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

Cert Denied in SIH Partners

January 13, 2020 by  
Filed under SIH Partners

As expected, the Supreme Court this morning declined to review the Third Circuit’s decision in SIH Partners, thus bringing the litigation to a close.

Supreme Court Poised to Rule on SIH Partners Cert Petition

January 7, 2020 by  
Filed under Administrative Law, SIH Partners

We noted in our prior coverage of this case that SIH Partners was likely to seek Supreme Court review of the adverse decision it received in the Third Circuit regarding loan guarantees issued by a CFC, even if a grant of certiorari was a longshot.  The Court is now scheduled to consider the taxpayer’s cert petition at its January 10 conference and will likely announce its determination on January 13.

In an effort to interest the Court in the case, the taxpayer chose to focus entirely on the administrative law issues presented by the case, not on the substantive tax issues.  The only questions presented in the cert petition are: “1. Whether the Third Circuit erred in deferring to the IRS regulation under Chevron” and “2. Whether the Third Circuit erred in holding that the IRS is not bound by its own published Revenue Rulings.”

The taxpayer states that these are questions of broad importance in administrative law and argues that the courts of appeals are in conflict in addressing them.  As to the first question, the taxpayer asserts that “the Third Circuit stretched Chevron deference past the point any other court has gone.”  As to the second, the taxpayer quotes the Third Circuit’s statement that a Revenue Ruling “does not bind the IRS” and asserts that other courts have held that the IRS is bound by its own Revenue Rulings.

The government in response asserts that the case does not present any issue warranting the Supreme Court’s attention.  Its brief in opposition shifts the focus away from the broad administrative law questions set forth by the taxpayer and devotes more attention to the substantive tax issues, suggesting that the outcome would have been the same even if the court had agreed with the taxpayer’s Chevron position.  It notes that the court of appeals “devoted only a single paragraph of its opinion” to a recitation of Chevron principles and simply held that Treasury did not act arbitrarily in failing to adopt the regulatory exception sought by the taxpayer.  In any event, the government disputes the assertion of a circuit conflict regarding Chevron, stating that the cases cited by the taxpayer simply reflect different results attributable to different facts.  As to the Revenue Ruling, the government does not take issue with the principle that Revenue Rulings are generally binding on the IRS, arguing that the Third Circuit’s decision should be understood as stating that the Revenue Ruling cited by the taxpayer was “inapposite” in the circumstances of this case because the regulation leaves no room for the facts and circumstances inquiry sought by the taxpayer.  Finally, to the extent the Third Circuit’s view on Revenue Rulings is in tension with other courts of appeals, the government contends that this case “is a poor vehicle” for the Supreme Court to consider that question.

The taxpayer’s reply brief seeks to cut through the complexity of the government’s response, stating that “the IRS tries to defeat certiorari by ignoring what the other circuits have actually said and rewriting both the agency’s explanation for the Regulation and the Third Circuit’s opinion.”

The three Supreme Court filings are linked below.

SIH Petition for Certiorari

Government Brief in Opposition

SIH Reply Brief in Support of Petition