CIC Services, LLC v. IRS, et al.
No. 19-930, 593 U.S. ___, 2021 WL 1951782 (2021)
Decided May 17, 2021
Yesterday, the Supreme Court issued a unanimous decision in CIC Services, LLC v. IRS, et al., holding that a suit under the Administrative Procedure Act (“APA”), 5 U.S.C. § 500 et seq., seeking to enjoin the Internal Revenue Service (“IRS”) from enforcing the information reporting requirements of IRS Notice 2016–66 (“Notice”), does not trigger the Anti-Injunction Act (“AIA”), 26 U.S.C. § 7421. The American College of Tax Counsel and other organizations filed amicus briefs with the Court.
CIC filed an action in the United States District Court for the Eastern District of Tennessee to enjoin enforcement of the Notice, which provided that certain micro-captive transactions were “transactions of interest” subject to the information reporting requirements of 26 U.S.C. § 6707A, on the grounds that the Notice violated the APA because it failed to provide the required notice and comment period. Section 6707A requires detailed reporting of transactions of interest and other “reportable transactions” on Form 8886 (Reportable Transaction Disclosure Statement) filed with the taxpayer’s tax return, as well as with the Office of Tax Shelter Analysis. There are onerous civil and criminal penalties for failure to file this form.
The district court granted the Government’s motion to dismiss for lack of subject matter jurisdiction under the AIA, holding that “Plaintiffs’ claims and their requested injunction necessarily operate as a challenge to both the reporting requirement and the penalty or tax . . . . [a]ccordingly, the Court lacks subject-matter jurisdiction over Plaintiffs’ claims because they are barred by the AIA and the tax exception to the DJA.” CIC Services, LLC, et al. v. IRS, et al., No. 3:17 Civ. 110 (TRM), 2017 WL 5015510, *4 (E.D. Tenn. Nov. 2, 2017). The Sixth Circuit dividedly affirmed. CIC Services, LLC v. IRS, et al., 925 F.3d 247, 257 (6th Cir. 2019).
Justice Kagan, writing for the Court, reversed and held that CIC’s suit is “not a suit ‘for the purpose of restraining the [IRS’s] assessment of collection’ of a tax, and so does not trigger the Anti-Injunction Act.” CIC Services, LLC v. IRS, et al., 593 U.S. ____ , 2021 WL 1951782, *8 (2021). “Contra the Government’s view, a request in an APA action to ‘enjoin the enforcement’ of an IRS reporting rule is most naturally understood as a request to ‘set aside’ that rule (as the complaint elsewhere says), not to block the application of a penalty that might be imposed for some yet-to-happen violation . . . . [w]e reject the Government’s argument that an injunction against the Notice is the same as one against the tax penalty—just ‘two sides of the same coin.’” Id. *5. “That the Notice imposes an affirmative duty independent of the tax, entailing its own substantial costs; that the Notice and tax may remain forever divorced, depending on both CIC’s and the IRS’s choices; that not only the tax but also criminal penalties backstop the Notice—these facts, when combined, readily explain why CIC’s suit targets the upstream reporting mandate, not the downstream tax. And because that is the suit’s aim, the Anti-Injunction Act imposes no bar.” Id. *7.
The Court rejected the Government’s concern that distinguishing a challenge to an IRS notice from a challenge to “an assessment or collection of any tax” would enfeeble the AIA and create a deluge of pre-enforcement actions, characterizing this prediction as “much overstat[ed] . . . . because the injunction . . . does not run against a tax at all.” Id.
The matter was remanded for proceedings on the merits.