *3 (2009) (“26 U.S.C. section 61( a) is in full accordan ce with Congressional authority under the Sixteenth Amendment to the Constituti on to impose taxes on income without apportionment among the states.” (quoting Perkins v. Comm’r , 746 F.2d 1187, 1188 (6th Cir. 1984))). “The starting point in the determination of the sc ope of ‘gross income’ is the cardinal principle that Congress in creating the income tax intend ed to use the full measure of its taxing power.” Comm’r v. Kowalski , 434 U.S. 77, 82 (1977) (internal quotation marks omitted). To that end, Co ngress has the unquestioned constitutional and statutory authority to tax gross income. New Colonial Ice Co. v. Helvering , 292 U.S. 435, 440 (1934). To ensure taxation of income rather than sales, the “cost of goods sold” is a mandatory exclusion from the calculation of a ta xpayer’s gross income. See Max16 Sobel Wholesale Liquors v. Comm’r , 630 F.2d 670, 671 (9th Cir. 1980); Sullenger v. Comm’r , 11 T.C. 1076, 1077 (1948); 26 C.F.R. § 1.61-3(a) (“‘[G]ross income’ means the total sales, less the cost of goods so ld . . . .”). Treasury Regulations include “inventory price,” “transporta tion or other necessary charges incurred in acquiring possession of the goods,” “cos t of raw materials and supp lies,” “direct labor” costs, and “indirect production costs” as some of the mandatory ex clusions to gross income. 26 C.F.R. § 1.471-3. 8

8 Cost means: (a) In the case of merchandise on hand at the beginning of the taxable year, the inventory price of such goods. (b) In the case of merchandise purchase d since the beginning of the taxable year, the invoice price less trade or other discounts, except strictly cash discounts approximating a fair interest rate, which may be deducted or not at the option of the taxpayer, provided a consistent course is followed. To this net invoice price should be adde d transportation or other necessary charges incurred in acquiring possessi on of the goods. For taxpayers acquiring merchandise for resale that are subject to the provisions of section 263A, see §§ 1.263A–1 and 1.26 3A–3 for additional amounts that must be included in inventory costs. (c) In the case of merchandise produced by the taxpayer since the beginning of the taxable year, (1) the cost of raw materials and supplies entering into or consumed in connection with the product, (2) expenditures for direct labor, and (3) indirect production cost s incident to and necessary for the production of the particular article, including in such indirect production costs an appropriate portion of mana gement expenses, but not including any cost of selling or return on capital, whether by way of interest or profit. See §§ 1.263A–1 and 1. 263A–2 for more specifi c rules regarding the treatment of production costs. 26 C.F.R. § 1.471-3. “Treasury regulations must be sustained unless unreasonable and plainly inconsistent with the revenue statutes . . . .” Comm’r v. S. Tex. Lumber Co. , 333 U.S. 496, 501 (1948).17 In contrast, taxable income is the taxpayer’s “gross income minus the deductions allowed” by statut e. 26 U.S.C. § 63(a). Deduc tions under § 162(a) are matters of “legislative grace” sp ecifically authorized by statute, see Commodore Mining Co. v. Comm’r , 111 F.2d 131, 134 (10th Cir. 1940), and “Congress has unquestioned power to conditio n, limit, or deny deducti ons from gross income in arriving at the net whic h is to be taxed,” id. at 133 (citing Helvering v. Indep. Life Ins. Co. , 292 U.S. 371, 381 (1934)). One su ch statutorily-authorized deduction “allows a business to deduct from its gross income ‘all the ordinary and necessary expenses paid or incurred during the ta xable year in carrying on the trade or business.’” Olive , 792 F.3d at 1148 (quoting 26 U.S.C. § 162(a)). The Supreme Court has defined “ordinary and necessary e xpenses” as those e xpenses that are “‘appropriate and helpful’ to ‘the development of th e (taxpayer’s) business,’” Colo. Springs Nat’l Bank v. United States , 505 F.2d 1185, 1191 ( 10th Cir. 1974) (quoting Comm’r v. Tellier , 383 U.S. 687, 689 (19 66)), and “normal[] in the particular business,” id. at 1193 (quoting Deputy v. du Pont , 308 U.S. 488, 496 (1940)). However, § 162(a) prohibits certain deductions, such as “when the ‘amount paid or incurred during the taxable year’ is for the pur pose of ‘carrying on any trad e or business consisting of trafficking in controlled substances.’” Olive , 792 F.3d at 1148 (q uoting 26 U.S.C. § 280E). Alpenglow does not challenge Cong ress’s authority to limit or deny deductions. Nor does Alpenglow contest that the IRS specifi cally enumerates nearly all of the challenged expenses listed in the Amended Complain t as “Deductions.”18 Instead, Alpenglow argues that, despite bei ng listed in the Tax Code as deductions, “certain necessary items like . . . ordinary and necessary [busin ess] expenses” are actually exclusions that, lik e the cost of goods sold, mu st be subtracted from the calculation of a business’s gross income. See Davis v. United States , 87 F.2d 323, 324 (2d Cir. 1937). Consequent ly, Alpenglow claims § 280E violates the Sixteenth Amendment because it “prevent [s] the deduction of expens es that a business could not avoid incurring.” See Aplt. Br. at 25; Alpenglow I , 2016 WL 7856477, at *4. Although there can be similarity between expenses that qualify as cost of goods sold and ordinary and necessary business e xpenses (such as labor), 9 the cost of goods sold relates to acquisition or creatio n of the taxpayer’s product, while ordinary and necessary business expens es are those incurred in th e operation of day-to-day business activities. The cost of goods sold is a well-recognized exclusion from the calculation of gross income, while ordina ry and necessary business expenses are deductions . Indeed, while the Tax Code has st atutorily excluded certain expenses from the calculation of gro ss income, only the cost of goods sold is mandatorily excluded by “[t]he very definition of ‘gro ss income’ . . . even in the absence of specific statutory authority for such exclusion.” See Max Sobel , 630 F.2d at 671. In contrast, ordinary and necessa ry business expenses have been repeatedly recognized as statutorily-aut horized deductions. See, e.g. , Woolford Realty Co. v. Rose , 286 U.S.

9 For example, while the cost of labor is typically considered “a subtractable cost of goods sold,” Congress has the cons titutional authority to “limit[] the amount which may be subtracted for income tax purposes, on account of salaries and labor, from the selling price of goods to a ‘reasonable allowance’ for salaries and wages.” See Pedone v. United States , 138 Ct. Cl. 233, 239–40 (1957).19 319, 328 (1932); Burnet v. Sanford & Brooks Co. , 282 U.S. 359, 363 (1931); United States v. Akin , 248 F.2d 742, 743–44 (10th Cir. 1957). Although the Supreme Court has never been confronted with the exact argument Alpenglow makes—that necessary business expenses are actually exclusions—the Court has indicated that Congress has the authority to disallow the types of una voidable expenses Alpenglow identifies. For example, prior to th e enactment of 26 U.S.C. § 280E, the Supreme Court refused the IRS’s attempt to deny the cost of rent a nd wages as ordinary and necessary business expense deductions for a gambling business ope rating in violation of state law. Comm’r v. Sullivan , 356 U.S. 27, 28 (1958). The Court held that, to deny the business “the normal deductions of the rent and wages necessary to operate it” would “come close to maki ng this type of business taxable on the basis of its gross receipts, while all othe r businesses would be taxable on the basis of net income. If that choice is to be made, Congress should do it. ” Id. at 29 (emphasis added); see also Tellier , 383 U.S. at 692, 693 (“Deduction of e xpenses falling within the general definition of § 162(a) may, to be sure, be disallowed by specifi c legislation, since deductions are a matter of gr ace and Congress can, of c ourse, disallow them as it chooses.” (internal quotation marks omitte d)). And, in passing 26 U.S.C. § 280E, Congress did exactly that by denying ordi nary and necessary business expenses incurred by businesses engaged in drug tr afficking. Where the Supreme Court proposed that Congress make the choice whether to deny such deductions, we find it difficult to conclude Congress acted uncon stitutionally in doing so. It would be20 strange indeed for the Supreme Court to inv ite Congress to pass legislation violating the Constitution. It follows then that the business expens es here are deductions, not costs of goods sold. Indeed, the United States Tax Court has expressly reached that same conclusion. In Californians Helping to A lleviate Medical Problems , the United States Tax Court analyzed § 280E and concluded th at the ordinary and necessary business expenses associated with operating a me dical marijuana business were deniable deductions. C.H.A.M.P. , 128 T.C. at 181–82. The tax cour t noted that the legislative history of § 280E indicates the statute was enacted “as a dire ct reaction to the outcome of a case in which [the tax] [c ]ourt allowed a taxpayer to deduct expenses incurred in an illegal drug trade.” Id. at 181. That case, Edmondson v. Comm’r , permitted the taxpayer to deduct not only the cost of goods sold, but also his “ordinary and necessary” business expe nses. 42 T.C.M. (CCH) 1533 (1981), superseded by statute , 26 U.S.C. § 280E. In its repor t discussing the enactment of § 280E, the Senate Finance Committee cited Edmonson as the impetus for the provision and explained that § 280E was designed to disa llow “[a]ll deductions and credits for amounts paid or incurred in the illegal trafficking in drugs.” C.H.A.M.P. , 128 T.C. at 182 (citation omitte d). Tellingly, the report’s next sentence stated: “[t]o preclude possible challenges on constitutiona l grounds, the adju stment to gross receipts with respect to effective costs of goods sold is not affected by this provision of the bill.” Id. (citation omitted); see Peyton v. Comm’r , 85 T.C.M. (CCH) 1345, *521 (2003) (“[S]ection 280E disallows deductions and credits (but not costs of goods sold) with respect to the sale of controlled substances.”). Alpenglow also argues that, by refusing to allow deductions for unavoidable business expenses, Congress is permitting the IRS to tax its gross receipts rather than its income. But, “it is [not] a violation of due process to impose a tax on gross receipts regardless of the fact that expenditures exceed the receipts. . . . The mere fact of intake being less than outgo does not relieve the ta xpayer of an otherwise lawfully imposed tax.” Penn Mut. Indem. Co. v. Comm’r , 277 F.2d 16, 20 (3d Cir. 1960). The Internal Revenue Code and United States Tax Court have characterized ordinary and necessary business expens es as discretionary deductions—not mandatory exclusions—to gross income calc ulations. Congress’s choice to limit or deny deductions for these expenses under § 280E does not violate the Sixteenth Amendment. b. Costs of goods sold Alpenglow also claims the IRS improperl y denied it an exclusion from income for costs of goods sold. Although Alpengl ow did not make th is argument until its Motion for Partial Summary Judgment, the district court trea ted it as part of Alpenglow’s Sixteenth Amendment claim a nd dismissed it under Rule 12(b)(6). The court concluded Alpenglow did not “plausibly allege [] a claim that the IRS improperly disallowed the cost of goods sold [becau se] the Amended Complaint neither raises such a claim nor al leges any facts in that regard.” Alpenglow I , 2016 WL 7856477, at *5. We agree.22 In its Amended Complaint, Alpe nglow alleges the IRS issued a Notice of Deficiency “denying all ordinary and necessary business deductions and increasing the income of Alpenglow.” See Aplt. App. vol. 1, at 197 (emphasis added). The Amended Complaint does not include “costs of goods sold” as one of the denied deductions and nowhere in the Amended Complaint does Alpe nglow claim, or allege facts to support, that th e IRS’s characterization of the denied expenses as deductions—rather than costs of goods sold—was erroneous. Eighth Amendment 3. Alpenglow’s third assertion is that § 280E is a penalty and enforcing it violates the Eighth Amendment. Our recent decision in Green Solution , 855 F.3d 1111, forecloses this argument. Green Solution held that “Section 280 E is not a penalty,” because “[t]he disallowance of a deduc tion is not an exaction imposed as a punishment. Deductions are not a matter of right. Neither do they turn upon equitable considerations. They are a matterof legislative grace.” Id. at 1121 (internal quotation marks omitted). Alpenglow c ontends this conclusion in Green Solution is nonbinding dicta. We are not convinced. In Green Solution, the taxpayer argued the district court could assert subject matter jurisdiction over its injunction act ion against the IRS because § 280E is a penalty, not a tax s ubject to the AIA. Id. We rejected that argument, concluding instead that the attemp t to enjoin the IRS’s investiga tion into the applicability of § 280E fell squarely within the jurisd iction-stripping provision of the AIA. Id. Because the panel’s holding in Green Solution that § 280E is not a penalty was23 necessary to its disposition of th e case, that holding was not dicta. See Bishop v. Smith , 760 F.3d 1070, 1083 (10th Cir. 2014) (“St atements which appear in an opinion but which are unnecessary for its dis position are dicta.”). And although Green Solution assessed whether § 280E was a pena lty under the Anti-Injunction Act, Alpenglow has offered no reason why the re sult should be different under the Eighth Amendment. We remain convinced that § 280E is not a penalty. * * * Alpenglow has failed to state a claim en titling it to relief because § 280E does not violate the Eighth or Sixteenth Ame ndments and the IRS did not exceed its statutory authority in applying it to deny Alpenglow’s busin ess deductions. We therefore affirm the district c ourt’s Rule 12(b)(6) Dismissal. B. Federal Rule of Civil Procedure 59(e) Motion We turn now to the denial of Alpe nglow’s Motion to Alter or Amend the Judgment pursuant to Federal Rule of Civi l Procedure 59(e). “We review Rule 59(e) decisions for abuse of discretion.” Etherton v. Owners Ins. Co. , 829 F.3d 1209, 1228 (10th Cir. 2016). “An abuse of discretion is defined in this circuit as judicial action which is arbitrary, capr icious, or whimsical.” United States v. Pacheco , 884 F.3d 1031, 1047 (10th Ci r. 2018) (quotation marks omit ted). Grounds warranting a motion to alter or amend the judgment pursuant to Rule 59(e) “include (1) an intervening change in the controlling law, (2) new ev idence previously unava ilable, and (3) the need to correct clear error or prevent manifest injustice.” Servants of the Paraclete v. Does , 204 F.3d 1005, 1012 (10th Cir. 2000). “T hus, a motion for reconsideration is24 appropriate where the court has misapprehe nded the facts, a party’s position, or the controlling law.” Id. “It is not appropriate to revis it issues already addressed or advance arguments that could have been raised in prior briefing.” Id. To reverse the district court’s denial of a Rule 59(e) motion, “we must have a definite and firm conviction that the lower court made a clear error of judgm ent or exceeded the bounds of permissible choi ce in the circumstances.” Etherton , 829 F.3d at 1228 (internal quotation marks omitted). Motion to Amend the Complaint 1. “An issue raised for the first time in a motion fo r summary judgment may properly be considered [as] a request to amend the complaint, pursuant to Federal Rule of Civil Procedure 15.” Pater v. City of Casper , 646 F.3d 1290, 12 99 (10th Cir. 2011). “We therefore construe the district court’s refusal to address the new issue as a denial of plai ntiffs’ request.” Id. “Although leave to amend shall be freely given when justice so requires,” Las Vegas Ice & Cold Storage Co. v. Far W. Bank , 893 F.2d 1182, 1185 (10th Cir. 1990) (internal quotation marks omitted), “[t]he decision to grant leave to amend the pl eadings is within the discret ion of the trial court, and we will not reverse the c ourt’s decision absent an abuse of discretion,” Pater , 646 F.3d at 1299 (internal quot ation marks omitted). In light of our liberalized pleading rule s, plaintiffs generally “should not be prevented from pursuing a claim merely be cause the claim did not appear in the initial complaint.” Id. at 1299. But plaintiffs cannot “w ait until the last minute to ascertain and refine the theories on wh ich they intend to build their case.” Id.25 (quotation marks omitted). We have repeatedly held that , “untimeliness alone is a sufficient reason to deny leave to amend when the party filing the motion has no adequate explanation for the delay.” Id. (quotation marks omitted); see Las Vegas Ice & Cold Storage Co. , 893 F.2d at 1185. And, “[w]he re the party seeking amendment knows or should have known of the fa cts upon which the proposed amendment is based but fails to include them in the or iginal complaint, th e motion to amend is subject to denial.” Las Vegas Ice & Cold Storage Co. , 893 F.2d at 1185 (quotation marks omitted). In its Rule 59(e) Motion, Alpenglow challenges the district court’s Rule 12(b)(6) Dismissal Order and asserts that three of its claims should have been permitted to be advanced in a Second Am ended Complaint: (1) the IRS incorrectly disallowed deductions for cost s of goods sold under § 26 3A; (2) the IRS failed to provide any evidence of trafficking to supp ort its denial of Alpenglow’s deductions under § 280E; and (3) § 280E vi olates the Eighth Amendment. Alpenglow II , 2017 WL 1545659, at *1–3. Alpenglow claimed the c ourt “misapprehe nded controlling law” by dismissing these claims for failure to sufficiently raise and/or support them in its Amended Complaint rath er than treating them as a request to further amend the complaint. Id. at *1. Alpenglow also asserted that the district court relied on an erroneous public polic y announcement to support its di smissal of Alpenglow’s claim. The district court noted that, although it had the ability to consider the arguments as a request to further amend th e complaint, it was not required to do so. Id. The court also indicated that, even if it elected to consider Al penglow’s request to26 amend the complaint, it would deny the mo tion as untimely becau se Alpenglow had sufficient facts to raise all three arguments in its origin al or Amended Complaint. Id. at *2. And the court noted that it did not make a public policy analysis and would not consider Alpenglow’s newly raised “D ead Letter Rule” argument on untimeliness grounds. On appeal, Alpenglow argues this decision was an abuse of the district court’s discretion. We have reviewed the district court’s decision on each of these claims above and concluded the court did noterr in dismissing them for failure to state a claim. We now conclude the distri ct court did not abuse its discretion in refusing to allow Alpenglow to amend it s complaint to addr ess the relevant deficiencies.

a. Costs of goods sold Alpenglow first argues the district cour t abused its discretion in refusing to grant it leave to amend the complaint to include a clai m that the IRS improperly included Alpenglow’s cost of goods sold in calculating its tax liability. As discussed above, the district court denied this cl aim because Alpenglow’s Amended Complaint failed to plausibly allege it. To addre ss this deficiency, Al penglow attached a proposed Second Amended Co mplaint to its Rule 59(e) Motion. The critical difference between the two complaints is that Alpe nglow’s proposed Second Amended Complaint asserts th e IRS “den[ied] all ordina ry and necessary business deductions, including the cost of goods sold,” wher eas the Amended Complaint made “[t]he same allegation ( minus reference to cost of goods sold).” Id. (emphasis added).27 The district court denied the motion to amend the compla int on untimeliness grounds because, despite having all the necessary facts, Alpenglow failed to raise the claim earlier. As disc ussed above, Alpenglow failed to include the IRS’s alleged denial of its cost of goods sold expenses in its Amended Complaint or to challenge the IRS’s characterization of its denied expenses as deduc tions, despite having received the Notice of Deficiency and the United States’ Motion to Dismiss—both of which claimed the denied deductions excluded costs of goods sold. Under these circumstances, the district court’s dete rmination that Alpenglow had the facts necessary to raise this argument soone r is not “a clear error of judgment.” See Etherton , 829 F.3d at 1228 (quotation marks omitted). b. Evidence of trafficking Alpenglow concedes it did not raise th e IRS’s alleged lack of trafficking evidence in the Amended Comp laint, but claims it coul d not have done so because “the fact that the IRS did not have any evidence of purported trafficking came about due to the representations made by the IRS in its response to the Plaintiff’s Motion for Summary Judgment.” Aplt. Br. at 33. But, in its Motion for Partial Summary Judgment on this issue, Alpenglow cites th e IRS’s failure to make factual findings establishing the purported trafficking conduct in the Notice of Deficiency as evidence of the arbitrariness of the IRS’s decision. Because Alpenglow received the Notice of Deficiency before it filed its initial complaint, as well as its Ame nded Complaint, the district court’s conclusion th at Alpenglow had all the neces sary facts to argue this28 claim sooner is not “a clear error of judgment.” See Etherton , 829 F.3d at 1228 (quotation marks omitted).

c. Eighth Amendment Unlike its other arguments on appeal, Al penglow’s claim that§ 280E violates the Eighth Amendment was raised in the Amended Complaint and dismissed by the district court under Federal Rule of Civil Procedure 12(b)(6). See Alpenglow II , 2017 WL 1545659, at *2. The district court held Al penglow did not raise a plausible Eighth Amendment claim becau se “[t]he Amended Compla int is entirely devoid of any allegations pertaining to the effect that § 280E has had on plai ntiffs’ ability to do business.” Alpenglow I , 2016 WL 7856477, at *6. Although Alpenglow argues the district court should have al lowed it to amend the compla int to allege sufficient factual allegations to suppor t its Eighth Amendment argum ent, we have concluded that § 280E is not a penalty and thus does not violate th e Eighth Amendment. So any amendment to the complaint would be lega lly futile and the district court did not abuse its discretion by denying the motion. See United States v. Greer , 881 F.3d 1241, 1244 (10t h Cir. 2018), petition for cert. filed , 17-8775 (May 4, 2018). (“We are not bound by the district c ourt’s reasoning and may affirmon any ground adequately supported by the record.” (intern al quotation marks omitted)). Public Policy/Dead Letter Rule 2. Alpenglow raises two distinct but relate d policy arguments to support its claim that the IRS should not be permitted to appl y § 280E to tax the gross income, rather than the net income, of m arijuana dispensaries operati ng in accordance with state29 law. For the reasons discussed below, we reject both arguments and conclude the district court acted well within its disc retion in denying Alpenglow’s Rule 59(e) Motion with respect to this claim. First, Alpenglow asserts that, in its or der granting the United States’ Motion to Dismiss, the district court conducted an inaccurate analysis regarding the “public policy exception” to the requirement that ta xpayers be taxed on net income and that “the court relied upon this anal ysis, at least in part, in its rulings.” Aplt. Br. at 34. In support, Alpenglow quotes the district c ourt’s statement: “[i]t is at least arguable whether allowing a taxpayer to deduct from its gross income e xpenses incurred in allegedly selling marijuana to the public frustrates the policy of the CSA.” Alpenglow
I , 2016 WL 7856477, at *5 n.2. According to Alpe nglow, this comment shows the district court conducted a public policy an alysis and conclude d the state-approved sale of medical marijuana fru strates a sharply-defined pub lic policy. Alpenglow takes issue with this inferred conclusion, but we n eed not address it here. The district court clarified in its order denying the Rule 59( e) Motion that the public policy discussion was “entirely irrelevant to th e [c]ourt’s ultimate finding,” Alpenglow II , 2017 WL 1545659, at *3, and “had nothing to do with re solving the issue before the [c]ourt: plaintiffs’ argument that the Constitution forbids including in gross income the cost of ordinary and necessa ry business expenses,” id. at *4. Second, Alpenglow relies on Sterling Distributors, Inc. v. Patterson , to claim there is a “generally accep ted” Dead Letter Rule pr ohibiting the IRS from denying deductions under a law “[w]hen there is a public policy of non-enforcement of the30 law.” Aplt. Br. at 39, 40 (citing 236 F. Su pp. 479, 483–84 (N.D. Ala. 1964)). First, Alpenglow has failed to de monstrate any widespread a cceptance or adoption of the “Dead Letter Rul e” announced in Sterling Distributors . To the contrary, the Supreme Court has held that a public policy analys is on the disallowance of deductions under the Tax Code is only appr opriate “where Congress ha s been wholly silent,” Tellier , 383 U.S. at 693, because “[d]eduction of expenses falling within the general defin ition of § 162(a) may, to be sure, be disallowed by specific legisl ation, since deductions ‘are a matter of grace and Congress can, of co urse, disallow them as it chooses,’” id. (quoting Sullivan , 356 U.S. at 28). See also Sullivan , 356 U.S. at 29 (“If th[e] choice [to tax illegal business on the basis of gross income] is to be made, Congress should do it.”). Congress has not been silent here; by enacting § 280E, Congress has s poken expressly on its intent to prohibit the deductio n of business expenses related to drug trafficking illegal under federal law. Second, even assuming the existence of a Dead Letter Rule, Alpenglow cannot succeed on such a theory. The district court refused to consider this argument because Alpenglow “failed to raise it when [it] could have done so at any time during the parties’ pre-Judgment briefing.” Alpenglow II , 2017 WL 1545659, at *3 n.4. The district court did not abus e its discretion in failing to consider this untimely argument. See Las Vegas Ice & Cold Storage Co. , 893 F.2d at 1185. Furthermore, the Department of Justice has specifically re scinded its former policy of non-prosecution for marijuana dispensaries co mplying with state law, evid encing governmental intent to enforce this law. See Memorandum from Jefferson B. Sessions, Att’y Gen., U.S.31 Dep’t of Justice for all U.S. Att’ys (J an. 4, 2018). As such , § 280E would not constitute a Dead Letter Rule, ev en if such a rule existed. * * * The district court was not “arbitrary, cap ricious, or whimsical” in holding that Alpenglow’s request to amend the complaint was untimely. See Pacheco , 884 F.3d at 1047. Therefore, the court did not a buse its discretion in denying Alpenglow’s Rule 59(e) Motion. III. CONCLUSION We AFFIRM the dismissal of Alpenglow ’s suit under Federal Rule of Civil Procedure 12(b)(6) and the denial of Al penglow’s Motion to Alter or Amend the Judgment pursuant to Federal Ru le of Civil Procedure 59(e).