Briefing Complete and Argument Scheduled in CIC Services

The Supreme Court has scheduled oral argument in the CIC Services case for December 1.  As has been the practice at the Court since March because of the pandemic, the argument will not occur in person, but rather will be conducted by telephone.  And the questioning therefore will be more structured instead of the traditional free-for-all.  After the advocate is allowed to give a brief, two-minute introduction without interruption, each Justice then will have a turn to ask questions — approximately three minutes for each Justice beginning with the Chief Justice and moving on in descending order of seniority from Justice Thomas down to new Justice Amy Coney Barrett — with the advocate allowed a minute or so at the end to sum up.

The taxpayer’s reply brief (linked below) reemphasizes the textual arguments made in its opening brief.  It contends that the government’s efforts to distinguish unfavorable precedent essentially amount to trying to revive the old principle of “tax exceptionalism,” which the Supreme Court explicitly rejected in 2011 in the Mayo Foundation case.  By contrast, the taxpayer asserts, the government makes no “serious attempt to interpret the words of the statutory text” — even though textual analysis is the correct way to resolve the case.

In addition to the textual analysis, the reply brief argues that the taxpayer’s position is supported by examining the purposes of the Anti-Injunction Act and argues at length that a ruling for the government would create constitutional problems because it would require a taxpayer to run the risk of criminal prosecution in order to raise a pre-enforcement challenge to a reporting requirement.

CIC Services – Taxpayer Reply Brief

Government Brief Filed in CIC Services

The government has now filed its answering brief in CIC Services, defending the divided Sixth Circuit’s decision to dismiss an APA challenge to a reporting requirement on the ground that the lawsuit violated the Anti-Injunction Act.  See our previous reports here.

Like the taxpayer’s brief, the government focuses most of its attention on analyzing the statutory text.  Like the court of appeals, it argues that the terms of the statute literally apply because the penalties for noncompliance with the reporting requirements are defined in the Code as “taxes” and the lawsuit, if successful, would have the effect of preventing collection of those penalties if a taxpayer did not comply with the requirements.  The government distinguishes Direct Marketing Ass’n v. Brohl, 575 U.S. 1 (2015), on which the taxpayer relies, on the ground that that case did not involve requirements that were “enforced by taxes.”  The government rejects the argument that its position undermines the broad purposes of the APA, contending that the taxpayer does not need a pre-payment remedy because it would have an adequate post-payment remedy if it incurred the penalty and then filed a refund suit.  Contrary to the taxpayer’s argument, the government maintains that pursuing the post-payment remedy would not expose the taxpayer to criminal liability for “willfully” disregarding the reporting requirements.

The taxpayer’s reply brief is due October 8.  Oral argument has not yet been scheduled in the case and therefore will occur no earlier than November 30.

CIC Services – Government Answering Brief

Briefing Underway in CIC Services

The opening briefs have now been filed in CIC Services, which involves the applicability of the Anti-Injunction Act, 26 U.S.C. § 7421(a), to an Administrative Procedure Act challenge to a reporting requirement that carries with it a “tax” penalty for noncompliance. See our prior report here. Showing a restraint that is fairly unusual today in Supreme Court litigation, the taxpayer’s brief (linked below) comes in well under the maximum length permitted by the Court’s rules. Showing somewhat less restraint, a variety of organizations and individuals filed a total of ten different amicus briefs in support of the taxpayer’s position.

The taxpayer’s brief argues that this is a simple case, controlled by the statutory text. In particular, the taxpayer argues that use of the terms “assessment” and “collection” in the statute refute the notion that it could apply to a challenge to a reporting requirement. According to the taxpayer, the prohibition against suits that “restrain” those activities means that the statute applies to “suits that actually stop the assessment or collection of a tax–not suits that merely inhibit future assessment or collection.” The brief relies for support on both the opinion of the Sixth Circuit judges dissenting from denial of en banc review and on Direct Marketing Ass’n v. Brohl, 575 U.S. 1 (2015), a Supreme Court decision involving the Tax Injunction Act, 28 U.S.C. § 1341, which the taxpayer describes as “a similarly worded state tax analog.”

The taxpayer makes two additional points apart from its focus on the statutory text. It argues that the Sixth Circuit’s decision frustrates the policy of the APA to facilitate pre-enforcement review while doing nothing to advance the purposes of the Anti-Injunction Act. And the taxpayer argues that the Sixth Circuit’s decision creates an unconstitutional system by allowing a taxpayer to challenge the reporting requirement only by first violating the requirement and thus exposing itself to criminal liability.

The government’s answering brief is due September 8.

CIC Services – Opening Brief for Taxpayer

Supreme Court to Hear Tax Anti-Injunction Act Dispute in the Fall

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.

CIC Petition for Certiorari

Government Brief in Opposition in CIC

CIC Reply in Support of Certiorari Petition