Amicus Curiae Brief — CIC Services, LLC, Petitioner v. Internal Revenue Service, et al.

No. 19-930

IN THE

Supreme Court of the United States

————

CIC SERVICES, LLC,

v.

Petitioner,

INTERNAL REVENUE SERVICE, ET AL.,

Respondents.

____________________________________________________________________________________________________

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

____________________________________________________________________________________________________

BRIEF FOR AMICUS CURIAE

AMERICANS FOR PROSPERITY FOUNDATION

IN SUPPORT OF PETITIONER

————

R. James Valvo, III

Counsel of Record

Michael Pepson

AMERICANS FOR PROSPERITY FOUNDATION

1310 N. Courthouse Road, Ste. 700

Arlington, VA 22201

(571) 329-4420

jvalvo@afphq.org

Counsel for Amicus Curiae

February 21, 2020

i

TABLE OF CONTENTS

Table of Authorities……………………………………...ii

Brief of Amicus Curiae in Support of Petitioner ........1

Interest of Amicus Curiae ...........................................1

Summary of Argument................................................2

Argument .....................................................................4

I.

The decision below conflicts with this Court’s

decision in Direct Marketing Ass’n v. Brohl .......4

II.

Due process requires permitting preenforcement review of Notice 2016-66 ...............6

III. This Court should construe

the AIA to respect due process and

avoid constitutional infirmity. ..........................15

IV. This Court should grant certiorari to ensure

the IRS’s pattern and practice of rule-of-law

violations is subject to judicial review..............17

Conclusion .................................................................20

ii

TABLE OF AUTHORITIES

Cases

Page(s)

Abbott Laboratories v. Gardner,

387 U.S. 136 (1967) ................................................ 2

Bowen v. Michigan Academy of Family Physicians,

476 U.S. 667 (1986) .............................................. 16

Brown & Williamson Tobacco Corp. v. Engman,

527 F.2d 1115 (2d Cir. 1975) ............................... 12

Chamber of Commerce of the U.S. v.

Internal Revenue Service, No. 16-944,

2017 U.S. Dist. LEXIS 166985

(W.D. Tex. Oct. 6, 2017) ..................................... 5, 6

CIC Services, LLC v. Internal Revenue Service,

925 F.3d 247 (6th Cir. 2019) ........................ passim

CIC Services, LLC v. Internal Revenue Service,

936 F.3d 501 (6th Cir. 2019) ........................ passim

Cohen v. United States,

650 F.3d 717 (D.C. Cir. 2011) ........................ 13, 18

Commissioner v. Shapiro,

424 U.S. 614 (1976) .............................................. 16

Direct Marketing Ass’n v. Brohl,

575 U.S. 1 (2015) ............................................ 3, 4, 5

Florida Bankers Ass’n v. Department of the Treasury,

799 F.3d 1065 (2015) ............................................ 16

iii

Foodservice & Lodging Institute v. Regan,

809 F.2d 842 (D.C. Cir. 1987) .................... 6, 15, 16

Ford Motor Co. v. Coleman,

402 F. Supp. 475 (D.D.C. 1975) ............................. 8

Free Enterprise Fund v. Public Co.

Accounting Oversight Board,

561 U.S. 477 (2010) .............................................. 13

Hobby Lobby Stores, Inc. v. Sebelius,

723 F.3d 1114 (10th Cir. 2013) .................. 5, 15, 16

Immigration & Naturalization Service v. St. Cyr,

533 U.S. 289 (2001) .............................................. 17

Larson v. United States,

No. 16-245, 2016 U.S. Dist. LEXIS 179314

(S.D.N.Y. Dec. 28, 2016) ........................................ 8

Liberty University, Inc. v. Geithner,

671 F.3d 391 (4th Cir. 2011) ................................ 16

Life & Casualty Insurance Co. v. McCray,

291 U.S. 566 (1934) .............................................. 11

Lipke v. Lederer,

259 U.S. 557 (1922) .................................. 11, 14, 16

Matthews v. Eldridge,

424 U.S. 319 (1976) .............................................. 14

Mayo Foundation for Medical Education & Research

v. United States, 562 U.S. 44 (2011) .................... 17

iv

National Restaurant Ass’n. v. Simon,

411 F. Supp. 993 (D.D.C. 1976) ................. 9, 10, 16

Nelson v. Colorado,

137 S. Ct. 1249 (2017) .......................................... 14

Oklahoma Operating Co. v. Love,

252 U.S. 331 (1920) ........................................ 11, 12

Regal Drug Corp. v. Wardell,

260 U.S. 386 (1922) .............................................. 14

Sackett v. Environmental Protection Agency,

566 U.S. 120 (2012) .............................................. 13

Seven-Sky v. Holder,

661 F.3d 1 (D.C. Cir. 2011) .................................. 12

South Carolina v. Regan,

465 U.S. 367 (1984) ................................................ 3

Tennessee Valley Authority v. Whitman,

336 F.3d 1236 (11th Cir. 2003) ............................ 11

Thunder Basin Coal Co. v. Reich,

510 U.S. 200 (1994) ........................................ 7, 8, 9

U.S. Army Corps of Engineers v. Hawkes Co.,

136 S. Ct. 1807 (2016) .......................................... 13

Wadley Southern Railway Co. v. Georgia,

235 U.S. 651 (1915) .................................. 10, 11, 12

Ex parte Young,

209 U.S. 123 (1908) ...................................... 8, 9, 10

v

Statutes

5 U.S.C. § 553 .............................................................. 2

5 U.S.C. § 702 .............................................................. 2

26 U.S.C. § 7203 .................................................... 7, 12

26 U.S.C. § 7421 .......................................................... 5

Other Authorities

James Valvo, Cause of Action Institute,

Evading Oversight: The Origins and Implications

of the IRS Claim That Its Rules Do Not Have an

Economic Impact (Jan. 2018), available at

https://coainst.org/38EcPIg .................................. 17

Department of Justice,

Attorney General’s Manual on the

Administrative Procedure Act (1947).................... 2

Erin Morrow Hawley,

The Equitable Anti-Injunction Act,

90 Notre Dame L. Rev. 81 (2014) .................... 5, 15

Kristin E. Hickman & Gerald Kerska,

Restoring the Lost Anti-Injunction Act,

103 Va. L. Rev. 1683 (2017) ........................... 14, 19

vi

Kristin E. Hickman,

Coloring Outside the Lines, Examining Treasury’s

(Lack of) Compliance with Administrative

Procedure Act Rulemaking Requirements,

82 Notre Dame L. Rev. 1727 (2007) .................... 18

Supreme Court Rule 10(c) ..................................... 4, 17

1

BRIEF OF AMICUS CURIAE

IN SUPPORT OF PETITIONER

Under Supreme Court Rule 37.2, Americans for

Prosperity Foundation (“AFPF”) respectfully submits

this amicus curiae brief in support of Petitioner.1

INTEREST OF AMICUS CURIAE

Amicus curiae AFPF is a 501(c)(3) nonprofit

organization committed to educating and training

Americans to be courageous advocates for the ideas,

principles, and policies of a free and open society. As

part of this mission, it appears as amicus curiae before

federal and state courts.

AFPF is committed to ensuring federal agency

rulemaking is subject to appropriate checks and

balances, including meaningful judicial review. The

issues addressed in the decision by the divided panel

of the Sixth Circuit—including the proper application

of the Anti-Injunction Act and the Internal Revenue

Service’s (“IRS”) poor history of complying with the

Administrative Procedure Act (“APA”)—impact

judicial oversight of agency decision-making power.

AFPF also is committed to ensuring the due-process

rights of parties subject to criminal sanctions.

AFPF believes federal agencies, like the IRS,

should not be allowed to use the threat of massive civil

All parties have consented to the filing of this brief after

receiving timely notice. No counsel for a party authored this

brief in whole or in part and no person other than amicus or its

counsel made any monetary contributions intended to fund the

preparation or submission of this brief.

1

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penalties and imprisonment as a weapon to shield its

actions from judicial review. Due process requires

that Petitioner, and other taxpayers, not face an

unconstitutional Hobson’s choice: comply with an

administrative requirement they believe unlawful or

violate the law, bet their liberty, and risk prison.

SUMMARY OF ARGUMENT

Effective and accountable agency rulemaking

requires both public input and robust judicial review

of agency authority, the process the agency followed

in promulgating its rules, and the record on which the

rulemaking is based. The APA incorporates these

principles and “guarantee[s] to the public an

opportunity to participate in the rule making

process,” Dep’t of Justice, Attorney General’s Manual

on the Administrative Procedure Act § 4

(1947); see 5 U.S.C. § 553(b)–(c).

The APA also

“embodies the basic presumption of judicial

review.” Abbott Labs. v. Gardner, 387 U.S. 136, 140

(1967); see 5 U.S.C. § 702.

When an agency circumvents APA procedures—as

the IRS did here—judicial review takes on heightened

importance. The IRS, however, often escapes judicial

review of its rulemaking by invoking an overbroad

reading of the Anti-Injunction Act (“AIA”). Here, a

divided panel of the Sixth Circuit sided with the IRS,

allowing it to escape judicial review of Notice 2016-66,

which should have been available to Petitioner. If

allowed to stand, the decision below will immunize a

broad array of Treasury and IRS regulations and

guidance documents from judicial review by giving

taxpayers an unconstitutional choice: (1) comply and

forgo any opportunity for judicial review or (2) violate

3

the law, incur massive civil penalties, bet their liberty,

and risk imprisonment if the suit is lost.

The AIA does not strip federal courts of jurisdiction

over this case for two reasons. First, the challenged

provisions in Notice 2016-66 are reporting

requirements, not the “assessment or collection” of a

tax. This Court’s decision in Direct Marketing Ass’n v.

Brohl, 575 U.S. 1 (2015), holding that reporting

requirements do not implicate the analogous Tax

Injunction Act (“TIA”), should apply to the AIA.

Second, even if Notice 2016-66 implicates the AIA, in

South Carolina v. Regan, this Court recognized the

AIA does not apply when Congress “has not provided

an alternative remedy.” 465 U.S. 367, 378 (1984).

Petitioner lacks an adequate alternative remedy

because its officers risk criminal punishment if they

violate the challenged agency action. There is no

alternative remedy for the deprivation of liberty.

Due process demands that Petitioner has a right to

contest the validity of Notice 2016-66 without facing

massive civil penalties and the possibility of

imprisonment. The IRS cannot, consistent with the

Constitution, force Petitioner to violate the law and

risk those severe consequences. This sets the price of

error so high that it constructs an unconstitutional

barrier to judicial review.

The AIA does not condone, let alone require, such

an absurd result. The AIA is meant to protect

government revenue-raising efforts, not to encourage

lawbreaking by regulated parties (upon pain of

imprisonment) before they can challenge IRS

regulations and guidance establishing recordkeeping

and reporting requirements. Courts should construe

4

the AIA to respect due process by allowing preenforcement review of IRS regulations and guidance

under the APA when there is no alternative remedy.

In sum, the Court should grant certiorari here to

correct the Sixth Circuit’s error of statutory

interpretation for two reasons. First, the decision

below conflicts with this Court’s precedent in Direct

Marketing. Second, if left to stand, the decision below

will have profound, negative real-world impacts

radiating far beyond this case by insulating an array

of Treasury and IRS rules from judicial review, not

only violating due process but rewarding the IRS’s

pattern of lawlessness. See Sup. Ct. Rule 10(c).

ARGUMENT

I.

THE DECISION BELOW CONFLICTS WITH THIS

COURT’S DECISION IN DIRECT MARKETING

ASS’N V. BROHL.

As Petitioners explain, see Pet. 12–23, a

straightforward application of this Court’s decision in

Direct Marketing forecloses the panel majority’s

erroneous holding that the AIA bars pre-enforcement

review of Petitioner’s APA challenge to Notice 201666’s reporting and recordkeeping requirements. In

Direct Marketing, this Court held the “[TIA], which

provides that federal district courts ‘shall not enjoin,

suspend or restrain the assessment, levy or collection

of any tax under State law’” does not “bar[] a suit to

enjoin the enforcement of” a state law “requiring

retailers that do not collect Colorado sales or use tax

to notify Colorado customers of their use-tax liability

and to report tax-related information to customers

and the . . . Department of Revenue.” 575 U.S. at 4.

5

The TIA is functionally indistinguishable from, and

modeled after, the AIA.2 This Court specifically

explained that it “assume[s] that words used in both

Acts are generally used in the same way.” Id. at 8.

The AIA provides that “no suit for the purpose of

restraining the assessment or collection of any tax

shall be maintained in any court by any person[.]” 26

U.S.C. § 7421(a).

The underlying regulatory

command here is not the assessment or collection of a

tax but creates a new transaction of interest, a type of

reportable transaction. See Notice 2016-66. As this

Court unanimously ruled in Direct Marketing,

“reporting requirements precede . . . ‘assessment’ and

‘collection’” and so challenges to them do not implicate

the same concerns. 575 U.S. at 11.

As Direct Marketing confirms, the AIA’s text

applies only to suits seeking to enjoin the IRS from

taking steps, as part of the formal taxation process, to

assess or collect tax that is allegedly due. See 26

U.S.C. § 7421(a); see also Chamber of Commerce of the

U.S. v. IRS, No. 16-944, 2017 U.S. Dist. LEXIS

166985, at *8–11 (W.D. Tex. Oct. 6, 2017) (applying

Direct Marketing to find the AIA does not bar APA

challenge to Treasury/IRS regulation addressing who

Unlike the TIA, the AIA does not place a jurisdictional

limitation on a court’s power to reach the merits; instead, it is a

claims-processing rule. See Hobby Lobby Stores, Inc. v. Sebelius,

723 F.3d 1114, 1157–59 (10th Cir. 2013) (en banc) (Gorsuch, J.,

concurring) (explaining the AIA is a claims-processing rule); see

also Erin Morrow Hawley, The Equitable Anti-Injunction Act, 90

Notre Dame L. Rev. 81, 90–110, 125–32 (2014). The Sixth Circuit

erred in holding otherwise. See CIC Servs., LLC v. IRS, 925 F.3d

247, 257, 259 (6th Cir. 2019) (characterizing the AIA as depriving

courts of subject matter jurisdiction).

2

6

is subject to taxation under other provisions of the

IRC). This is not that.3 Notice 2016-66’s reporting

and recordkeeping provisions do not collect a penny of

tax revenue for the Government. And “[a]ssessment

and collection of taxes does not include all activities

that may improve the government’s ability to assess

and collect taxes.” Chamber of Commerce, 2017 U.S.

Dist. LEXIS 166985, at *9 (citing Direct Marketing).

The AIA therefore does not bar the courthouse doors

to APA challenges when, as here, no tax is allegedly

due, and the object of the suit is to determine the

legality of reporting and recordkeeping requirements.

II.

DUE PROCESS REQUIRES PERMITTING PREENFORCEMENT REVIEW OF NOTICE 2016-66.

Even if a court construed the AIA to bar preenforcement review of Notice 2016-66—thereby

forcing Petitioner’s officers to risk prison to challenge

its legality—that application of the AIA would violate

the most-basic requirements of due process.

Notice 2016-66 deems a subset of “micro-captive

transactions” to be “transactions of interest,” which

are thus reportable transactions that material

advisors like Petitioner must report to the IRS or face

civil and criminal penalties. See CIC Servs., 925 F.3d

at 249–50.

Under the Sixth Circuit’s decision,

Petitioner “only has two options: (1) acquiesce to a

potentially unlawful reporting requirement that will

3 Cf. Foodservice & Lodging Inst. v. Regan, 809 F.2d 842, 846

(D.C. Cir. 1987) (AIA does not bar pre-enforcement challenge to

“regulation [that] does not relate to the assessment or collection

of taxes, but to IRS efforts to determine the extent of tip

compliance in the food and beverage industry.”).

7

cost it significant money and reputational harm, or (2)

flout the requirement, i.e., ‘break the law,’ to the tune

of $50,000 in penalties for each transaction it fails to

report.” Id. at 263 (Nalbandian, J., dissenting) (citing

26 U.S.C. § 6707(a)–(b)). Petitioner can only obtain

judicial review by breaking the law “and only when (or

if) the Government comes to collect the penalty[.]” Id.

Worse, if Petitioner follows this sole path to

judicial review, its officers will be subject to criminal

penalties. “The Tax Code makes it a misdemeanor for

any person who ‘willfully fails’ to ‘make any return,

keep any records, or supply any information’ required

under its title and its regulations.”4 Id. (citing 26

U.S.C. § 7203). Further, because 26 U.S.C. § 7203 is

not limited to transactions of interest or micro-captive

transactions, the Sixth Circuit’s rationale would apply

to a host of Treasury regulations and IRS guidance

documents. Thus, it would insulate a wide swath of

IRS rules from judicial review by forcing taxpayers to

risk criminal liability to have their day in court.

This is precisely a “situation in which compliance

is sufficiently onerous and coercive penalties

sufficiently potent that a constitutionally intolerable

choice might be presented.” Thunder Basin Coal Co.

v. Reich, 510 U.S. 200, 218, (1994). To impose on a

party “the burden of obtaining a judicial decision of

4 Section 7203 states: “Any person required . . . required by this

title or by regulations made under authority thereof to make a

return, keep any records, or supply any information, who

willfully fails to . . . make such return, keep such records, or

supply such information . . . shall . . . be guilty of a

misdemeanor[.]” 26 U.S.C. § 7203.

8

such a question . . . only upon the condition that, if

unsuccessful, he must suffer imprisonment and pay

fines . . . is, in effect, to close up all approaches to the

courts.” Ex parte Young, 209 U.S. 123, 148 (1908)

(holding unconstitutional the provisions of an act

precluding pre-enforcement judicial review of rates

and associated penalties for failure to comply). “The

constitutional defect in Young was that the dilemma

of either obeying the law and thereby for-going any

possibility of judicial review, or risking ‘enormous’ and

‘severe’ penalties, effectively cut off all access to the

courts.” Thunder Basin, 510 U.S. at 221 (Scalia, J.,

concurring). So too here.

According to the panel majority and responding to

Petitioner “that having to ‘break the law’ by violating

the Notice, and then su[ing] for a refund, is ‘no remedy

at all.’ . . . [T]hat is exactly what the AIA is designed

to require.” CIC Servs., 925 F.3d at 258. But

Petitioner does not have “the option of complying and

then bringing a judicial challenge.” Thunder Basin,

510 U.S. at 221 (Scalia, J., concurring). Instead, the

IRS’s so-called alternative remedy is one that would

only permit judicial access to fanatical gamblers

willing to bet their liberty and risk prison to challenge

the agency.5 This renders the “fair price of adventure”

intolerably high. See Ford Motor Co. v. Coleman, 402

F. Supp. 475, 502 (D.D.C. 1975) (Hart, J., dissenting).

5 The IRS’s alternate remedy only theoretically works for those

with money to pay the penalty to “buy” district court jurisdiction.

See Larson v. United States, No. 16-245, 2016 U.S. Dist. LEXIS

179314 (S.D.N.Y. Dec. 28, 2016) (taxpayer who could pay only $1

million of a $160 million penalty could not pursue refund action

seeking judicial review). To challenge Notice 2016-66, a taxpayer

would have to first pay up to $50,000 for each failed disclosure.

9

In effect, under these circumstances, “operation of the

[AIA] would mean that the aggrieved party has no

access to judicial review[.]” Nat’l Rest. Ass’n. v. Simon,

411 F. Supp. 993, 996 (D.D.C. 1976) (finding the AIA

did not bar APA challenge to IRS revenue ruling).

Thus, like Ex parte Young, “the practical effect of

coercive penalties for noncompliance [is] to foreclose

all access to the courts.” Thunder Basin, 510 U.S. at

218. That is unconstitutional and repugnant to the

Due Process Clause of the Fifth Amendment.

As Judge Thapar explained: “[O]ne might think,

the IRS’s interpretation would still allow people to

bring a challenge after they violate the reporting

requirement and pay the penalty. True enough. But

only if people are also willing to spend up to a year in

prison.”6 CIC Servs., LLC v. IRS, 936 F.3d 501, 507

(6th Cir. 2019) (Thapar, J., dissenting from denial of

rehearing en banc) (citing 26 U.S.C. § 7203). “In other

words, the only lawful means a person has of

challenging the reporting requirement here is to

violate the law and risk financial ruin and criminal

prosecution. That is enough to test the intestinal

6 “If that seems like it must be wrong, think again.” CIC Servs.,

925 F.3d at 263 n.5 (Nalbandian, J., dissenting). Pointedly, the

IRS does not deny or foreclose the possibility that, under their

interpretation of the AIA, regulated entities like Petitioner

potentially risk criminal liability as a condition precedent to

having their day in court. Instead, they say, “[i]t is not clear . . .

whether such a [criminal sanction under I.R.C. § 7203] could

properly be imposed on a material advisor who demonstrates a

good-faith intent to submit its challenge for judicial resolution.”

IRS Resp. to Pet. Reh’g En Banc at 8, Dkt. 56, CIC Services, LLC

v. IRS, No. 18-5019 (8th Cir. filed July 19, 2019); see IRS Br. at

57–59, Dkt. 32, CIC Services, LLC v. IRS, No. 18-5019 (8th Cir.

filed May 31, 2018).

10

fortitude of anyone. And it leaves CIC in precisely the

bind that pre-enforcement judicial review was meant

to avoid.” CIC Servs., LLC v. IRS, 925 F.3d at 263

(Nalbandian, J., dissenting); cf. Nat’l Rest. Ass’n, 411

F. Supp. at 996 (concluding AIA did not bar APA

challenge to IRS revenue ruling, noting that “refusing

to file the required information, and contesting a

possible government assessment of a fine . . . puts the

plaintiffs in the untenable position of either

complying, with no judicial review, or of defying the

government’s interpretation of their legal obligations

under the code, of being in essence a lawbreaker.”).

Under the Sixth Circuit’s decision, “the path to

judicial review is fraught with threats of penalties,

fines, and prosecution—all intended to encourage

compliance with a reporting requirement that collects

not a penny for the Government.” CIC Servs., 925

F.3d at 264 (Nalbandian, J., dissenting). “[W]hen the

penalties for disobedience are by fines so enormous

and imprisonment so severe as to intimidate the

company and its officers from resorting to the courts

. . . , the result is the same as if the law in terms

prohibited the company from seeking judicial

construction of laws which deeply affect its rights.” Ex

parte Young, 209 U.S. at 147. The right to judicial

review “is merely nominal and illusory if the party to

be affected can appeal to the courts only at the risk of

having to pay penalties so great that it is better to

yield to orders of uncertain legality rather than to ask

for the protection of the law.” Wadley S. Ry. Co. v.

Georgia, 235 U.S. 651, 661 (1915). As in Ex Parte

Young, “these criminal sanctions make the reporting

requirement in this case (and many others)

11

unreviewable.” CIC Servs., 936 F.3d at 505 (Thapar,

J., dissenting from denial of rehearing en banc).

That violates due process. See Lipke v. Lederer,

259 U.S. 557, 561–62 (1922) (suggesting that if

criminal penalties are implicated, the Due Process

Clause forecloses application of the AIA to bar

review); see also Okla. Operating Co. v. Love, 252 U.S.

331, 336–37 (1920) (forcing party to violate regulation

and trigger contempt proceeding to obtain judicial

review violates due process). “It is a denial of due

process of law if . . . [judicial] review can be effected by

appeal to the courts only at the risk of having to pay

penalties so great that it is better to yield to orders of

uncertain legality than to ask the protection of the

law.” Wadley, 235 U.S. at 656. “The price of error may

be so heavy as to erect an unfair barrier against the

endeavor of an honest litigant to obtain the judgment

of a court. In that event, the Constitution intervenes

and keeps the court room open.” Life & Cas. Ins. Co.

v. McCray, 291 U.S. 566, 574–75 (1934) (Cardozo, J.).

Due process requires that “[b]efore the

Government can impose severe civil and criminal

penalties; the defendant is entitled to a full and fair

hearing before an impartial tribunal ‘at a meaningful

time and in a meaningful manner.’” TVA v. Whitman,

336 F.3d 1236, 1258 (11th Cir. 2003) (quoting

Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). At

the very least, the panel majority opinion operates to

deprive Petitioner of a hearing at a meaningful time—

that is, before exposure to civil penalties and criminal

liability. As this Court made clear, “one has a due

process right to contest the validity of a legislative or

administrative order affecting his affairs without

necessarily having to face ruinous penalties if the suit

12

is lost.” Brown & Williamson Tobacco Corp. v.

Engman, 527 F.2d 1115, 1119 (2d Cir. 1975)

(discussing relevant Supreme Court precedent).

“Ordinarily, administrative law does not intend to

leave regulated parties caught between a hammer and

an anvil.” CIC Servs., 925 F.3d at 259 (Nalbandian,

J., dissenting). “Yet the IRS seems to think people

should bet their liberty” for a chance at judicial review

of IRS reporting requirements. CIC Servs., 936 F.3d

at 507 (Thapar, J., dissenting from denial of rehearing

en banc). But “[i]n this country, people should not

have to risk prison time in order to challenge the

lawfulness of government action.”

Id. at 505.

“Obviously a judicial review beset by such deterrents

does not satisfy the constitutional requirements, even

if otherwise adequate.” Okla. Operating Co., 252 U.S.

at 336–37. “[T]he Due Process Clause requires an

exception to the [AIA] when the tax is so high as to

render the purported tax not just a disincentive or

civil penalty, but a criminal prohibition.” Seven-Sky

v. Holder, 661 F.3d 1, 43 n.31 (D.C. Cir. 2011)

(Kavanaugh, J., dissenting on jurisdiction and not

deciding the merits). So too here where there is an

actual criminal prohibition. See 26 U.S.C. § 7203.7

“[J]udicial review must be substantial, adequate

and safely available[.]” Wadley, 235 U.S. at 661

(emphasis added). Outside of the AIA context, this

Court has repeatedly held a party “need not await

enforcement proceedings before challenging final

The IRS has not foreclosed the possibility of criminally

prosecuting violations of Notice 2016-66’s reporting

requirements. See CIC Servs., 925 F.3d at 263 n.5 (Nalbandian,

J., dissenting) (citing Gov’t’s Br. at 58).

7

13

agency action where such proceedings carry the risk

of serious criminal and civil penalties.” U.S. Army

Corps of Eng’rs v. Hawkes Co., 136 S. Ct. 1807, 1815

(2016) (cleaned up); see Sackett v. EPA, 566 U.S. 120

(2012). Regulated parties should not have to violate a

law and risk criminal indictment before they can

challenge it. Cf. Free Enter. Fund v. Pub. Co.

Accounting Oversight Bd., 561 U.S. 477, 490–91

(2010) (“We . . . do not require plaintiffs to bet the farm

. . . by taking the violative action before testing the

validity of the law[.]”) (cleaned up). So too here.

To be sure, “[t]he IRS envisions a world in which

no challenge to its actions is ever outside the closed

loop of its taxing authority.” Cohen v. United States,

650 F.3d 717, 726 (D.C. Cir. 2011) (en banc). But as

Judge Sutton explained:

I doubt that the words of the [AIA] . . .

ban all prospective relief whenever the

IRS enforces a regulation with a penalty

that it chooses to call a “tax.” And I

especially doubt 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.” As today’s case appears

to confirm, the meaning of the [AIA] has

crossed the bar from its port of birth.

CIC Servs., 936 F.3d at 504 (Sutton, J., concurring in

the denial of rehearing). The IRS’s overreaching

interpretation of the AIA essentially foreclosing all

judicial review of Notice 2016-66 and is more than one

bridge too far. That expansive interpretation is

untethered from the AIA’s text, structure, and history.

14

See Kristin E. Hickman & Gerald Kerska, Restoring

the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683

(2017). It is also unconstitutional.

The IRS cannot effectively insulate its rules

enforced by civil and criminal penalties from judicial

review through the simple expedient of labeling those

penalties a “tax” subject to the AIA. See Regal Drug

Corp. v. Wardell, 260 U.S. 386, 391–92 (1922) (“The

function of a tax, it was said ‘is to provide for the

support of the government,’ the function of a penalty

clearly involves the ‘idea of punishment for infraction

of the law[.]’”). “The mere use of the word ‘tax’ in an

act primarily designed to define and suppress crime is

not enough to show that within the true intendment

of the term a tax was laid. . . . Before collection of

taxes levied by statutes enacted in plain pursuance of

the taxing power can be enforced, the taxpayer must

be given fair opportunity for hearing—this is essential

to due process of law.” Lipke, 259 U.S. at 561–62.

Finally, application of the AIA here would also fail

the now-familiar Matthews v. Eldridge test, if it

applies. 424 U.S. 319 (1976). “Under the Mathews

balancing test, a court evaluates (A) the private

interest affected; (B) the risk of erroneous deprivation

of that interest through the procedures used; and (C)

the governmental interest at stake.” Nelson v.

Colorado, 137 S. Ct. 1249, 1255 (2017).

All three considerations weigh against the IRS.

First, the private interest at stake is Petitioner’s

interest in judicial review of an IRS notice without the

deterrent effect of facing imprisonment. Second, the

risk of erroneous deprivation of that interest is high,

as explained above: as a practical matter, forcing

15

people to risk prison to obtain judicial review of

administrative actions will coerce them into

complying and preclude them from asserting

meritorious APA challenges. Third, the government

interest is low: the challenged Notice does not relate

to revenue raising, and the IRS presumably does not

have a legitimate interest in barring the courthouse

doors to challenges to the legality of its actions.

III.

THIS COURT SHOULD CONSTRUE THE AIA TO

RESPECT

DUE

PROCESS

CONSTITUTIONAL INFIRMITY.

AND

AVOID

The Sixth Circuit has erroneously held regulated

parties must risk prison to challenge reporting

requirements. But as Judge Thapar explained, “the

law does not condone—let alone require—that

result[.]” CIC Servs., 936 F.3d at 505 (Thapar, J.,

dissenting from denial of rehearing en banc); see also

Regan, 465 U.S. at 378 (holding Congress did not

intend the [AIA] to apply to actions brought by

aggrieved parties for whom it has not provided an

alternative remedy).

The doctrine of constitutional avoidance warrants

construing the AIA consistent with due process. This

is particularly true because the AIA is a claimsprocessing rule, which does not limit the jurisdiction

of Article III courts to hear pre-enforcement

challenges and is subject to equitable exceptions. See

Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114,

1157–59 (10th Cir. 2013) (en banc) (Gorsuch, J.,

concurring); Hawley, supra at 90–110, 125–32.

Indeed, “the Supreme Court has repeatedly

recognized equitable exceptions to the AIA’s

16

application.”

Hobby Lobby, 723 F.3d at 1158

(Gorsuch, J., concurring).

Nor is there any evidence, textual or otherwise, let

alone the required “clear and convincing evidence,”

that Congress intended the AIA to displace the APA’s

bedrock presumption in favor of pre-enforcement

review under the circumstances presented. See

Bowen v. Mich. Acad. of Family Physicians, 476 U.S.

667, 670 (1986) (noting “strong presumption” in favor

of judicial review under the APA that is only rebutted

by “clear and convincing evidence”).

“To require a would-be litigant to risk . . .

[criminal] consequences before obtaining judicial

review would present serious constitutional

concerns.” Fla. Bankers Ass’n v. Dep’t of the Treasury,

799 F.3d 1065, 1083 (2015) (Henderson, J.,

dissenting). This Court has a long tradition of

construing the AIA consistent with due process. See

Lipke, 259 U.S. at 562 (construing AIA to require preenforcement review “in the absence of language

admitting of no other construction”); Liberty Univ.,

Inc. v. Geithner, 671 F.3d 391, 426–27 (4th Cir. 2011)

(Davis, J., dissenting) (discussing applicability of the

doctrine of constitutional avoidance to the AIA); Nat’l

Rest. Ass’n, 411 F. Supp. at 996 (concluding AIA did

not apply to bar pre-enforcement lawsuit, given

“obvious constitutional problems” of requiring

plaintiffs to break the law before obtaining judicial

review); cf. Regan, 465 U.S. at 398–400 (O’Connor, J.,

concurring in the judgment) (applying doctrine of

constitutional avoidance to AIA); Comm’r v. Shapiro,

424 U.S. 614, 629–30 (1976). This Court should do the

same here.

17

The Sixth Circuit’s application of the AIA “raise[s]

serious constitutional problems,” and this Court is

“obligated to construe the statute to avoid such

problems.” INS v. St. Cyr, 533 U.S. 289, 300 (2001).

IV.

THIS COURT SHOULD GRANT CERTIORARI TO

ENSURE THE IRS’S PATTERN AND PRACTICE OF

RULE-OF-LAW VIOLATIONS IS SUBJECT TO

JUDICIAL REVIEW.

As described above, the Sixth Circuit decided an

important federal question in a way that conflicts with

this Court’s decision in Direct Marketing and due

process. See Sup. Ct. Rule 10(c). The consequences of

the Sixth Circuit’s interpretation of the AIA radiate

far beyond this case, as the panel majority recognized:

“The broader legal context in which this case has been

brought is not lost on this Court. Defendants ‘do 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.’”8 CIC Servs., 925 F.3d at 258 (quoting

Hickman & Kerska, 103 Va. L. Rev. at 1712–13).

As this Court has held, the IRS is not a special

agency and must comply with the APA just like every

other federal agency. See Mayo Found. for Med. Educ.

& Research v. United States, 562 U.S. 44, 55–58

The IRS has a well-documented history of systematically

claiming to be exempt from the legal constraints imposed by

oversight mechanisms such as the Regulatory Flexibility Act,

White House review under Executive Order 12,866, and the

Congressional Review Act. See James Valvo, Evading Oversight:

The Origins and Implications of the IRS Claim That Its Rules Do

Not Have an Economic Impact, Cause of Action Inst. (Jan. 2018),

available at https://coainst.org/38EcPIg.

8

18

(2011). Yet Treasury and the IRS have exhibited a

systematic reluctance to do so. Professor Hickman

has conducted an empirical study of Treasury’s

compliance with APA rulemaking requirements, the

parent agency of the IRS. See Kristin E. Hickman,

Coloring Outside the Lines, Examining Treasury’s

(Lack of) Compliance with Administrative Procedure

Act Rulemaking Requirements, 82 Notre Dame L. Rev.

1727 (2007). Professor Hickman found that Treasury,

even when issuing notice and soliciting comments,

rarely complies with the APA’s actual requirements.

Id. at 1748–50. In almost ninety-three percent of the

cases she surveyed over a three-year period,

“Treasury claimed . . . the rulemaking requirements

of APA section 553(b) did not apply.” Id. at 1750.

But the IRS is not above the law. “The IRS is not

special in this regard; no exception exists shielding

it—unlike the rest of the Federal Government—from

suit under the APA.” Cohen, 650 F.3d at 723. The

IRS’s efforts to evade judicial review must end.

Petitioner’s lawsuit should be allowed to proceed.

The Sixth Circuit’s overbroad and unconstitutional

interpretation of the AIA, if allowed to stand, will

have “alarming” consequences extending far beyond

this case. CIC Servs., 925 F.3d at 264 (Nalbandian,

J., dissenting). As Judge Nalbandian explained, “[t]he

inevitable consequence” of the Sixth Circuit’s decision

“is that ‘many’ . . . [Treasury and IRS] regulations and

guidance documents will be rendered ‘effectively

unreviewable.’” Id. (quoting Hickman & Kerska, 103

Va. L. Rev. at 1686). “[T]he problem with this

approach should be obvious: it removes the courts as

a critical check against sweeping IRS policymaking

discretion, serving the convenience of the IRS and the

19

courts, but disserving taxpayers and the credibility of

the tax system as a whole.” Hickman & Kerska, supra

at 1747. That result not only harms untold taxpayers

but also is an affront to the rule of law.

More broadly, unless this Court grants certiorari

to correct the Sixth Circuit’s plain error, “[g]oing

forward in [that] circuit, 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.” CIC Servs., 936 F.3d at 507 (Thapar,

J., dissenting from denial of rehearing en banc). As

Judge Thapar suggested, that result is profoundly

unconstitutional:

[T]oday, the IRS . . . exercises the power

to tax and to destroy, in ways that the

Founders never would have envisioned.

Courts accepted this departure from

constitutional principle on the promise

that Congress would still constrain

agency power through statutes like the

[APA]. We now see what many feared:

that promise is often illusory.

Id. This Court should grant certiorari to protect the

due-process right to meaningful judicial review and to

make clear the AIA does not displace the APA’s

bedrock presumption in favor of pre-enforcement

review when no other avenue of review is available

and the regulated party faces the risk of criminal

prosecution. The IRS is not uniquely above the law.

20

CONCLUSION

For these reasons, and those described by the

Petitioner, this Court should grant the Petition for a

writ of certiorari to the United States Court of Appeals

for the Sixth Circuit.

Respectfully submitted,

R. James Valvo, III

Counsel of Record

Michael Pepson

AMERICANS FOR PROSPERITY FOUNDATION

1310 N. Courthouse Road, Ste. 700

Arlington, VA 22201

(571) 329-4420

jvalvo@afphq.org

Counsel for Amicus Curiae

February 21, 2020