Supreme Court to Hear Tax Anti-Injunction Act Dispute in the Fall
June 10, 2020 by Alan Horowitz
Filed under Administrative Law, CIC Services, Supreme Court
The Supreme Court granted certiorari in CIC Services, LLC v. IRS, No. 19-930, to address the scope of the Tax Anti-Injunction Act, 26 U.S.C. § 7421(a). The briefing in the case will occur over the summer, with oral argument to occur sometime in the fall.
The basic issue in the case is how narrowly to read the Act’s prohibition on actions seeking to enjoin “the assessment or collection of any tax.” That prohibition means taxpayers who dispute a tax assessment must pay their taxes first before they can litigate the dispute in a refund suit. The CIC case, however, did not involve a tax assessment or, really, tax liability at all (except in a very tangential way). Rather, the dispute was over the validity of an IRS notice imposing reporting and recordkeeping obligations on taxpayers entering into certain “micro-captive” insurance transactions. The plaintiffs sought to halt enforcement of the notice on the ground that it did not comport with APA notice-and-comment requirements. The district court, however, agreed with the IRS that the suit was barred by the Anti-Injunction Act because taxpayers who failed to report their transactions were subject to penalties that are classified by the Code as “taxes,” and the suit would have the effect of restraining the imposition of those penalties. The court reasoned that the lawsuit “necessarily operate[d] as a challenge to both the reporting requirement and the penalty or tax imposed for failure to comply with the reporting requirement.”
A sharply divided Sixth Circuit affirmed, denying the plaintiffs’ petition for a rehearing en banc by a narrow 8-7 vote. On top of that, Judge Sutton, who provided the swing vote for denial, wrote separately to explain that he thought the dissenters had the better reading of the Act but that the issue ultimately turned on the meaning of Supreme Court precedent and should be resolved by that Court without an unnecessary detour into en banc review.
Building off the dissents in the Sixth Circuit, and supported by several amicus briefs, the taxpayer argued in its cert petition that the decision below meant that “even patently unlawful IRS regulations can be insulated from review unless an individual is willing to risk the imposition of enormous fines and—in this case—prison time.” The government devoted most of its response to defending the Sixth Circuit’s construction of the statute on the merits, without saying much about the policy implications. The Supreme Court was persuaded that it needs to step in and resolve the issue, which may bode well for the taxpayer’s position.
The taxpayer’s opening brief is due July 15, and the government’s response is due September 8. The Court has not yet scheduled an argument date, but a November or early December date is likely.
Linked below is the cert petition (with an attached appendix that includes the decisions of the courts below), the government’s brief in opposition, and the taxpayer’s reply brief.
