Advisory Firm Asks Supreme Court to Review Microcaptive Decision

CIC SERVICES, LLC,
Petitioner,
v.
INTERNAL REVENUE SERVICE; DEPARTMENT OF TREASURY; UNITED STATES OF AMERICA,
Respondents.

IN THE
Supreme Court of the United States

ON PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

Adam R. Webber
ELLIOT, FAULKNER & WEBBER
4244 Indian Ripple Rd.,
Suite 150
Beavercreek, OH 45440
(937) 264-8710

Kenneth A. Lazarus
LAZARUS & ASSOCIATES
1025 Thomas Jefferson St NW Washington, DC 20007
(202) 295-2330
lazaruslaw@aol.com

Patrick Strawbridge
Counsel of Record
CONSOVOY MCCARTHY PLLC
Ten Post Office Square
8th Floor South PMB #706
Boston, MA 02109
(617) 227-0548
patrick@consovoymccarthy.com

Jeffrey M. Harris
Alexa R. Baltes
CONSOVOY MCCARTHY PLLC
ANTONIN SCALIA LAW SCHOOL SUPREME COURT CLINIC
1600 Wilson Blvd., Ste. 700
Arlington, VA 22209
(703) 243-9423 
jeff@consovoymccarthy.com

Attorneys for Petitioner

Date: January 17, 2020

QUESTION PRESENTED

Whether the Anti-Injunction Act's bar on lawsuits for the purpose of restraining the assessment or collection of taxes also bars challenges to unlawful regulatory mandates issued by administrative agencies that are not taxes.

PARTIES TO THE PROCEEDING AND RELATED PROCEEDINGS

The parties to the proceeding below are as follows:

Petitioner is CIC Services, LLC. It was the plaintiff in the district court and appellant in the court of appeals.

Respondents are the Internal Revenue Service, the Department of Treasury, and the United States of America. Respondents were defendants in the district court and appellees in the court of appeals.

The related proceedings below are:

1) CIC Services, LLC v. IRS, No. 3:17-cv-110 (E.D. Tenn.) — Judgment entered November 2, 2017; and

2) CIC Services, LLC v. IRS, No. 18-5019 (6th Cir.) — Judgment entered May 22, 2019.

CORPORATE DISCLOSURE STATEMENT

In accordance with Supreme Court Rule 29, Petitioner CIC Services, LLC states that it has no parent companies or publicly held companies with a 10% or greater ownership interest in it.

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 TABLE OF CONTENTS

QUESTION PRESENTED

PARTIES TO THE PROCEEDING AND RELATED PROCEEDINGS

CORPORATE DISCLOSURE STATEMENT

TABLE OF CONTENTS

TABLE OF APPENDICES

TABLE OF CITED AUTHORITIES

OPINIONS BELOW

JURISDICTION

STATUTORY AND REGULATORY PROVISIONS INVOLVED

INTRODUCTION

STATEMENT OF THE CASE

REASONS FOR GRANTING THE PETITION

II. The Sixth Circuit's opinion conflicts with decisions from the Seventh and Tenth Circuits

III. The decision below threatens to insulate agency actions from APA challenges and undermines the purpose of the APA

CONCLUSION

TABLE OF APPENDICES

APPENDIX A — OPINION OF THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT, FILED MAY 22, 2019

APPENDIX B — MEMORANDUM OPINION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE, FILED NOVEMBER 2, 2017

APPENDIX C — ORDER OF THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT, FILED AUGUST 28, 2019

APPENDIX D — RELEVANT STATUTORY AND REGULATORY PROVISIONS

TABLE OF CITED AUTHORITIES

Cases:

Abbott Labs. v. Gardner, 387 U.S. 136 (1967), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977)

Alexander v. “Americans United” Inc., 416 U.S. 752 (1974)

Autocam Corp. v. Sebelius, 730 F.3d 618 (6th Cir. 2013), vacated on other grounds sub nom. Autocam Corp. v. Burwell, 573 U.S. 956 (2014)

Bob Jones Univ. v. Simon, 416 U.S. 725 (1974), abrogated on other grounds by NFIB, 567 U.S. 519

Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2014)

Cohen v. United States, 650 F.3d 717 (D.C. Cir. 2011)

Direct Mktg. Ass'n v. Brohl, 575 U.S. 1 (2015)

Flora v. United States, 357 U.S. 63 (1958)

Florida Bankers Ass'n v. U.S. Dep't of the Treasury, 799 F.3d 1065 (D.C. Cir. 2015)

Free Enter. Fund v. PCAOB, 561 U.S. 477 (2010)

Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114 (10th Cir. 2013)

Korte v. Sebelius, 735 F.3d 654 (7th Cir. 2013)

Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44 (2011)

NFIB v. Sebelius, 567 U.S. 519 (2012)

Oklahoma Operating Co. v. Love, 252 U.S. 331 (1920)

Pullan v. Kinsinger, 20 F. Cas. 44 (C.C.S.D. Ohio 1870)

Seven-Sky v. Holder, 661 F.3d 1 (D.C. Cir. 2011)

South Carolina v. Regan, 465 U.S. 367 (1984)

Statutes and Other Authorities:

5 U.S.C. § 500

5 U.S.C. § 553(b)

5 U.S.C. § 553(c)

26 U.S.C. § 6011(a)

26 U.S.C. § 6111

26 U.S.C. § 6112

26 U.S.C. § 6671(a)

26 U.S.C. § 6707

26 U.S.C. § 6707(c)

26 U.S.C. § 6707A

26 U.S.C. § 6707A(c)(1)

26 U.S.C. § 6707A(d)

26 U.S.C. § 6708

26 U.S.C. § 7203

26 U.S.C. § 7421(a)

28 U.S.C. § 1254(1)

28 U.S.C. § 1341

26 C.F.R. §§ 1.6011-4

26 C.F.R. §§ 1.6011-4(b)

26 C.F.R. §§ 301.6111-3

26 C.F.R. §§ 301.6111-3(a)-(b)(1)

Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683 (2017)

Sup. Ct. Rule 10(a)

Sup. Ct. Rule 10(c) 

Tax Code, Chapter 68, Subchapter B

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 CIC Services, LLC respectfully petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Sixth Circuit.

OPINIONS BELOW

The opinion of the U.S. Court of Appeals for the Sixth Circuit is reported at 925 F.3d 247 and is reproduced in the Appendix (“App.”) at 1a-37a. The opinion of the U.S. District Court for the Eastern District of Tennessee is unpublished but is available at 2017 WL 5015510 and is reproduced at App. 38a-47a. The order denying the petition for rehearing is reported at 936 F.3d 501 and is reproduced at App. 48a-66a.

JURISDICTION

The judgment of the U.S. Court of Appeals for the Sixth Circuit was entered on May 22, 2019. The Sixth Circuit denied CIC's petition for rehearing en banc on August 28, 2019. This Court subsequently extended the time in which to file this petition until January 17, 2020. See 19A440. This Court has jurisdiction pursuant to 28 U.S.C. § 1254(1).

STATUTORY AND REGULATORY PROVISIONS INVOLVED

The pertinent statutory and regulatory provisions involved in this case are: 26 U.S.C. §§ 6707, 6707A, 6708, 6011(a), 6111, 6112, 7203, 7421(a); 26 C.F.R. §§ 1.6011-4(b), 301.6111-3(a)-(b)(1); Notice 2016-66. These provisions are reproduced at App. 67a-106a.

INTRODUCTION

Pre-enforcement review is the lifeblood of administrative law. Thanks to the Administrative Procedure Act, law-abiding citizens can challenge illegal regulations in court, without having to violate the regulation first and then raise its invalidity as a defense to an enforcement action. Abbott Labs. v. Gardner, 387 U.S. 136, 139-41, 152-53 (1967), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). Without pre-enforcement review, plaintiffs would have to “'bet the farm'” to “'test[ ] the validity'” of agency action — a risk most would understandably never take. Free Enter. Fund v. PCAOB, 561 U.S. 477, 490-91 (2010).

The IRS is not exempt from the APA. Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 55 (2011). But once the IRS begins enforcement, the Anti-Injunction Act prohibits plaintiffs from suing to “restrain[ ] the assessment or collection of any tax.” 26 U.S.C. §7421(a). “Because of the Anti-Injunction Act, taxes can ordinarily be challenged only after they are paid, by suing for a refund.” NFIB v. Sebelius, 567 U.S. 519, 543 (2012). This system draws upon the “old and familiar rule” of equity that barred injunctions against tax assessors and collectors. Pullan v. Kinsinger, 20 F. Cas. 44, 48 (C.C.S.D. Ohio 1870). But, tellingly, it was formally codified by Congress in the wake of the Civil War, when the federal government's need for quick revenue was especially pressing. See Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1720-25 (2017). The modern rationale for this “'pay first and litigate later'” rule is just as simple: the treasury wants its money upfront, and it does not want taxpayers using meritless lawsuits to delay their tax bills. Flora v. United States, 357 U.S. 63, 68, 75 (1958).

This case presents an exceptionally important question about the relationship between the APA and the Anti-Injunction Act: Does the Anti-Injunction Act override the APA and insulate agency action from pre-enforcement review whenever an agency enforces that action with a penalty that it labels as a tax? Here, Petitioner CIC Services challenges IRS guidance requiring it and its industry to comply with onerous reporting and information-gathering requirements. Violations of these requirements are punishable by, among other things, a tax penalty and imprisonment. This Court has squarely held that challenges to tax-reporting and information-gathering requirements do not implicate the Anti-Injunction Act. Direct Mktg. Ass'n v. Brohl, 575 U.S. 1 (2015). But a divided Sixth Circuit panel concluded that the IRS's decision to attach a tax penalty to punish violators of a reporting requirement revives the Anti-Injunction Act's bar on suits that challenge the legality of the requirement.

The Sixth Circuit denied en banc review in a sharply divided vote. Seven judges agreed with the panel dissent that “people should not have to risk prison time in order to challenge the lawfulness of government action” when the challenge focuses on a reporting requirement, not the penalty associated with violating that requirement; “[s]imply put, this is not a case about taxes.” App. 58a, 60a (Thapar, J., dissenting from denial of rehearing). Judge Sutton — whose vote would have been decisive — voted to deny rehearing not because he agreed with the panel's reading of the Anti-Injunction Act “as an original matter,” but because he believed that the Supreme Court is “in a well-informed position to resolve the point.” App. 55a, 57a.

Judge Sutton is correct on that point. The Sixth Circuit's decision denying CIC's pre-enforcement challenge easily satisfies all of this Court's criteria for granting further review.

First, the panel's decision is contrary to this Court's reading of nearly identical statutory language in Direct Marketing. As in that case, CIC's injuries here are the costs of complying with the information-gathering and reporting mandates, not its liability for tax penalties that the IRS has not (and may never) assess. The mandates impose duties independent of the tax penalties, appear in a separate statutory provision, and would injure the plaintiff even if the tax penalties were eliminated. Like Direct Marketing, this case lacks the direct connection to “assessment or collection” of taxes that the Anti-Injunction Act requires.

Second, the decision below deepens a split among the courts of appeal as to the effect of a tax penalty on an otherwise permissible challenge to a reporting requirement. Compare App. 7a-8a, and Florida Bankers Ass'n v. U.S. Dep't of the Treasury, 799 F.3d 1065, 1069 (D.C. Cir. 2015) (applying the Anti-Injunction Act to bar pre-enforcement challenge), with Korte v. Sebelius, 735 F.3d 654, 669-70 (7th Cir. 2013) (allowing pre-enforcement suit), and Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1126-27 (10th Cir. 2013) (en banc) (same).

Finally, this case presents an indisputably important question about the meaning of the Anti-Injunction Act and this Court's precedents — one on which “thoughtful jurists” have divided. App. 65a n.2 (Thapar, J., dissenting from denial of rehearing en banc). Under the Sixth Circuit's decision, 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. As Judge Thapar emphasized, the erroneous decision in this case will likely lead to a “'world in which no challenge to [the IRS's] actions is ever outside the closed loop of its taxing authority.'” App. 66a (quoting Cohen v. United States, 650 F.3d 717, 726 (D.C. Cir. 2011) (en banc)).

STATEMENT OF THE CASE

A. Background

Congress authorized the IRS to define — “under regulations” — the “reportable transactions” that must be submitted with tax returns. 26 U.S.C. §6707A(c)(1); id. § 6011(a); id. § 6111; id. § 6112. But instead of passing regulations, the IRS simply defined “reportable transactions” to include “transactions of interest” and then claimed the authority to identify those transaction in later “guidance” documents. 26 C.F.R. § 1.6011-4(b). The IRS used this workaround to publish Notice 2016-66, a guidance document that designates “section 831(b) micro-captive transactions” as transactions of interest, thereby imposing a reporting requirement on all such transactions and their advisors. App. 91a; see 26 C.F.R. § 301.6111-3.¹ The Notice never went through notice and comment or other necessary procedures for “regulations.” See 5 U.S.C. § 553(b)&(c). Throughout this case, the IRS has never meaningfully disputed that Notice 2016-66 is a substantive, legislative-type rule subject to the APA's notice-and-comment requirements.

CIC Services is a business whose attorneys and accountants advise taxpayers engaging in micro-captive transactions and is thus subject to the reporting and recordkeeping requirements imposed by Notice 2016-66. Compliance with the Notice costs CIC Services hundreds of hours of labor and tens of thousands of dollars. And failure to report carries serious consequences: a potential for hundreds of thousands of dollars in civil tax penalties, 26 U.S.C. §§ 6707-6708, and, for willful violations, criminal penalties, including imprisonment, id. § 7203.

B. Proceedings Below

In March 2017, CIC filed a pre-enforcement challenge to Notice 2016-66 in the Eastern District of Tennessee. It asked the district court to enjoin the Notice as an illegal attempt to circumvent the Administrative Procedure Act, 5 U.S.C. § 500 et seq., and other statutes. In its lone defense, the IRS moved to dismiss the complaint for lack of subject matter jurisdiction, asserting (as relevant here) that the complaint was barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a). The district court granted the IRS's motion to dismiss on the ground that the Anti-Injunction Act bars suits for the purpose of restraining the assessment or collection of any tax. App. 46a.

A divided panel of the Sixth Circuit affirmed. App. 1a-37a. CIC had argued that it was challenging the agency's mandate — the reporting requirement itself and not hypothetical tax penalties. Thus, CIC argued that its suit lacked the direct connection to “assessment or collection” of taxes that the Anti-Injunction Act requires. The majority acknowledged that challenges to tax-reporting requirements do not ordinarily implicate the Anti-Injunction Act because “information reporting is a separate step in the taxation process that occurs before assessment or collection.” App. 16a (citing Direct Mktg, 575 U.S. 1). But because the reporting requirements at issue here are enforced by a tax penalty, the panel threw out the ordinary principle espoused by this Court in Direct Marketing. The panel believed that CIC's challenge to the reporting requirements is necessarily “focused on that tax's [the tax-penalty's] assessment or collection.” App. 16a. The panel concluded that CIC's “suit 'would have the effect of restraining — fully stopping' the IRS from collecting the penalties imposed for violating the Notice's requirements,” so under the Anti-Injunction Act, the court lacked subject-matter jurisdiction. App. 17a, 21a.

In rejecting CIC's argument that it was challenging the Notice — not the hypothetical tax penalties associated with violation of the Notice — the panel acknowledged that its decision conflicted with its own circuit precedent in Autocam Corp. v. Sebelius, 730 F.3d 618, 622 (6th Cir. 2013), which had “seemed prepared to recognize the distinction urged by [CIC].” App. 19a. The panel felt unbound by Autocam because the Supreme Court “vacated” that decision (on other grounds) in light of Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2014). Instead, it followed the reasoning laid out by a divided panel of the D.C. Circuit in Florida Bankers Ass'n, 799 F.3d at 1069.

Judge Nalbandian dissented. App. 25a-37a. In his view, because CIC's alleged injury was not tax liability but rather the significant amount of labor and money required to comply with the reporting requirements, the case did not fall within the reach of the Anti-Injunction Act. App. 26a-27a. According to Direct Marketing, he explained, a suit to enjoin the enforcement of a reporting requirement is not a suit for the purpose of restraining assessment or collection of taxes. App. 26a-27a. Because Direct Marketing interpreted the similarly worded Tax-Injunction Act, Judge Nalbandian would have applied its reasoning to this case. App. 27a-28a. He also rejected the D.C. Circuit's attempt to distinguish cases like this from Direct Marketing on the argument that the tax penalty is inextricably linked to the regulation. App. 28a-32a. Unlike the cases that Florida Bankers relied on — cases in which the alleged injury was the tax liability — “the regulation that CIC seeks to enjoin does not directly result in any tax lability.” App. 32a. Here, no tax liability is in jeopardy because CIC has never been found to have violated the reporting requirements. App. 32a.

Judge Nalbandian also emphasized the ramifications of the panel's opinion. First, it means that the only way for parties like CIC to challenge an illegal agency action “is to violate the law and risk financial ruin and criminal prosecution” — “precisely the bind that pre-enforcement judicial review was meant to avoid.” App. 35a. Second, it has the effect of rendering any regulatory requirement unreviewable, so long as the agency slaps a tax penalty on it. App. 36a. In sum, Judge Nalbandian concluded that the panel majority's interpretation of the Anti-Injunction Act did not fit with the text, precedent, or purpose of the statute.

CIC filed a timely petition for rehearing en banc, which was denied on August 28, 2019. App. 49a. Multiple judges wrote separately to highlight the panel's errors and emphasize the importance of the issue. Judge Sutton explained that Judge Nalbandian's panel dissent “seems to be right as an original matter.” App. 55a. Indeed, he “doubt[ed] that the words of the Anti-Injunction Act . . . ban all prospective relief whenever the IRS enforces a regulation with a penalty that it chooses to call a 'tax.'” App. 55a. And he “especially doubt[ed] that conclusion in this setting — where the taxpayer's only remedy is not to 'pay first challenge later' but to 'report to prison first challenge later.'” App. 55a. Nevertheless, Judge Sutton concurred in the denial of rehearing en banc because the case did not come to the Sixth Circuit “on a fresh slate.” App. 56a. He opined that this Court's older decisions construing the Anti-Injunction Act made following its precedent “tricky business.” App. 56a. And because the several opinions in this case and others “say all there is to say about the issue from a lower court judge's perspective” Judge Sutton thought that only this Court could efficaciously “resolve the point.” App. 57a.

Judge Thapar, writing for himself and six other judges, dissented from the denial of rehearing en banc. App. 58a-66a. Like Judge Nalbandian, he argued that Direct Marketing resolves the question presented here: whether the Anti-Injunction Act applies to a suit that challenges the lawfulness of regulatory reporting and recordkeeping requirements. App. 58a-59a. The dissent emphasized that CIC is not trying to evade tax enforcement but rather “seeks to enjoin the underlying reporting requirement.” App. 60a. As the dissent explained, focusing on the alleged injury actually caused by the reporting requirement — not some hypothetical future injury from a tax penalty — is not only consistent with an earlier panel of the Sixth Circuit, but also with decisions from the Seventh and Tenth Circuits. App. 60a-61a (citing Autocam, 730 F.3d at 621-22, vacated on other grounds sub nom. Autocam Corp. v. Burwell, 573 U.S. 956 (2014); Korte, 735 F.3d at 669-70; Hobby Lobby Stores, Inc., 723 F.3d at 1126-27.

Judge Thapar also emphasized the serious and far-reaching implications of the panel's decision. As an initial matter, the law does not ordinarily require parties to suffer harm before they challenge agency action; but this decision goes even farther than that. Parties wishing to challenge the IRS's guidance now must be willing to violate the law and risk a year in prison before they are even allowed to bring a challenge. App. 61a (citing 26 U.S.C. § 7203). Practically speaking, “these criminal sanctions make the reporting requirement in this case (and many others) unreviewable.” App. 62a. Upholding the panel's decision, then, means that “the IRS will have the power to impose sweeping 'guidance' across areas of public and private life, backed by civil and criminal sanctions, and left unchecked by administrative or judicial process.” App. 62a-63a.

REASONS FOR GRANTING THE PETITION

The Sixth Circuit “decided an important federal question in a way that conflicts with [a] relevant decision[ ] of this Court.” Sup. Ct. Rule 10(c). By holding that the Anti-Injunction Act barred CIC's challenge, the decision below contravenes a nearly identical application of a nearly identical provision in Direct Marketing.

The Sixth Circuit's decision also “conflict[s] with the decision[s] of [ ]other United States court[s] of appeals on the same important matter.” Sup. Ct. Rule 10(a). Specifically, the Seventh and Tenth Circuits have interpreted the Anti-Injunction Act not to bar a challenge to a regulatory mandate even when violation of that mandate resulted in a tax penalty.

In all events, the decision below involves “an important question of federal law that has not been, but should be, settled by this Court.” Sup. Ct. Rule 10(c). Under the Sixth Circuit's decision, a party cannot bring any pre-enforcement challenge to any regulatory provision — no matter how divorced from tax liability — if it happens to be enforced by a penalty that is labeled as a tax. For all of these reasons, the Court should grant review and reverse the decision below to bring clarity to this critical area of administrative law.

I. The Sixth Circuit's decision conflicts with this Court's decision in Direct Marketing.

A. Direct Marketing makes clear that a challenge to a regulatory reporting requirement is not an attempt to restrain the assessment or collection of a tax.

CIC challenges the legality of the reporting requirements established by Notice 2016-66, separate and apart from the hypothetical tax penalty that might be imposed to punish violations of those requirements. The Anti-Injunction Act states that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.” 26 U.S.C. § 7421(a). This Court's opinion in Direct Marketing makes clear that neither the text nor purpose of the Anti-Injunction Act bars pre-enforcement challenges of the type CIC has brought here.

To be sure, Direct Marketing interpreted the Tax Injunction Act, 28 U.S.C. § 1341, and not the Anti-Injunction Act. But both statutes prohibit federal courts from restraining the assessment or collection of a tax. See Tax Injunction Act, 28 U.S.C. § 1341 (“The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.”). And because the Tax Injunction Act was modeled on the Anti-Injunction Act, this Court “assume[s] that words used in both Acts are generally used in the same way.” Direct Mktg, 575 U.S. at 8.

In Direct Marketing, this Court considered whether a suit to enjoin the tax-related notice and reporting requirements of a Colorado law governing internet retailers “would 'enjoin, suspend, or restrain the assessment, levy or collection of any tax under State law.'” Id. at 4, 7. Because the case self-evidently involved a challenge to enjoin the reporting requirements, the only question was whether imposition of those requirements was itself “an act of assessment, levy or collection.” Id. at 8, 12. The Court carefully analyzed the definitions of those terms and unanimously concluded that “enforcement of the notice and reporting requirements is none of these.” Id. at 12.

As relevant here, the Court explained that “assessment” and “collection” are terms of art in federal tax law. Id. at 8. Assessment is “the official recording of a taxpayer's liability.” Id. at 9. And collection is “the act of obtaining payment of taxes due.” Id. at 10. The Court held that “[s]o defined, these terms do not encompass [the state's] enforcement of its notice and reporting requirements.” Id. at 11. The notice and reporting requirements are instead geared toward “information gathering” meant to facilitate later tax “collection” and “assessment.” Id. at 8-11. But a reporting requirement is not itself “an act of assessment . . . or collection,” and thus a challenge to the requirement is not barred. Id. at 8, 11-12.

The Court then considered whether the term “restrain” broadened the application of the prohibition to suits that might tenuously “'limit, restrict, or hold back' the assessment . . . or collection” of taxes. Id. at 12. It determined that “restrain” should be understood in its strict, equitable sense. Id. at 13-14. In other words, a suit that “merely inhibits” the collection of tax revenue will not trigger the injunction; only lawsuits that actually “stop” the assessment or collection of a tax are barred. Id. at 12-14. And because the reporting requirements in that case “precede[d] the steps of 'assessment' and 'collection,'” a challenge to their enforcement did not stop assessment or collection. Id. at 11, 14.

Applying Direct Marketing's interpretation of nearly identical text in this nearly identical context shows that the Anti-Injunction Act does not apply to CIC's suit. “[T]he notice and reporting requirements” that CIC challenges “precede the steps of 'assessment' and 'collection.'” Id. at 11 (emphasis added). CIC is not trying to stop the “assessment or collection” of any tax or tax penalty. Indeed, it has not engaged in any action that would trigger the tax penalty. Nor has the IRS threatened or assessed any tax penalty against CIC.² Notice 2016-66 and its nebulous information-gathering purposes are far removed from the distinct steps of assessing or collecting a tax.

But the Anti-Injunction Act also clearly requires that the plaintiff's suit be “for the purpose of restraining” assessment or collection of a tax. 26 U.S.C. § 7421(a) (emphasis added). CIC's suit does not qualify. CIC is challenging an IRS Notice that subjects it to reporting requirements; it “does not allege tax liability as its injury.” App. 26a (Nalbandian, J., dissenting). Moreover, the reporting requirements cannot themselves be plausibly construed as inextricable from the tax penalties. App. 19a. They appear in different statutory provisions from the tax penalties, impose freestanding legal obligations, and carry criminal consequences independent of the tax penalties. See 26 U.S.C. §§ 6011(a), 6111, 6112, 26 C.F.R. §§ 1.6011-4, 301.6111-3 (reporting and recordkeeping requirements); 26 U.S.C. §§ 6707, 6707A (tax penalties); id. § 7203 (criminal penalty). Indeed, if the tax penalties did not exist, CIC would have filed this exact same suit. “Put simply, this is not a dispute over taxes.” App. 26a (Nalbandian, J., dissenting).

The Sixth Circuit's application of the Anti-Injunction Act to this kind of pre-enforcement challenge thus cannot be reconciled with the text of the Act and with this Court's decision in Direct Marketing. The petition should be granted on this basis alone.

B. The Sixth Circuit's attempt to distinguish Direct Marketing is unavailing.

Following the lead of a divided panel of the D.C. Circuit, see Florida Bankers, 799 F.3d 1065, the Sixth Circuit relied on a perceived narrow distinction between the nature of the penalty in Direct Marketing and the one at issue here. That reasoning was flawed. Any purported differences between the penalties at issue in Direct Marketing and those at issue here would have no effect on Direct Marketing's interpretation or application of statutory text, which applies with full force here.

In Florida Bankers, on nearly identical facts, the D.C. Circuit first determined that the Tax Code treats the civil penalty imposed for violating the reporting requirement as a “tax” because it is located in Chapter 68, Subchapter B of the Tax Code. 799 F.3d at 1068-69 (citing 26 U.S.C. § 6671(a)). Thus, in its view, the penalty itself was the relevant tax to be assessed or collected for Anti-Injunction Act purposes — not whatever downstream tax revenue the reporting requirements might generate. Id. at 1069. Relatedly, the D.C. Circuit found that the regulatory mandate and the tax penalty enforcing the mandate were so intertwined that a suit for the purpose of restraining one was also a suit for the purpose of restraining the other. Id. at 1070 (“[P]laintiffs cannot evade the Anti-Injunction Act by purporting to challenge only the regulatory aspect of a regulatory tax.”). It claimed the support of several Supreme Court cases for this proposition — specifically, cases involving tax-exempt status and NFIB v. Sebelius. Id. at 1070-71. Because it framed the challenge to the reporting requirement as a direct challenge to the tax penalty — that is, a direct challenge to a “tax” — the D.C. Circuit held that the case was “at the heartland of the Anti-Injunction Act” and thus barred. Id. at 1069-72.

In short, the D.C. Circuit found that Direct Marketing was not controlling because the penalty in Direct Marketing “was not itself a tax, or at least it was never argued or suggested that the penalty in that case was itself a tax.” Id. at 1069. The Sixth Circuit panel found this distinction “persuasive.” App. 14a. At best, however, this is an immaterial distinction that should not affect Direct Marketing's application to this case.

As an initial matter, the fact that Direct Marketing did not analyze the character of the regulatory penalty in that case is persuasive evidence that it did not matter to the outcome. See App. 34a (Nalbandian, J., dissenting) (“Nothing” in Direct Marketing indicates that the Court “would have held differently if someone had argued that the . . . penalties in that case were taxes.”). But the Florida Bankers analysis is unpersuasive for other reasons as well.

First, while the penalty enforcing the reporting requirement there, and in this case, is — according to the Tax Code — to be treated as a tax, it is not an affirmative, stand-alone tax for the purpose of “'protection of the revenues.'” See Seven-Sky v. Holder, 661 F.3d 1, 14 (D.C. Cir. 2011) (quoting Bob Jones Univ. v. Simon, 416 U.S. 725, 740 (1974)), abrogated on other grounds by NFIB, 567 U.S. 519. A tax penalty “is meant to deter violations of the underlying regulatory requirement: if the penalty is avoided — and presumably this is the Government's intent — then individuals will have complied with the regulation and the IRS will collect zero revenue.” Florida Bankers, 799 F.3d at 1078 (Henderson, J., dissenting). In other words, the very purpose of a tax penalty is to help ensure that it never needs to be collected. Even if the difference between a regulatory tax and a revenue-raising tax does not, standing alone, resolve this case, the regulatory nature of the tax penalty shows that the case falls well outside of the Anti-Injunction Act's “heartland” and is far removed from its historical purpose of ensuring a steady stream of federal revenue. 799 F.3d at 1072.

Second, Direct Marketing establishes that the analysis should focus on the plaintiff's challenge — the target of the plaintiff's suit as evidenced by the alleged injury — and not on independently identifying the closest possible tax for Anti-Injunction Act purposes. See 575 U.S. at 6-7, 11-12, 14. Direct Marketing did not hold that the plaintiff's suit was outside the scope of the Tax Injunction Act because the closest related tax was several steps down the road. It reached that conclusion because the notice and reporting requirements were not themselves taxes — they were distinguishable antecedents to the assessment or collection of a tax. Id. at 11; see also Cohen, 650 F.3d at 727 (determining the applicability of the Anti-Injunction Act requires “careful inquiry into the remedy sought, the statutory basis for that remedy, and any implication the remedy may have on assessment and collection”).

Here, CIC challenges the reporting requirements — not some hypothetical tax penalty. Those existing reporting requirements cause CIC significant injury. Indeed, the tax penalty is largely irrelevant to CIC because CIC has never done anything to trigger it. “Per the Supreme Court's direction, [this] suit cannot be understood to 'restrain[ ] the assessment or collection' of a tax just because it might inhibit the agency's future collection efforts” following a hypothetical future enforcement action. See App. 59a-60a (Thapar, J., dissenting from denial of rehearing en banc).

Like the D.C. Circuit in Florida Bankers, the Sixth Circuit panel asserted that even if CIC's suit facially challenges only the regulatory mandate, and not the tax penalty, it is still barred because it has the “'effect of restraining — fully stopping' the IRS from collecting the penalties imposed for violating the Notice's requirements.” App. 17a. But even assuming that is right in a technical sense, it puts the cart before the horse. The Anti-Injunction Act bars suits “for the purpose of restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a); see App. 64a n.1 (Thapar, J., dissenting from denial of rehearing en banc) (cautioning against interpretations that would “rewrite[e] the Anti-Injunction Act to say 'effect' rather than 'purpose'”). CIC's sole purpose in bringing this action is to enjoin the reporting requirements.

Thus, the existence of the tax penalty matters only if the panel below and the D.C. Circuit were right that regulatory mandates and the penalties for violating regulatory mandates are somehow inextricably intertwined. They are not. Arguing to the contrary, the Sixth Circuit panel pointed to Alexander v. “Americans United” Inc., 416 U.S. 752 (1974) and Bob Jones University v. Simon, 416 U.S. 725 (1974). Both cases grounded challenges to the revocation of their tax-exempt status in an argument that they “sought only to maintain their flow of charitable donations, not to restrain a tax.” App. 64a (Thapar, J., dissenting from denial of rehearing en banc). In those cases, this Court refused to accept the taxpayers' attempts to distinguish the purposes of their suits — not because the distinction was impossible — but because the evidence in those cases did not support the distinction.

In Bob Jones the Court looked to “Petitioner's complaint and supporting documents” and found that they “belie[d] any notion that this suit is not a suit to enjoin the assessment or collection of federal taxes from petitioner.” 416 U.S. at 738. The sum of the petitioner's alleged injuries focused on its own “tax liability” that would flow from revocation of its tax-exempt status. Id. On that record there was “little doubt that a primary purpose of th[e] lawsuit [was] to prevent the [IRS] from assessing and collecting income taxes from petitioner.” Id. So too in “Americans United.” See 416 U.S. at 760-61 (“[R]espondent would not be interested in obtaining the . . . relief requested if that relief did not effectively restrain the taxation of its contributors”); see also Seven-Sky, 661 F.3d at 10 (explaining that the petitioners' arguments in “Americans United” and Bob Jones were “defeated by [their] own pleadings, since the only injuries [they] identified involved tax liability”).

These cases show that the purpose of a lawsuit must be analyzed in light of the injury sought to be remedied.³ Here, CIC has demonstrated “a clear interest — separate from any potential 'tax' liability — in avoiding the substantial costs of the reporting requirement. The 'purpose' of its lawsuit is to obtain relief from costs the company must pay today, not restrain a penalty it might have to pay tomorrow.” App. 64a (Thapar, J., dissenting from denial of rehearing en banc).

The Sixth Circuit panel also cited the D.C. Circuit's discussion of NFIB, 567 U.S. at 519, to support its case-determinative reliance on the penalty's status as a tax. See App. 13a. In NFIB, it was argued that the Anti-Injunction Act did not apply to the case because plaintiffs were challenging the regulatory mandate to purchase health insurance, not the penalty for failing to purchase the insurance. See Florida Bankers, 799 F.3d at 1071 (discussing the arguments). While the Court agreed in NFIB that the Anti-Injunction Act did not apply, it never engaged the plaintiffs' argument. Instead, it held that the Anti-Injunction Act did not apply because the penalty at issue was not a tax at all. 567 U.S. at 544-45.

Florida Bankers took this to mean that “the Anti-Injunction Act would have applied if the penalty were a tax under the act.” 799 F.3d at 1071. But several judges have pointed out the flaw in that logic. See App. 33a (Nalbandian, J., dissenting); App. 64a-65a (Thapar, J., dissenting from denial of rehearing en banc); Florida Bankers, 799 F.3d at 1080 (Henderson, J., dissenting). Indeed, it is “wrong to assume that a suit implicating a tax triggers the Anti-Injunction Act simply because a suit not implicating a tax does not trigger the Anti-Injunction Act.” App. 33a (Nalbandian, J., dissenting); see also Florida Bankers, 799 F.3d at1080 (Henderson, J., dissenting) (citing the fallacy of “denying the antecedent”). At bottom, NFIB “never reached the question” whether — were the penalty a tax — the lawsuit would have had the purpose of restraining it. App. 64a-65a (Thapar, J., dissenting from denial of rehearing en banc); see App. 34a (Nalbandian, J., dissenting) (“[T]he NFIB Court never said that pre-enforcement review of a regulatory mandate is barred under the Anti-Injunction Act simply because it is enforced by a tax. 23 A search for that proposition in the opinion leaves one emptyhanded.”).

In short, this Court's precedent does not suggest that regulatory mandates and the tax penalties that enforce them are so intertwined that a challenge to one is a challenge the other. The penalty's status as a tax thus provides no basis to treat CIC's challenge any differently from the one analyzed in Direct Marketing: (1) determine the direct target of the suit and (2) determine whether that target is a tax. The decision below is irreconcilable with Direct Marketing's reasoning.

II. The Sixth Circuit's opinion conflicts with decisions from the Seventh and Tenth Circuits.

The Sixth and D.C. Circuits' opinions not only depart from Direct Marketing — and an earlier, directly-on-point decision of the Sixth Circuit, see Autocam, 730 F.3d at 621-22 — but they stand in stark contrast to decisions of the Seventh and Tenth Circuits. In those cases, the courts rejected an interpretation of the Anti-Injunction Act that would bar pre-enforcement challenges to the Affordable Care Act's contraceptive mandate because those suits challenged the mandate itself, not the “tax penalty” attached to it. See Korte, 735 F.3d at 669-70 (7th Cir. 2013); Hobby Lobby Stores, 723 F.3d at 1126-27 (10th Cir. 2013) (en banc).

As the Seventh Circuit explained, pre-enforcement challenges to the contraceptive mandate “[w]ere not suits 'for the purpose of' restraining the assessment or collection of a tax”; they “s[ought] relief from a regulatory mandate that exists separate and apart from the assessment or collection of taxes.” Korte, 735 F.3d at 669. The mandate was “not structured as a predicate to the imposition of a tax but [wa]s instead an independent regulatory mandate”; indeed, the “stiff tax penalties” attached to it were not the only “consequences for noncompliance.” Id. The Seventh Circuit acknowledged that invalidating the mandate would “incidentally affect . . . tax liability” by making it impossible for individuals to be “liable for the tax penalty.” Id. at 669-70. But the court rejected this reasoning as too attenuated: “the Anti-Injunction Act does not reach 'all disputes tangentially related to taxes'”; “the assessment or collection of a tax must be the primary purpose of the lawsuit.” Id. “These lawsuits,” the court concluded, “target the mandate itself.” Id.

The Tenth Circuit, sitting en banc, unanimously endorsed this same reading of the Anti-Injunction Act. See Hobby Lobby, 723 F.3d at 1126-28; id. at 1164 (Briscoe, J., concurring in part and dissenting in part); id. at 1191 (Matheson, J., concurring in part and dissenting in part). Pre-enforcement challenges to the contraceptive mandate, the majority opinion explained, were “not challenging the IRS's ability to collect taxes”; they were “seeking to enjoin the enforcement, by whatever method, of one HHS regulation.” Id. at 1127.⁴

The decision below thus deepens the existing circuit split, leaving the four courts of appeal to have reached this question evenly divided. This division was acknowledged below. See App. 61a, 65a n.2 (Thapar, J., dissenting from denial of rehearing en banc) (noting that the decision below conflicted with “[t]wo other circuits,” and that “thoughtful jurists” — including the majority — “have read [this Court's] cases as well as the Anti-Injunction Act differently”). Certiorari is warranted to resolve this ongoing division among the lower courts.

III. The decision below threatens to insulate agency actions from APA challenges and undermines the purpose of the APA.

The division among the lower courts arises in part from the high-stakes implications of the question presented for the whole of administrative law. As several judges have noted, the decision below threatens to snuff out any practical ability for affected individuals to challenge a wide swath of agency actions. Moreover, the decision undermines the core purposes of the Administrative Procedure Act, namely ensuring that regulated parties have an ability to obtain pre-enforcement review of administrative mandates.

As it stands, the law in the Sixth and D.C. Circuits requires parties to first “pay” the penalty and “report to prison” before challenging unlawful agency action, App. 55a (Sutton, J., concurring in the denial of rehearing en banc) — at least as long as the agency slaps a tax penalty on its regulatory mandate, which could be done for any agency action. See App. 61a-62a (Thapar, J., dissenting from denial of rehearing en banc) (explaining that agencies now regulate in an “ever-expanding sphere of everyday life — from childcare and charity to healthcare and the environment”). In doing so, the Sixth Circuit has not only “ban[ned] all prospective relief whenever the IRS enforces a regulation with a penalty that it chooses to call a 'tax,'” App. 55a (Sutton, J., concurring in the denial of rehearing en banc) (emphasis added), but has also effectively rendered the agency action entirely “unreviewable,” App. 62a (Thapar, J., dissenting from denial of rehearing en banc); App. 36a (Nalbandian dissenting) (citing Hickman & Kerska at 1685-86).

This means that, “[g]oing forward . . ., the IRS will have the power to impose sweeping 'guidance' across areas of public and private life, backed by civil and criminal sanctions, and left unchecked by administrative or judicial process.” App. 62a-63a (Thapar, J., dissenting from denial of rehearing en banc). As Judge Nalbandian explained, there are no limits to the panel's opinion: its logic would even “require [courts] to characterize an Equal Protection challenge to [a racially] discriminatory [regulation] as a 'suit for the purpose of restraining the assessment or collection of a tax' simply because it is enforced by a penalty in Chapter 68, Subchapter B of the Tax Code.” App. 30a-31a. “Intuitively, we know that description cannot stand without warping the meaning of the statute beyond recognition.” App. 31a (Nalbandian, J., dissenting).

CIC's situation well illustrates this far-reaching threat. According to the Sixth Circuit, CIC cannot obtain judicial review unless (1) it deliberately violates the reporting requirements imposed by Notice 2016-66, (2) the IRS chooses to assess a tax penalty, (3) CIC pays it, and (4) CIC sues for a refund. Each of these steps is “fraught” with difficulties, App. 37a (Nalbandian, J., dissenting), starting with the fact that deliberately violating a reporting requirement is a crime punishable by up to a year in prison and $100,000 in fines.⁵ 26 U.S.C. § 7203. Of course, even if CIC were willing to “'bet the farm'” and assume such risk, see Free Enter. Fund, 561 U.S. at 490-91, the decision to assess a tax penalty is committed to the IRS's unreviewable discretion, 26 U.S.C. §§ 6707A(d), 6707(c) — making the IRS (the would-be defendant) the sole arbiter of whether CIC can sue. And even then, assuming the IRS would assess the tax penalty, CIC's ability to challenge the illegal agency action assumes that CIC could pay the penalties assessed — “to the tune of $50,000 . . . for each transaction [CIC] fails to report.” App. 34a (Nalbandian, J., dissenting); Oklahoma Operating Co. v. Love, 252 U.S. 331, 336 (1920) (noting that some penalties can be set so high that they “might well deter even the boldest and most confident”). For all these reasons, there is a serious risk that the panel's decision deprives aggrieved taxpayers of “any opportunity to obtain review.” South Carolina v. Regan, 465 U.S. 367, 380-81 (1984).⁶

The panel's decision also undercuts the core goals of the APA.⁷ The APA was designed to foster expedient pre-enforcement review of questionable agency action and to require lawful agency rulemaking. See Abbott Labs., 387 U.S. at 140-41. But the panel's decision allows illegal agency actions to survive indefinitely without judicial review. That is especially problematic in light of the IRS's blatant disregard both for APA rulemaking requirements and Congress's specific mandate to define reportable transactions “under regulations.” 26 U.S.C. § 6707A(c)(1). Indeed, the panel emphasized that the IRS does “not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements.” App. 24a (quoting Hickman & Kerska at 1712–13).

Notwithstanding these concerns, the lower courts have struggled without clear guidance from this Court. Because this Court has addressed closely related issues and invoked the more precise issue without deciding it, neither the Sixth nor the D.C. Circuit purported to answer the question presented as an original matter. In Judge Sutton's view, both courts were compelled into the “tricky business” of “reading between the lines of Supreme Court decisions.” App. 56a (Sutton, J., concurring in the denial of rehearing en banc). And while the best reading of this Court's precedent supports CIC's interpretation of the Anti-Injunction Act, the task from a lower-court perspective was made even more complicated by stray language in past precedent of this Court that arguably “leans in different directions.” App. 56a.

The lower courts' efforts to apply such scattered guidance have thus produced a diverging collection of opinions — primarily in the Sixth and D.C. Circuits, but also in the Seventh and Tenth Circuits — that, collectively, “say all there is to say about the issue from a lower court judge's perspective” and leave this Court “in a well-informed position to resolve the point.” App. 57a (Sutton, J., concurring in the denial of rehearing en banc). Judge Sutton counseled against en banc review in the Sixth Circuit not because the panel was right or because the issue lacked importance but precisely because he believes further review by the lower courts will add no value, and will, in all likelihood only add to the confusion. App. 57a. This Court's review is needed to clarify the law, restore uniformity among the circuits, and prevent federal agencies from evading review of unlawful regulations.

CONCLUSION

The Petition for a writ of certiorari should be granted.

Adam R. Webber
ELLIOT, FAULKNER & WEBBER
4244 Indian Ripple Rd.,
Suite 150
Beavercreek, OH 45440
(937) 264-8710

Kenneth A. Lazarus
LAZARUS & ASSOCIATES
1025 Thomas Jefferson St
NW Washington, DC 20007
(202) 295-2330
lazaruslaw@aol.com

Patrick Strawbridge
Counsel of Record
CONSOVOY MCCARTHY PLLC
Ten Post Office Square
8th Floor South PMB #706
Boston, MA 02109
(617) 227-0548
patrick@consovoymccarthy.com

Jeffrey M. Harris
Alexa R. Baltes
CONSOVOY MCCARTHY PLLC
ANTONIN SCALIA LAW SCHOOL SUPREME COURT CLINIC
1600 Wilson Blvd., Ste. 700
Arlington, VA 22209
(703) 243-9423
jeff@consovoymccarthy.com

Attorneys for Petitioner

Date: January 17, 2020