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Insurance Adviser Argues Rehearing Needed in Reporting Challenge

JUL. 25, 2019

CIC Services LLC v. IRS et al.

DATED JUL. 25, 2019
DOCUMENT ATTRIBUTES

CIC Services LLC v. IRS et al.

CIC SERVICES, LLC,
Plaintiff-Appellant,
v.
INTERNAL REVENUE SERVICE; DEPARTMENT OF TREASURY;
UNITED STATES OF AMERICA,
Defendants-Appellees.

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

On Appeal from the United States District Court
for the Eastern District of Tennessee at Knoxville

REPLY IN SUPPORT OF APPELLANT'S
PETITION FOR REHEARING EN BANC

Adam R. Webber
Elliott, Faulkner & Webber LPA
4244 Indian Ripple Rd., Ste. 150
Beavercreek, OH 45440
(937) 264-8710
awebber@elliottfaulknerlaw.com

William S. Consovoy
Jeffrey M. Harris
Cameron T. Norris
CONSOVOY MCCARTHY PLLC
ANTONIN SCALIA LAW SCHOOL
SUPREME COURT CLINIC
1600 Wilson Blvd., Ste. 700
Arlington, VA 22209
(703) 243-9423
will@consovoymccarthy.com
jeff@consovoymccatthy.com
cam@consovoymccarthy.com

Counsel for Appellant


TABLE OF CONTENTS

Table of Authorities

Argument

1. The panel's opinion conflicts with Direct Marketing

2. The panel's opinion splits with Autocam

3. The panel's opinion splits with two other circuits

4. The panel's opinion severely curtails preenforcement review

Conclusion

Certificate of Compliance

Certificate of Service

TABLE OF AUTHORITIES

Cases

Direct Mktg. Ass'n v. Brohl, 135 S. Ct. 1124(2015)

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

Green Sol. Retail, Inc. v. United States, 855 F.3d 1111 (10th Cir. 2017)

Hill v. Marshall, 962 F.2d 1209 (6th Cir. 1992)

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

L.A. Cty. v. Davis, 440 U.S. 625 (1979)

Thomas More Law Ctr. v. Obama, 651 F.3d 529 (6th Cir. 2011)

Turner v. United States, 885 F.3d 949 (6th Cir. 2018) (en banc)

UAW v. Kelsey-Hayes Co., 872 F.3d 388 (6th Cir. 2017)

United States v. Adewani, 467 F.3d 1340 (D.C. Cir. 2006)

United States v. Am.-Foreign S.S. Corp., 363 U.S. 685 (1960)

Walker v. United States, 2019 WL 3297078 (6th Cir. July 23, 2019) (en banc)


ARGUMENT

While the IRS clearly likes the result that the panel reached, its response is unable to allay the many concerns that warrant en-banc review. The IRS does not reconcile the panel's opinion with Direct Marketing it instead presses an unpersuasive argument that the panel never endorsed. The IRS does not deny that three Circuit Judges have rejected the panel's reasoning; it instead confidently labels their views “unpersuasive.” The IRS does not alleviate the panel's split with two circuits; it instead draws unsupported distinctions that do not jibe with its statutory argument. And the IRS does not explain how the panel's opinion preserves preenforcement review; it instead tries to convince the Court that unchecked agency power is a good thing. Because “[a]n intra-circuit split accompanied by an inter-circuit divide followed by lack of conformity to a Supreme Court decision normally warrants en banc review,” UAW v. Kelsey-Hayes Co., 872 F.3d 388, 390 (6th Cir. 2017) (Sutton, J., concurring), this Court should grant CIC's petition.

1. The panel's opinion conflicts with Direct Marketing.

To escape the reach of the Supreme Court's decision in Direct Marketing the IRS tries to draw a textual distinction between the Tax Injunction Act and the AntiInjunction Act. Resp. 5. While the Tax Injunction Act uses the word “restrain” in a list with “enjoin” and “suspend,” the Anti-Injunction Act uses “restrain [ ]” by itself. Seizing on this minor difference, the IRS contends that the Anti-Injunction Act does not use “restrain” in “its narrower, equitable sense”; it instead uses it more broadly to mean “merely inhibit.” Direct Mktg. Ass'n v. Brohl, 135 S. Ct. 1124, 1132-33 (2015).

The most glaring problem with this argument is that it does not appear in the panel's opinion. (Or the D.C. Circuit's opinion in Florida Bankers, for that matter.) The panel explicitly “assum[ed]” that “the Direct Marketing definition [of 'restrain'] should be extended to the AIA.” Add. 11. That the IRS's defense of the panel's opinion relies on an argument that the panel didn't accept only confirms the necessity of en-banc review.

Nor could the IRS's “restrain” argument rehabilitate the panel's opinion. Just like the Tax Injunction Act, the Anti-Injunction Act uses “restrain” in its narrower, equitable sense. See Add. 18 n.2 (Nalbandian, J., dissenting). Direct Marketing gives the reasons why. First, “words uses in both Acts are generally used in the same way,” since the Tax Injunction Act was “modeled on the Anti-Injunction Act.” 135 S. Ct. at 1129. Second, giving “restrain” a “broad meaning” would render the word “assessment” superfluous with “collection” because “virtually any court action related to any phase of taxation might be said to 'hold back' 'collection.'” Id. at 1132. Third, “[assigning the word 'restrain' its meaning in equity” is consistent with the fact that the Anti-Injunction Act '“has its roots in equity practice.'” Id. at 1131; see Pet. 2. If any doubts remain, Direct Marketing actually states that “the word 'restraining'” is used “in the AIA in its equitable sense.” 135 S. Ct. at 1133 (emphasis added; citing 5 Law of Fed. Income Taxation § 42.139).

The Tenth Circuit did not hold otherwise in Green Solution — in fact, that case did not even purport to interpret the Anti-Injunction Act. The Green Solution panel was confronted with controlling circuit precedent that had applied the Anti-Injunction Act '“not only to the actual assessment or collection of a tax, but [also] to activities leading up to, and culminating in, such assessment and collection.”' Green Sol. Retail, Inc. v. United States, 855 F.3d 1111, 1116 (10th Cir. 2017). The panel recognized that “Direct Marketing calls [this precedent] into question,” but concluded that “this panel acting alone” couldn't do anything about it. Id. at 1118-19. A panel cannot overrule circuit precedent unless intervening Supreme Court authority is '“indisputable and pellucid.'” Id. at 1115-16. The panel concluded that Direct Marketing was not “'indisputable and pellucid'” because it technically involved a different statute. Id. at 1119. Importantly, though, the panel acknowledged that it would have been free to follow Direct Marketing had it been sitting “'en banc'” — precisely what CIC asks the Court to do here. Id.1

2. The panel's opinion splits with Autocam.

Like the panel, the IRS admits that Autocam endorsed CIC's interpretation of the Anti-Injunction Act. See Resp. 6, 4. But besides calling Judge Gibbons' and Judge Stranch's analysis “unpersuasive,” the IRS's main response is that Autocam was “vacated.” Resp. 6. But Autocam was not vacated because the entire case became moot, cf. L.A. Cty. v. Davis, 440 U.S. 625, 634 (1979), or because the Supreme Court resolved the merits differently, cf. Hill v. Marshall, 962 F.2d 1209, 1213 (6th Cir. 1992). It was vacated only “in light of Hobby Lobby” 573 U.S. 956 — a decision that, if anything, agreed with Autocam's interpretation of the Anti-Injunction Act. In these unique circumstances, the Supreme Court's narrow vacatur did not sap Autocam of “'precedential weight.'” United States v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir. 2006).

But Autocam's precedential weight is largely beside the point. What matters is that, when you add up the decision there and the dissent here, more Judges on this Court agree with CIC's interpretation of the Anti-Injunction Act than with the panel's. While three-judge panels decide most of this Court's cases, the full complement of '“active circuit judges'” is technically the body “charged with the administration and development of the law of the circuit.” United States v. Am.-Foreign S.S. Corp., 363 U.S. 685, 689-90 (1960). The “'principal utility'” of en-banc review, then, is to ensure that '“a majority of [all active] judges always . . . control and thereby . . . secure uniformity and continuity.” Id. (emphasis added). This majority-rule principle favors en-banc review here. See Kelsey-Hayes, 872 F.3d at 392 (Griffin, J., dissenting) (explaining that en-banc review exists to eliminate “[ ] conflicting guidance” and to ensure that “results should not depend upon the composition of the three-judge panel”).

3. The panel's opinion splits with two other circuits.

The IRS fails to resolve the split between the panel's opinion and the Seventh and Tenth Circuits. It argues that, unlike the IRS Notice in this case, the contraceptive mandate in those cases “flowed from delegated authority that existed outside the Treasury Department.” Resp. 7. In other words, the IRS believes that attaching a tax penalty to a regulation triggers the Anti-Injunction Act only if the regulation is sufficiently tax-related.

This distinction doesn't work. Once again, the IRS is abandoning the panel's opinion. The panel explained that the presence of a tax penalty, standing alone, is what brings a regulation under the Anti-Injunction Act. See Add. 10-11. At times, the IRS seems to agree: to use its words, a challenge to the contraceptive mandate “clearly triggers the AIA” because the plaintiff “seeks an order allowing it not to [insure contraceptives], but without paying penalties for that failure that are 'taxes.'” Resp. 6. In any event, this Court cannot accept the IRS's newfound distinction between “tax-related” and “non-tax-related” regulations without doing violence to the statutory text. “The text does not impose a balancing test, whereby a suit becomes barred once it is sufficiently 'related to' taxes. . . . Instead, the AIA . . . bars only those suits that 'restrain [ ]' (defined narrowly) the 'assessment or collection' (defined narrowly) of taxes.” Fla. Bankers Ass'n v. U.S. Dep't of the Treasury, 799 F.3d 1065, 1081 (D.C. Cir. 2015) (Henderson, J., dissenting).

The panel's opinion thus splits with two other circuits. Of course, rehearing this appeal and adopting CIC's position would leave the Court “in conflict with . . . the D.C. Circuit.” Resp. 10. But the Court would be moving away from Florida Bankers — a jurisprudential outlier that has received near-universal criticism — and moving toward the majority of circuits, its own precedent in Autocam, and the Supreme Court's decision in Direct Marketing. That is a wise and worthwhile use of en-banc resources. See, e.g, Turner v. United States, 885 F.3d 949, 955 (6th Cir. 2018) (granting en-banc review to “join the majority view” of a 4-2 circuit split); Walker v. United States, 2019 WL 3297078, at *3 (6th Cir. July 23, 2019) (Stranch, J., dissenting) (urging en-banc review of an important statutory question even though “our change of sides would not resolve the existing circuit split”); id. at *1-3 (Kethledge, J., dissenting) (same).

4. The panel's opinion severely curtails preenforcement review.

Finally, the IRS does little to mollify the serious damage that the panel's opinion does to the availability of judicial review. The IRS again tells litigants that, if they want review, they should break the law, incur a tax penalty, and sue for a refund. But the IRS does not deny that it controls whether this path is available, since it decides whether and when to assess tax penalties. Pet. 15. Nor does the IRS explain why an individual who intentionally violates a tax-reporting requirement to secure judicial review would not be prosecuted under a criminal statute that prohibits “willfully” violating the tax laws. 26 U.S.C. §7203. And the IRS's suggestion that plaintiffs can still bring preenforcement challenges when the agency's position is frivolous, Resp. 9 n.6, is hardly reassuring.

And for what? Preenforcement challenges like this one do not threaten tax revenues. Pet. 9-10; see Thomas More Law Ctr. v. Obama, 651 F.3d 529, 540 (6th Cir. 2011) (explaining that a preenforcement challenge “will hardly interfere” with tax collection because “the penalty could not be assessed or collected until . . . later”). If anything, it is the panel's opinion that threatens the long-term health of the tax system — by encouraging taxpayers to break the law and freeing the IRS from judicial oversight.

CONCLUSION

The Court should grant CIC's petition for rehearing en banc.

Respectfully submitted,

Cameron T. Norris

Adam R. Webber
ELLIOTT, FAULKNER & WEBBER LPA
4244 Indian Ripple Rd., Ste. 150
Beavercreek, OH 45440
(937) 264-8710
awebber@elliottfaulknerlaw.com

William S. Consovoy
Jeffrey M. Harris
Cameron T. Norris
CONSOVOY MCCARTHY PLLC
ANTONIN SCALIA LAW SCHOOL
SUPREME COURT CLINIC
1600 Wilson Blvd., Ste. 700
Arlington, VA 22209
(703) 243-9423
will@consovoymccarthy.com
jeff@consovoymccarthy.com
cam@consovoymccarthy.com

Dated: July 25, 2019

FOOTNOTES

1CIC “d[id] not even mention” Green Solution in its petition, Resp. 10, because Green Solution has nothing to do with the question presented. That case did not involve a preenforcement challenge, the APA, a reporting requirement, or even a tax penalty. It was a post-enforcement attempt to enjoin an IRS investigation. 855 F.3d at 1112-14. Once the Tenth Circuit was presented with a case like this one, the en-banc court unanimously adopted CIC's interpretation of the Anti-Injunction Act. See Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1127 (10th Cir. 2013).

END FOOTNOTES

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