Opposition Brief — CIC Services, LLC, Petitioner v. Internal Revenue Service, et al.
Supreme Court briefMar 25, 2020
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No. 19-930
In the Supreme Court of the United States
CIC SERVICES, LLC, PETITIONER
v.
INTERNAL REVENUE SERVICE, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BRIEF FOR THE RESPONDENTS IN OPPOSITION
NOEL J. FRANCISCO
Solicitor General
Counsel of Record
RICHARD E. ZUCKERMAN
Principal Deputy Assistant
Attorney General
ELLEN PAGE DELSOLE
BETHANY B. HAUSER
Attorneys
Department of Justice
Washington, D.C. 20530-0001
SupremeCtBriefs@usdoj.gov
(202) 514-2217
QUESTION PRESENTED
The Anti-Injunction Act, 26 U.S.C. 7421(a), provides
that, with certain exceptions, “no suit for the purpose of
restraining the assessment or collection of any tax shall
be maintained in any court by any person.” Ibid. The
term “ ‘tax’ ” in that provision is “deemed also to refer to
the penalties * * * provided by” Subchapter 68B of the
Internal Revenue Code, 26 U.S.C. 1 et seq. 26 U.S.C.
6671(a). Subchapter 68B of the Code, 26 U.S.C. 6671
et seq., imposes civil penalties on (inter alios) taxpayers
and certain tax professionals who fail to report to the
Internal Revenue Service (IRS) information required
by the Code and IRS regulations regarding transactions that the IRS has “determine[d] * * * hav[e] a
potential for tax avoidance or evasion,” 26 U.S.C.
6707A(c)(1)—or, in the case of material advisors, those
persons who fail to maintain certain records regarding
such a transaction, 26 U.S.C. 6112; see 26 U.S.C. 6011,
6111, 6112, 6707, 6707A, 6708; 26 C.F.R. 1.6011-4(b)(6).
The question presented is as follows:
Whether the court of appeals correctly held that the
Anti-Injunction Act required dismissal of petitioner’s
suit seeking to enjoin enforcement of an IRS determination that certain transactions are subject to reporting
and recordkeeping requirements that are enforceable by
monetary penalties that the Code deems to be taxes.
(I)
TABLE OF CONTENTS
Page
Opinions below .............................................................................. 1
Jurisdiction .................................................................................... 1
Statement ...................................................................................... 2
Argument..................................................................................... 14
Conclusion ................................................................................... 31
TABLE OF AUTHORITIES
Cases:
Abbott Labs. v. Gardner, 387 U.S. 136 (1967) ............... 27, 28
Alexander v. “Americans United” Inc.,
416 U.S. 752 (1974).............................................................. 22
Autocam Corp. v. Sebelius,
730 F.3d 618 (6th Cir. 2013),
cert. granted, judgment vacated, and
case remanded, 573 U.S. 956 (2014) .................................. 12
Bailey v. George, 259 U.S. 16 (1922) .................................... 21
Bob Jones Univ. v. Simon, 416 U.S. 725 (1974) ....... passim
Cypress v. United States,
646 Fed. Appx. 748 (11th Cir. 2016) .................................. 26
Direct Mktg. Ass’n v. Brohl,
575 U.S. 1 (2015) ......................................... 9, 10, 23, 24, 25
Florida Bankers Ass’n v. United States Dep’t of the
Treasury, 799 F.3d 1065 (D.C. Cir. 2015),
cert. denied, 136 S. Ct. 2429 (2016) .......................... passim
Fostvedt v. United States,
978 F.2d 1201 (10th Cir. 1992),
cert. denied, 507 U.S. 988 (1993) ....................................... 27
Green Solution Retail, Inc. v. United States,
855 F.3d 1111 (10th Cir. 2017),
cert. denied, 138 S. Ct. 1281 (2018) ................................... 25
(III)
IV
Cases—Continued:
Page
Hobby Lobby Stores, Inc. v. Sebelius,
723 F.3d 1114 (10th Cir. 2013),
aff ’d, 573 U.S. 682 (2014) .............................................. 29, 30
Hughes v. United States,
953 F.2d 531 (9th Cir. 1992) ............................................... 27
Korte v. Sebelius, 735 F.3d 654 (7th Cir. 2013),
cert. denied, 573 U.S. 958 (2014) ................................. 29, 30
Lujan v. National Wildlife Fed’n,
497 U.S. 871 (1990).............................................................. 27
National Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012).....................................4, 9, 14, 15, 16, 18
Smith v. Booth, 823 F.2d 94 (5th Cir. 1987) ........................ 27
Smith v. Commissioner, 133 T.C. 424 (2009) ....................... 5
South Carolina v. Regan, 465 U.S. 367 (1984) ................... 28
We the People Found., Inc. v. United States,
485 F.3d 140 (D.C. Cir. 2007),
cert. denied sub nom. Schultz v. United States,
552 U.S. 1102 (2008)............................................................ 27
Statutes and regulations:
Administrative Procedure Act,
5 U.S.C. 551 et seq., 701 et seq. ............................................ 8
5 U.S.C. 701(a)(1)............................................................. 26
5 U.S.C. 702 ...................................................................... 26
5 U.S.C. 702(1) ........................................................... 26, 27
5 U.S.C. 704 ...................................................................... 26
American Jobs Creation Act of 2004,
Pub. L. No. 108-357, Tit. VIII, Subtit. B,
sec. 811(a), § 6707A, 118 Stat. 1575-1576 ....................... 19
Anti-Injunction Act, 26 U.S.C. 7421(a) ................ 4, 14, 18, 21
Child Labor Tax Law, ch. 18. Tit. XII,
40 Stat. 1138 ........................................................................ 21
V
Statues and regulations—Continued:
Page
Congressional Review Act, 5 U.S.C. 801 et seq. ................... 8
Declaratory Judgment Act, 28 U.S.C. 2201(a)........ 5, 15, 18
Internal Revenue Code, 26 U.S.C. 1 et seq. .......................... 2
Subtit. A:
§ 162 .............................................................................. 6
§ 831(b)...................................................................... 6, 7
Subtit. D:
§ 4980D(a) ................................................................... 29
Subtit. F:
Subch. 61:
§ 6011....................................................................... 5
§ 6011(a) ............................................................ 2, 20
§ 6111(a) ............................................................ 3, 20
§ 6111(b) .................................................................. 3
§ 6111(b)(2) ........................................................... 20
§ 6112(a) ............................................................ 3, 20
§ 6112(a)(2) ........................................................... 20
Subch. 63:
§ 6212....................................................................... 5
§§ 6212-6215 ......................................................... 14
§ 6213....................................................................... 5
Subch. 64:
§ 6320....................................................................... 5
§ 6330....................................................................... 5
Subch. 66:
§ 6532........................................................... 4, 14, 28
Subch. 68B, 26 U.S.C. 6671 et seq. ....3, 4, 9, 12, 16, 17
§ 6671(a) ....................................................... passim
§ 6707............................................5, 8, 16, 18, 19, 20
§ 6707(a) .................................................................. 4
VI
Statutes and regulations—Continued:
Page
§ 6707(b) .................................................................. 4
§ 6707(b)(1) ............................................................. 4
§ 6707(b)(2) ............................................................. 4
§ 6707(b)(2)(B) ...................................................... 17
§ 6707(d) .......................................................... 17, 20
§ 6707A ......................................................... passim
§ 6707A(a) ............................................................... 2
§ 6707A(b) ............................................................... 2
§ 6707A(b)(1) .................................................... 3, 17
§ 6707A(b)(2) .......................................................... 3
§ 6707A(b)(3) .......................................................... 3
§ 6707A(c) ....................................................... 17, 20
§ 6707A(c)(1) ........................................................... 3
§ 6708............................................5, 8, 16, 18, 19, 20
§ 6708(a) ...................................................... 4, 17, 20
§ 6708(a)(1) ............................................................. 4
§ 6721(a) .................................................................. 7
Subch. 76B:
§ 7422........................................................... 4, 14, 28
§ 7428..................................................................... 15
Subch. 76D:
§ 7482..................................................................... 14
Patient Protection and Affordable Care Act,
Pub. L. No. 111-148, 124 Stat. 119 .................................... 16
42 U.S.C. 300gg-13(a)...................................................... 29
42 U.S.C. 300gg-13(a)(4) ................................................. 30
42 U.S.C. 300gg-22 .......................................................... 30
Tax Injunction Act, 28 U.S.C. 1341 ......................... 9, 10, 23
Tax Reform Act of 1984,
Pub. L. No. 98-369, Div. A, Subtit. K, Pt. I,
secs. 141(b), 142(b), §§ 6707, 6708, 98 Stat. 680, 682 ..... 20
VII
Statutes and regulations—Continued:
Page
11 U.S.C. 505 .......................................................................... 15
29 U.S.C. 1132(a)(5) ........................................................... 30
26 C.F.R.:
Section 1.6011-4(a)............................................................. 2
Section 1.6011-4(b)(2) ........................................................ 2
Section 1.6011-4(b)(6) .................................................... 2, 5
Miscellaneous:
72 Fed. Reg. 43,146 (Aug. 3, 2007) ......................................... 2
77 Fed. Reg. 8725 (Feb. 15, 2012) ........................................ 29
H.R. Rep. No. 1656, 94th Cong., 2d Sess. (1976) ................ 27
Notice 2016-66, 2016-47 I.R.B. 745 (Nov. 21, 2016),
https://www.irs.gov/pub/irs-irbs/irb16-47.pdf ........ 5, 6, 7, 8
Notice 2017-08, 2017-3 I.R.B. 423 (Jan. 17, 2017),
https://www.irs.gov/pub/irs-irbs/irb17-03.pdf .................... 5
In the Supreme Court of the United States
No. 19-930
CIC SERVICES, LLC, PETITIONER
v.
INTERNAL REVENUE SERVICE, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BRIEF FOR THE RESPONDENTS IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1a-37a)
is reported at 925 F.3d 247. The opinion of the district
court (Pet. App. 38a-47a) is not published in the Federal
Supplement but is available at 2017 WL 5015510.
JURISDICTION
The judgment of the court of appeals was entered on
May 22, 2019. A petition for rehearing was denied on
August 28, 2019 (Pet. App. 48a-66a). On October 28,
2019, Justice Sotomayor extended the time within which
to file a petition for a writ of certiorari to and including January 3, 2020. On December 17, 2019, Justice Sotomayor
further extended the time to and including January 17,
2020, and the petition was filed on that date. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).
(1)
2
STATEMENT
1. a. The Internal Revenue Code (Code), 26 U.S.C. 1
et seq., requires taxpayers to report certain tax-related
information to the Internal Revenue Service (IRS).
Section 6011(a) requires “any person made liable for
any tax”—“[w]hen required by regulations prescribed
by” the IRS—to “make a return or statement according
to the forms and regulations prescribed by” the IRS and
to “include therein the information required by such
forms or regulations.” 26 U.S.C. 6011(a). The IRS has
adopted a variety of regulations and forms, such as the
familiar Form 1040, for the reporting of required information.
IRS regulations require a taxpayer who has “participated” in one of certain transactions to file with its tax
return a statement disclosing various information about
the transaction. 26 C.F.R. 1.6011-4(a). Such transactions include (inter alia) those that the IRS has “identified by notice, regulation, or other form of published
guidance” as either (1) a “listed transaction,” meaning
one that the IRS has determined is in fact a “tax avoidance
transaction,” 26 C.F.R. 1.6011-4(b)(2); or (2) a “transaction of interest,” 26 C.F.R. 1.6011-4(b)(6), meaning a
transaction that the IRS “believe[s] has a potential for tax
avoidance or evasion, but for which” the IRS “lack[s]
enough information” to classify it conclusively, 72 Fed.
Reg. 43,146, 43,146 (Aug. 3, 2007).
Section 6707A of the Code states that “[a]ny person
who fails to include on any return or statement any
information with respect to a reportable transaction
which is required under section 6011 to be included with
such return or statement shall pay a penalty in the
amount determined under” Section 6707A(b). 26 U.S.C.
3
6707A(a). A “ ‘reportable transaction’ ” is “any transaction with respect to which information is required to be
included with a return or statement because, as determined under regulations prescribed under section 6011,
such transaction is of a type which the Secretary determines as having a potential for tax avoidance or evasion.” 26 U.S.C. 6707A(c)(1). That definition encompasses both listed transactions and transactions of
interest. For purposes of the Code, the penalty for failing to provide the required information about those
transactions is “deemed” to be a tax by 26 U.S.C.
6671(a), which provides that “any reference in this title
to ‘tax’ imposed by this title shall be deemed also to
refer to the penalties and liabilities provided by this
subchapter,” ibid.—i.e., Subchapter 68B of Title 26,
26 U.S.C. 6671 et seq., where Section 6707A appears.
The amount of the penalty is “75 percent of the decrease
in tax shown on the return as a result of such transaction,” 26 U.S.C. 6707A(b)(1), subject to minimum and
maximum amounts, 26 U.S.C. 6707A(b)(2) and (3).
The Code requires tax professionals who assist taxpayers with certain transactions to report information
to the IRS and to maintain records subject to inspection. A “material advisor”—a person who provides
material aid, assistance, or advice with respect to a reportable transaction and who derives a threshold amount of
gross income from doing so, 26 U.S.C. 6111(b)—must file
a return providing various information about the transaction, 26 U.S.C. 6111(a). A material advisor also must
maintain certain records subject to inspection, including a
list of persons for whom it served as a material advisor
with respect to the transaction. 26 U.S.C. 6112(a).
4
A material advisor who either fails to file a timely
return, files a return containing false or incomplete information, or fails (without reasonable cause) to make available to the IRS records required to be maintained regarding a reportable transaction is subject to a civil penalty
under Subchapter 68B. See 26 U.S.C. 6707(a) and (b),
6708(a). Like the penalty imposed on a taxpayer who fails
to report required information, that penalty is “deemed”
to be a “ ‘tax.’ ” 26 U.S.C. 6671(a). For listed transactions,
the amount of the tax for noncompliance with the reporting requirement is 50% of the gross income that the
material advisor derived from its work on the transaction (75% in the case of an intentional failure to act), or
$200,000, whichever is greater. 26 U.S.C. 6707(b)(2).
For other reporting violations, the amount of the tax is
$50,000, and for recordkeeping violations the tax is
$10,000 per day. 26 U.S.C. 6707(b)(1), 6708(a)(1).
b. A penalty that is assessed under Subchapter 68B,
and deemed a tax under Section 6671(a) is subject to
judicial review in a suit for a refund after the tax has
been paid. See 26 U.S.C. 6532, 7422; Florida Bankers
Ass’n v. United States Dep’t of the Treasury, 799 F.3d
1065, 1066-1067 (D.C. Cir. 2015) (Kavanaugh, J.), cert.
denied, 136 S. Ct. 2429 (2016). Pre-enforcement judicial
review of such a tax is unavailable, however, “[b]ecause
of the Anti-Injunction Act,” codified at 26 U.S.C.
7421(a), which “bar[s] litigation to enjoin or otherwise
obstruct the collection of taxes.” National Fed’n of Indep.
Bus. v. Sebelius, 567 U.S. 519, 543 (2012) (NFIB). The
Anti-Injunction Act 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,
whether or not such person is the person against whom
such tax was assessed.” 26 U.S.C. 7421(a). With limited
5
exceptions that are not implicated here, district courts
also generally cannot issue declaratory relief under the
Declaratory Judgment Act, 28 U.S.C. 2201(a), “with respect to Federal taxes,” ibid.
Certain taxes are also subject to review in the Tax
Court after the IRS issues a notice of deficiency resulting from a person’s failure to include the tax on a return.
See 26 U.S.C. 6212, 6213. Other taxes, such as assessable
penalties like those under Sections 6707, 6707A, and
6708, are subject to limited review in the Tax Court only
in certain collection-related proceedings after assessment. See 26 U.S.C. 6320, 6330; see, e.g., Smith v. Commissioner, 133 T.C. 424 (2009). Those forms of review
are not at issue here.
2. In 2016, exercising its authority under 26 U.S.C.
6011, the IRS issued a notice that identified as “transaction[s] of interest” under 26 C.F.R. 1.6011-4(b)(6) certain
“micro-captive transaction[s],” which the IRS determined “ha[ve] a potential for tax avoidance or evasion.”
Notice 2016-66, 2016-47 I.R.B. 745, 745 (Nov. 21, 2016),
https://www.irs.gov/pub/irs-irbs/irb16-47.pdf (Pet. App.
91a); see also Notice 2017-08, 2017-3 I.R.B. 423, 424 (Jan.
17, 2017), https://www.irs.gov/pub/irs-irbs/irb17-03.pdf
(extending certain deadlines). The micro-captive transaction described in Notice 2016-66 generally involves an
attempt by a taxpayer and a related entity (the “captive”) to reduce their taxable incomes through agreements that purport to be insurance contracts, but that in
substance may not actually constitute insurance. See
Notice 2016-66, 2016-47 I.R.B. at 745-746 (Pet. App.
91a-99a).
In the typical micro-captive transaction described in
Notice 2016-66, the captive contracts to insure (or reinsure) a risk of the taxpayer, in exchange for putative
6
premiums. Notice 2016-66, 2016-47 I.R.B. at 745 (Pet.
App. 91a-93a). The taxpayer deducts the amounts it
pays as premiums under 26 U.S.C. 162. See Notice
2016-66, 2016-47 I.R.B. at 745-746 (Pet. App. 91a,
98a-99a). The captive also excludes the premiums from
its own taxable income under 26 U.S.C. 831(b), which
allows an insurer with net premiums below a certain
threshold (currently $2.2 million per taxable year) to
elect to be taxed solely on its investment income and not
on its premium income. Notice 2016-66, 2016-47 I.R.B.
at 745-747 (Pet. App. 91a, 99a).
The IRS observed that a taxpayer’s use of a captive insurance company that elects to be taxed on its
investment income under Section 831(b) may sometimes reflect legitimate “risk management purposes
that do not involve tax avoidance.” Notice 2016-66,
2016-47 I.R.B. at 746 (Pet. App. 99a). But the IRS
“believe[d] that there are cases in which the use of such
arrangements to claim the tax benefits of treating the
Contract as an insurance contract is improper” because
“the transaction does not constitute insurance” in substance, such that neither the taxpayer nor the captive
may properly exclude the premiums from the income.
Ibid. (Pet. App. 98a-99a).
The IRS acknowledged that it “lack[ed] sufficient
information” to identify which transactions involving captive insurers making Section 831(b) elections “should be
identified specifically as a tax avoidance transaction.”
Notice 2016-66, 2016-47 I.R.B. at 745 (Pet. App. 91a).
But the agency identified several attributes that may
indicate that a transaction is not properly viewed as constituting insurance. Id. at 745-746 (Pet. App. 94a-98a).
For example, the scope of coverage provided may raise
concerns if it “involves an implausible risk,” “does not
7
match a business need or risk,” is described in “vague,
ambiguous, or illusory” terms, or “duplicates coverage”
the taxpayer already has. Id. at 745 (Pet. App. 94a-95a).
The premiums also may indicate the lack of a legitimate
insurance relationship if (inter alia) they “are determined without an underwriting or actuarial analysis that
conforms to insurance industry standards,” or if they
“significantly exceed the premium prevailing for coverage offered by unrelated, commercial” carriers. Id. at
746 (Pet. App. 95a). The IRS also observed that, in the
transactions that gave rise to its concerns, the captive
“uses the premium income for purposes other than
administering and paying claims under the [c]ontract”—
“[f ]or instance,” by “us[ing] premium income to provide
a loan” to the putative insured. Ibid. (Pet. App. 98a); see
ibid. (Pet. App. 96a).
In light of those concerns, the IRS designated certain micro-captive transactions as transactions of interest that taxpayers and material advisors must report to
the IRS in their returns. Notice 2016-66, 2016-47 I.R.B.
at 746-747 (Pet. App. 99a-101a). The designation covers
transactions involving a taxpayer and a captive under at
least partially common ownership in which: (1) the captive insures or reinsures a risk of the taxpayer; (2) the
captive elects to be taxed on its investment income and
not its premium income under Section 831(b); and
(3) the captive either (A) has liability for insured losses
and claim-administration expenses of less than 70% of
its premiums earned or dividends it has paid, or (B) has
transferred to the taxpayer or a common parent entity
any portion of the payments the captive received. Id. at
747 (Pet. App. 99a-100a). The IRS specified what information about a transaction must be reported, and it
noted that noncompliance with the reporting and
8
recordkeeping requirements may subject a taxpayer or
material advisor to penalties imposed by 26 U.S.C.
6707, 6707A, and 6708. Notice 2016-66, 2016-47 I.R.B.
at 747-748 (Pet. App. 103a-106a).
3. Petitioner is “a material advisor to taxpayers engaging in micro-captive transactions.” Pet. App. 4a.
Petitioner commenced this action, alleging that the IRS
had issued Notice 2016-66 in violation of the Administrative Procedure Act (APA), 5 U.S.C. 551 et seq., 701
et seq., and the Congressional Review Act, 5 U.S.C. 801
et seq. Pet. App. 4a. Petitioner contended that Notice
2016-66 is a legislative rule for which the IRS was
required but had failed to engage in notice-and-comment
rulemaking; that Notice 2016-66 is arbitrary and capricious; and that the Notice was required to be, but had
not been, submitted for congressional review before it
took effect. Ibid. Petitioner’s complaint sought a permanent injunction “enjoin[ing] the enforcement of
Notice 2016-66,” and a declaration that the Notice is
unlawful. D. Ct. Doc. 1, at 16 (Mar. 27, 2017). Petitioner
also separately moved for a preliminary injunction,
D. Ct. Doc. 8 (Mar. 30, 2017), which the district court
denied, Pet. App. 4a.
The IRS moved to dismiss petitioner’s suit, arguing
that the suit was barred by the Anti-Injunction Act; that
petitioner’s challenges were unreviewable on other
grounds; and that the complaint failed to state a claim
on the merits. D. Ct. Doc. 25-1, at 6-25 (May 30, 2017).
The district court granted the motion, concluding that
petitioner’s “claims and their requested injunction necessarily operate as a challenge to both the reporting
requirement and the penalty or tax imposed for failure
to comply with the reporting requirement.” Pet. App.
9
46a; see id. at 38a-47a. The court reasoned that the penalty for noncompliance with the requirements “is a ‘tax’
within the [Anti-Injunction Act’s] prohibition against
injunctive relief,” and that petitioner therefore “s[ought],
at least in part, to restrain the IRS’s assessment or collection of a tax.” Id. at 43a, 46a (citations omitted); see id.
at 43a-47a. The court did not reach the government’s
additional arguments for dismissal.
4. The court of appeals affirmed. Pet. App. 1a-24a.
a. The court of appeals held that petitioner’s “complaint seeking to enjoin the enforcement of [Notice
2016-66] is properly characterized as a ‘suit for the purpose of restraining the assessment or collection of any
tax.’ ” Pet. App. 21a (citation omitted); see id. at 8a-21a.
Like the district court, the court of appeals determined
that “[t]he relevant taxes are * * * the penalties
imposed for violation of the Notice’s requirements.” Id.
at 14a. Those penalties, the court explained, are
“treated as taxes themselves for purposes of the [AntiInjunction Act]” because they are imposed by Subchapter 68B of the Code. Ibid.; see id. at 14a-15a & n.5;
26 U.S.C. 6671(a). The court noted that this Court
“ha[d] explained as much” in NFIB, 567 U.S. at 544, and
that “other circuits have consistently held as much.”
Pet. App. 14a-15a. The court of appeals concluded that
the Anti-Injunction Act barred petitioner’s suit because
the “suit seeks to invalidate the Notice, which is the
entire basis for that tax.” Id. at 16a; see id. at 17a.
The court of appeals rejected petitioner’s contention
that Direct Marketing Ass’n v. Brohl, 575 U.S. 1 (2015),
which addressed the Tax Injunction Act, 28 U.S.C. 1341,
dictated a contrary conclusion. Pet. App. 8a-17a. The Tax
Injunction Act provides that “district courts shall not
10
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.”
28 U.S.C. 1341. This Court held that the Tax Injunction
Act did not bar a suit to enjoin enforcement of a state law
that required retailers to notify customers of, and to
report to the State, certain information regarding sales on
which the retailers had not collected sales or use taxes.
575 U.S. at 7-14. The Court explained that the notice and
reporting requirements did not constitute the assessment, levy, or collection of a tax. Id. at 7-12. It also
rejected an alternative argument that a judicial order
barring enforcement of those notice and reporting
requirements would “restrain” tax collection, in the
sense that retailers’ non-compliance would impede subsequent efforts to collect the underlying sales and use
taxes. Id. at 12-14. The Court acknowledged that the
term “restrain” in isolation is ambiguous. Id. at 12-13.
But it concluded that, as used in the Tax Injunction Act,
the term is limited to judicial relief that “stops ‘assessment, levy or collection’ ” of a state-law tax, not relief
that “ ‘merely inhibits’ ” those activities. Id. at 14.
The court of appeals in the present case expressed
uncertainty as to whether the term “restrain” should be
given the same meaning in the Anti-Injunction Act that
the Direct Marketing Court gave it in the Tax Injunction
Act. Pet. App. 17a n.6 (citation omitted). The court concluded, however, that it “need not engage with” that issue
in order to decide this case. Id. at 17a. The court
explained that, “[e]ven assuming arguendo that the
Direct Marketing definition” of “ ‘restrain’ ” “should be
extended from the [Tax Injunction Act] to the [AntiInjunction Act],” the present suit still would be barred
because it “ ‘would have the effect of restraining—fully
11
stopping’ the IRS from collecting the penalties imposed
for violating the Notice’s requirements.” Ibid.
The court of appeals explained that petitioner’s contrary argument rested on the erroneous premise that
the only taxes relevant to the Anti-Injunction Act analysis were the taxes on the underlying micro-captive
transaction, “the collection of which [Notice 2016-66] is
designed to facilitate.” Pet. App. 14a; see id. at 14a-17a.
The court acknowledged that, if the Direct Marketing
Court’s interpretation of “restrain” in the Tax Injunction Act were extended to the Anti-Injunction Act, petitioner’s suit likely would not restrain the assessment or
collection of those distinct taxes. Id. at 17a. The court
of appeals concluded, however, that the Anti-Injunction
Act barred petitioner’s suit because that suit if successful would preclude assessment and collection of the
taxes imposed for noncompliance with Notice 2016-66.
See ibid.
Petitioner also contended that the Anti-Injunction
Act is inapplicable here because the “ ‘purpose’ ” of its
suit was to “challeng[e] the Notice’s regulatory requirement and not the penalty.” Pet. App. 18a (citation and
emphasis omitted). The court of appeals rejected that
argument. The court observed that “[a]ny distinction
that once existed in [this] Court’s [Anti-Injunction Act]
jurisprudence between ‘regulatory’ taxes and ‘revenueraising’ taxes appears to have been ‘abandoned,’ ” and
that the Court has “instead emphasized the effect of the
plaintiff ’s suit.” Ibid. (citations omitted). The court of
appeals noted that this Court has “held that where the
relief sought would ‘necessarily preclude’ the assessment or collection of the relevant tax, the suit ‘falls
squarely within the literal scope’ of the [Anti-Injunction
12
Act].” Ibid. (quoting Bob Jones Univ. v. Simon, 416 U.S.
725, 732 (1974)).
The court of appeals acknowledged that “the purpose
of the suit is still a factor” to be considered. Pet. App. 18a.
It explained, however, that, under this Court’s decisions,
“a purpose to restrain the assessment or collection of
taxes” may be “infer[red]” where a plaintiff is “trying to
‘sidestep’ the [Anti-Injunction Act]” through artful
pleading. Ibid. (citation omitted). The court concluded
that this was true here because petitioner’s challenge to
the “regulatory aspect of [the] regulatory tax”—the
reporting and recordkeeping requirements—would, if
successful, “ ‘necessarily’ invalidate” the “tax aspect of
[the] regulatory tax.” Id. at 21a (citation omitted). The
court noted that a prior, arguably contrary decision of the
circuit had been vacated by this Court and so “is no longer
good law.” Id. at 20a; see id. at 19a-20a (citing Autocam
Corp. v. Sebelius, 730 F.3d 618, 622 (6th Cir. 2013), cert.
granted, judgment vacated, and case remanded, 573 U.S.
956 (2014)).
In reaching those conclusions, the court of appeals
agreed with the D.C. Circuit’s resolution of a similar
question in Florida Bankers, supra. Pet. App. 14a,
20a-21a; see id. at 10a-21a. In Florida Bankers, the
D.C. Circuit had held that the Anti-Injunction Act
barred a suit that sought to “enjoin the enforcement of
an IRS regulation requiring banks to report certain
interest payments made to account holders,” noncompliance with which would subject a person to penalties
under Subchapter 68B of the Code. Id. at 13a (citing
799 F.3d at 1067); see id. at 10a-12a. The court found
that those penalties constituted “tax[es]” under
26 U.S.C. 6671(a), and that the plaintiffs’ “suit would
have the effect of restraining (indeed eliminating) the
13
assessment and collection of that tax.” 799 F.3d at 1068.
Like the court of appeals here, the D.C. Circuit held
that Direct Marketing was distinguishable because “the
penalty” imposed for noncompliance with the reporting
requirement 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
D.C. Circuit also rejected the plaintiffs’ argument that the
purpose of its suit was to challenge only an underlying
regulatory requirement and not the tax imposed by the
Code as a penalty for noncompliance. The court explained
that “invalidating the regulation would directly prevent
collection of the tax.” Id. at 1071.
b. Judge Nalbandian dissented. Pet. App. 25a-37a.
In his view, the Anti-Injunction Act did not bar petitioner’s suit because petitioner “d[id] not allege tax liability as its injury” and instead challenged the reporting
and recordkeeping requirements themselves. Id. at
26a. He acknowledged that the Code “deems th[e] penalties” imposed for noncompliance with those requirements to be “ ‘taxes.’ ” Id. at 29a (citation omitted). He
concluded, however, that “[e]njoining a reporting requirement enforced by a tax does not necessarily bar
the assessment or collection of that tax * * * because
the tax does not result from the requirement per se,”
but rather from a party’s violation of the requirement.
Ibid. (emphasis omitted).
5. The court of appeals denied a petition for rehearing
en banc. Pet. App. 48a-49a. Judges Clay and Sutton
issued opinions concurring in the denial of rehearing. Id.
at 50a-54a, 55a-57a. Judge Thapar, joined by six other
judges, dissented from the denial of rehearing. Id. at
58a-66a; see C.A. Doc. 65-2, at 1, 8-13 (Aug. 28, 2019).
14
ARGUMENT
The court of appeals correctly held that the AntiInjunction Act, 26 U.S.C. 7421(a), required the dismissal of petitioner’s suit seeking to enjoin the enforcement
of Notice 2016-66. Neither the court’s ultimate conclusion, nor its analysis applying the Anti-Injunction Act to
the circumstances of this case, conflicts with any decision of this Court or another court of appeals. Further
review is not warranted.
1. Petitioner argues (Pet. 11-23, 25-30) that the AntiInjunction Act does not cover its suit. The court of
appeals correctly rejected that contention.
a. The Anti-Injunction Act provides that, with certain enumerated exceptions, “no suit for the purpose of
restraining the assessment or collection of any [federal]
tax shall be maintained in any court by any person,
whether or not such person is the person against whom
such tax was assessed.” 26 U.S.C. 7421(a). The enumerated exceptions—none of which applies here—and
other provisions of the Code instead channel nearly all
litigation over federal taxes into several specified avenues. “Because of the Anti-Injunction Act, taxes can
ordinarily be challenged only after they are paid, by
suing for a refund,” National Fed’n of Indep. Bus. v.
Sebelius, 567 U.S. 519, 543 (2012); see 26 U.S.C. 6532,
7422, or (in circumstances not implicated here) by seeking review in the Tax Court of a notice of deficiency
issued by the IRS before the tax is assessed, see
26 U.S.C. 6212-6215, 7482; see also Bob Jones Univ. v.
Simon, 416 U.S. 725, 746-747 (1974); Florida Bankers
Ass’n v. United States Dep’t of the Treasury, 799 F.3d
1065, 1066 (D.C. Cir. 2015) (Kavanaugh, J.), cert.
denied, 136 S. Ct. 2429 (2016). “This statute protects
the Government’s ability to collect a consistent stream
15
of revenue, by barring litigation to enjoin or otherwise
obstruct the collection of taxes.” NFIB, 567 U.S. at 543.
Although in most legal contexts a litigant might seek
declaratory relief as an alternative to an injunction, the
Declaratory Judgment Act generally bars federal courts
from granting declaratory judgments “with respect to
Federal taxes.” 28 U.S.C. 2201(a). That prohibition is also
subject to limited exceptions—including for (inter alia)
actions seeking review of a determination of an entity’s
tax-exempt status, and certain tax determinations in
bankruptcy proceedings—but none is implicated here.
Ibid.; see 11 U.S.C. 505; 26 U.S.C. 7428. Apart from
those exceptions, “the federal tax exception to the
Declaratory Judgment Act is at least as broad as the
Anti-Injunction Act.” Bob Jones Univ., 416 U.S. at 733
n.7; cf. Florida Bankers, 799 F.3d at 1067 (stating that
tax exception to Declaratory Judgment Act and AntiInjunction Act are “coterminous” (citation omitted)).
Petitioner’s suit seeking injunctive and declaratory
relief with respect to enforcement of Notice 2016-66 thus
cannot proceed if the suit is covered by the Anti-Injunction
Act. The court of appeals correctly held that it is. The
penalty that the Code imposes for noncompliance with
the reporting and recordkeeping requirements—which
Notice 2016-66 made applicable to micro-captive transactions on which petitioner advises its clients—is deemed
a “tax[ ]” for purposes of the Code, including the AntiInjunction Act. Pet. App. 14a; see 26 U.S.C. 6671(a).
And petitioner’s suit, if successful, would necessarily
preclude the collection of that tax. Pet. App. 21a.
i. The civil monetary penalties imposed for noncompliance with the reporting and recordkeeping requirements are “tax[es]” within the meaning of the AntiInjunction Act. Section 6671(a) of the Code—which
16
appears in Subchapter 68B—states in pertinent part that,
“[e]xcept as otherwise provided, any reference in this title
to ‘tax’ imposed by this title shall be deemed also to refer
to the penalties and liabilities provided by this subchapter,”
i.e., Subchapter 68B. 26 U.S.C. 6671(a). The penalties at
issue here are imposed by 26 U.S.C. 6707, 6707A, and
6708, which appear in Subchapter 68B. References in the
Code to “tax[es],” including in the Anti-Injunction Act,
thus encompass those penalties.
This Court’s reasoning in NFIB confirms that conclusion. In NFIB, the Court held that the penalty for
failing to comply with the requirement to purchase
health insurance under the Patient Protection and
Affordable Care Act (Affordable Care Act), Pub. L. No.
111-148, 124 Stat. 119, known as the “individual mandate,” was not a “tax” within the meaning of the AntiInjunction Act. 567 U.S. at 543-546. The Court recognized that “Congress can, of course, describe something
as a penalty but direct that it nonetheless be treated as
a tax for purposes of the Anti-Injunction Act.” Id. at
544. As an example, the Court observed that Section
6671(a) “ ‘deem[s]’ ” penalties imposed by Subchapter
68B to be taxes, and that “[p]enalties in Subchapter 68B
are thus treated as taxes under Title 26, which includes
the Anti-Injunction Act.” Id. at 544-545. The NFIB
Court concluded, however, that Congress had not
deemed the penalty for noncompliance with the individual mandate a tax because the mandate “is not in
Subchapter 68B of the Code,” and no “other provision
state[s] that references to taxes in Title 26 shall also
be ‘deemed’ to apply to the individual mandate.” Id. at
545.
As the D.C. Circuit explained in Florida Bankers, the
clear implication of the NFIB Court’s reasoning is that,
17
“[h]ad the penalty at issue in NFIB been located in
Chapter 68, Subchapter B, the Anti-Injunction Act
would have applied.” 799 F.3d at 1068. Here, as in Florida Bankers—which addressed penalties under Section
6721(a)—but “unlike in NFIB, the penalty is located in
Chapter 68, Subchapter B.” Ibid. The penalty therefore
“is a ‘tax’ under the Anti–Injunction Act.” Ibid.
Congress’s classification of the penalties at issue here
as taxes was particularly apt. The Code imposes those
penalties when a taxpayer or a material advisor fails to
report required information or to keep required records
about a type of transaction that the IRS has determined
either is or has the potential to be tax avoidance or evasion. 26 U.S.C. 6707A(c); see 26 U.S.C. 6707(d), 6708(a).
Requiring taxpayers and tax professionals to report information (and tax professionals to keep records) about such
transactions enables the IRS to ensure that taxes applicable to them are not evaded but are properly assessed and
collected.
The penalties the Code imposes on a taxpayer or
material advisor who refuses to report such information
or to provide required records upon request can be viewed
as embodying a presumption that—in the absence of exonerating information reported (or records supplied) by
the taxpayer or material advisor—the suspicious transaction is in fact an instance of tax avoidance or evasion,
and some tax liability should be imposed. Indeed, in
many instances, the penalties are calculated (within certain limits) as a percentage of the tax savings a taxpayer
achieved or the income a material advisor earned.
26 U.S.C. 6707(b)(2)(B), 6707A(b)(1). Rather than allow
a failure to report required information (or to maintain
relevant records) to frustrate the assessment and collection of taxes, which would encourage tax evasion,
18
those provisions establish an alternative basis for imposing a tax on such persons. In all events, the definition of “tax” for purposes of the Anti-Injunction Act “is
up to Congress,” NFIB, 567 U.S. at 544, and the Code
unambiguously classifies a penalty for noncompliance
with the statutory reporting and recordkeeping requirements as a tax for purposes of the Anti-Injunction
Act.
ii. Petitioner’s action is a “suit for the purpose of
restraining the assessment or collection of [that] tax.”
26 U.S.C. 7421(a). The first item of relief requested in
petitioner’s complaint is that the district court “[p]ermanently enjoin the enforcement of Notice 2016-66.”
D. Ct. Doc. 1, at 16. Notice 2016-66 is enforced by the
taxes imposed by Sections 6707, 6707A, and 6708 for
noncompliance with the reporting and recordkeeping
requirements. Because an order enjoining the enforcement of Notice 2016-66 would “necessarily preclude the
collection of ” those taxes, the suit “falls squarely within
the literal scope of the Act.” Bob Jones Univ., 416 U.S.
at 732; see id. at 731-732 (Because “an injunction preventing the [IRS] from withdrawing a § 501 (c)(3) ruling
letter would necessarily preclude the collection of ” certain taxes, “a suit seeking such relief falls squarely
within the literal scope of the Act.”).
Petitioner’s request for declaratory relief, in the
form of a “judgment declaring that Notice 2016-66 is
unlawful,” D. Ct. Doc. 1, at 16, is likewise barred. The
federal-tax exception to the Declaratory Judgment Act,
28 U.S.C. 2201(a), “is at least as broad as the AntiInjunction Act.” Bob Jones Univ., 416 U.S. at 733 n.7;
see Florida Bankers, 799 F.3d at 1067. And the declaratory relief petitioner seeks would also necessarily preclude enforcement of Notice 2016-66. If that Notice’s
19
designation of micro-captive transactions as subject to
the reporting and recordkeeping requirements is invalid, the IRS would lack a legal basis for imposing the
taxes that Sections 6707, 6707A, and 6708 establish for
noncompliance. As in Florida Bankers, petitioner’s
“suit, if successful, would invalidate the reporting requirement and restrain (indeed eliminate) the assessment and collection of the tax paid for not complying
with the reporting requirement.” 799 F.3d at 1067; see
Pet. App. 17a (noting petitioner’s statement that “the
IRS certainly could never collect any penalties . . . for
noncompliance if Notice 2016-66 is struck down” (quoting Pet. C.A. Reply Br. 7)).
b. Although petitioner disputes (Pet. 16-23) that
conclusion, it identifies no sound reason for resisting the
straightforward application of the Anti-Injunction Act’s
text.
Petitioner acknowledges (Pet. 17-18) that “the penalty
enforcing the reporting requirement * * * in this case
is—according to the Tax Code—to be treated as a tax.”
Petitioner sometimes appears, however, to characterize
the decision to classify those penalties as taxes as having
been made by the IRS. E.g., Pet. 3 (asserting that the AntiInjunction Act should not preclude “pre-enforcement
review whenever an agency enforces [an] action with a
penalty that it labels as a tax” (emphasis added)). That
characterization is incorrect. The decision to deem penalties imposed by Sections 6707, 6707A, and 6708 to be
taxes was made by Congress in the language of Section
6671(a), and in Congress’s enactment of Sections 6707,
6707A, and 6708 and its placement of them in Subchapter
68B. See American Jobs Creation Act of 2004, Pub. L.
No. 108-357, Tit. VIII, Subtit. B, sec. 811(a), § 6707A,
20
118 Stat. 1575-1576 (enacting 26 U.S.C. 6707A in “subchapter B of chapter 68”); Tax Reform Act of 1984, Pub.
L. No. 98-369, Div. A, Subtit. K, Pt. I, secs. 141(b), 142(b),
§§ 6707, 6708, 98 Stat. 680, 682 (same regarding 26 U.S.C.
6707 and 6708). In Notice 2016-66, the IRS merely exercised the separate authority the Code confers on the
agency to identify a particular category of transactions
as one subject to the Code’s reporting and recordkeeping
requirements and penalties. See 26 U.S.C. 6011(a),
6111(a) and (b)(2), 6112(a)(2), 6707(d), 6707A(c), 6708(a).
Petitioner also asserts that the penalty imposed for
noncompliance with those requirements “is not an
affirmative, stand-alone tax for the purpose of ‘protection of the revenues,’ ” and instead “ ‘is meant to deter
violations of the underlying regulatory requirement.’ ”
Pet. 18 (citations and emphasis omitted). But the AntiInjunction Act is not limited to “stand-alone tax[es].”
Ibid. To the contrary, by deeming “penalties” imposed by
Subchapter 68B to be “taxes” for purposes of the Code,
26 U.S.C. 6671(a), Congress made clear that the term
“tax” is not confined to an undefined subset of “revenuegenerating” measures. Although this Court’s decisions
once “drew what it saw at the time as distinctions between
regulatory and revenue-raising taxes,” the Court “subsequently abandoned such distinctions.” Bob Jones Univ.,
416 U.S. at 741 n.12; see Florida Bankers, 799 F.3d at
1070. Petitioner suggests that the application of the AntiInjunction Act to the penalties at issue here was somehow
fortuitous or unforeseeable. See Pet. 12 (stating that the
decision below precludes “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”). But the whole point (and
21
predictable effect) of Congress’s decision to deem specified penalties to be taxes is to ensure that the Code provisions governing tax assessment and collection will
apply to those penalties.
Petitioner further asserts (Pet. 18-23) that its suit is
not a “suit[ ] ‘for the purpose of restraining the assessment or collection of any tax,’ ” Pet. 19 (quoting 26 U.S.C.
7421(a)), because “[petitioner’s] sole purpose in bringing this action is to enjoin the reporting requirements,”
Pet. 20. The court below, again agreeing with the D.C.
Circuit, correctly rejected that argument. Pet. App.
18a-20a; see Florida Bankers, 799 F.3d at 1070-1071.
The Anti-Injunction Act’s reference to a “suit for the
purpose of restraining the assessment or collection of
any tax,” 26 U.S.C. 7421(a), does not make a plaintiff ’s
subjective goal in bringing suit the touchstone. To the
contrary, this Court “has consistently ruled * * * that
plaintiffs cannot evade the Anti–Injunction Act by purporting to challenge only the regulatory aspect of a regulatory tax.” Florida Bankers, 799 F.3d at 1070.
For example, the Court held in Bailey v. George,
259 U.S. 16 (1922) (Taft, C.J.), that the Anti-Injunction
Act barred a suit to enjoin collection of the tax imposed
by the Child Labor Tax Law, ch. 18, Tit. XII, 40 Stat.
1138. 259 U.S. at 19-20. “The suit targeted the regulatory aspect of the tax, but the Court still held that the
Anti-Injunction Act applied and barred the suit.” Florida Bankers, 799 F.3d at 1070. Fifty-two years later,
the Court similarly held that the Anti-Injunction Act
barred suits challenging the IRS’s revocation of the
plaintiff ’s tax-exempt status, despite the plaintiff ’s contention that its suit sought only to challenge certain
requirements for maintaining tax-exempt status, not to
prevent tax collection. See Bob Jones, 416 U.S. at 732,
22
738-739. The Bob Jones Court instead held it sufficient
that an injunction barring the IRS from withdrawing
that status “would necessarily preclude the collection
of ” certain taxes. Id. at 732. And in another decision
the same day, the Court specifically rejected the contention that the purported purpose of the plaintiff ’s
suit—challenging the underlying requirements to maintain tax-exempt status, rather than avoiding taxation—
took the suit outside the Anti-Injunction Act. Alexander v. “Americans United” Inc., 416 U.S. 752, 760-761
(1974). The Americans United Court dismissed as “circular” a lower court’s conclusion “that [the plaintiff ’s]
‘primary design’ was not ‘to remove the burden of taxation from those presently contributing but rather to
avoid the disposition of contributed funds away from the
corporation.’ ” Id. at 761 (citation omitted). The Court
observed that “[t]he latter goal is merely a restatement
of the former and can be accomplished only by restraining the assessment and collection of a tax in contravention of § 7421(a).” Ibid.
This Court’s precedents thus establish that “[a] challenge to a regulatory tax comes within the scope of the
Anti-Injunction Act, even if the plaintiff claims to be targeting the regulatory aspect of the regulatory tax.”
Florida Bankers, 799 F.3d at 1070. “That is because
invalidating the regulation would directly prevent collection of the tax, in violation of the Anti-Injunction Act.”
Id. at 1070-1071. Here, petitioner’s evident objective is
to obtain a judicial order ensuring that, if it fails to report
and maintain records concerning the micro-captive
transactions addressed by Notice 2016-66, it will not be
subject to statutory penalties that the Code deems to be
taxes. Petitioner cannot escape the Anti-Injunction
23
Act’s effect by styling its suit as one “challeng[ing] only
the regulatory aspect of a regulatory tax.” Id. at 1070.
Under the contrary approach that petitioner advocates, “[a] taxpayer could almost always characterize a
challenge to a regulatory tax as a challenge to the regulatory component of the tax.” Florida Bankers, 799 F.3d
at 1071. “That would reduce the Anti-Injunction Act to
dust in the context of challenges to regulatory taxes,”
transforming the statute into a mere “pleading exercise.”
Ibid. Neither the Anti-Injunction Act’s text nor this
Court’s precedents support that illogical result.
c. Petitioner’s other contentions likewise lack merit.
i. Petitioner asserts (Pet. 3-4, 12-16) that, under this
Court’s decision in Direct Marketing Ass’n v. Brohl,
575 U.S. 1 (2015), petitioner’s suit is not “an attempt to
restrain the assessment or collection of a tax.” Pet. 12
(emphasis omitted). The court below correctly rejected
that argument. Pet. App. 8a-17a; accord Florida Bankers, 799 F.3d at 1068-1070.
In Direct Marketing, this Court held that a different
federal statute, the Tax Injunction Act, 28 U.S.C. 1341,
did not bar a suit to enjoin a Colorado “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
Colorado Department of Revenue.” 575 U.S. at 4; see
id. at 7-14. The Tax Injunction Act provides that “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.” 28 U.S.C. 1341. This Court
first held that the lower court’s order enjoining Colorado’s notice and reporting requirements had not
“enjoin[ed]” the “assessment, levy or collection” of a
24
tax. 575 U.S. at 7-8 (citation omitted); see id. at 7-12.
The State did not argue that compliance with the notice
and reporting requirements “involve[d] a ‘levy’ ” as that
term is used in the tax context. Id. at 11. The Court
concluded that the words “assessment” and “collection”
likewise “d[id] not encompass Colorado’s enforcement
of its notice and reporting requirements,” because “the
notice and reporting requirements precede[d] the steps
of ‘assessment’ and ‘collection’ ” of taxes. Ibid.
The Direct Marketing Court also rejected an alternative argument, adopted by the Tenth Circuit in that
case, that enjoining enforcement of the state-law notice
and reporting requirements would “restrain” the State’s
subsequent efforts to assess and collect taxes. 575 U.S.
at 12; see id. at 12-14. The Tenth Circuit had interpreted “ ‘restrain’ ” to mean “ ‘limit, restrict, or hold back,’ ”
and had concluded that enjoining the notice and reporting
requirements “would ‘limit, restrict, or hold back’ the
[State’s] collection efforts” because those requirements
“[we]re intended to facilitate collection of taxes.” Id. at
12 (citation omitted). This Court acknowledged that
“ ‘[r]estrain,’ standing alone, can have several meanings,”
including both the “broad meaning” adopted by the
Tenth Circuit, and “[a]nother, narrower meaning” of “ ‘to
prohibit from action; to put compulsion upon . . . to
enjoin,’ which captures only those orders that stop (or
perhaps compel) acts of ‘assessment, levy or collection.’ ”
Id. at 12-13 (brackets and citations omitted).
The Direct Marketing Court “resolve[d] th[at] ambiguity” by examining the particular statutory context of
the Tax Injunction Act, including the surrounding
terms (e.g., “ ‘enjoin’ and ‘suspend’ ”) and the historical
“ ‘equity practice’ ” in which the Act “ ‘has its roots.’ ”
25
575 U.S. at 13 (citations omitted). Based on that context, the Court held that “ ‘restrain’ ” in the Tax Injunction Act refers only to “relief ” that “to some degree
stops ‘assessment, levy or collection,’ ” not relief that
“merely inhibits” one of those activities. Id. at 14
(emphases added; citation omitted). The Court concluded that the suit’s potential to “inhibit[ ]” subsequent
collection efforts was not sufficient to trigger the Tax
Injunction Act’s bar. Ibid.
Direct Marketing does not cast doubt on the straightforward application of the Anti-Injunction Act to suits
like petitioner’s. Pet. App. 7a-21a; see Florida Bankers,
799 F.3d at 1068-1070. The court of appeals found it
“unclear” whether the Direct Marketing Court’s understanding of the term “restrain” in the Tax Injunction
Act carries over to the Anti-Injunction Act, and at least
one court of appeals has concluded that it does not. Pet.
App. 17a n.6 (citing Green Solution Retail, Inc. v.
United States, 855 F.3d 1111, 1118 (10th Cir. 2017), cert.
denied, 138 S. Ct. 1281 (2018)). The Court need not
resolve that question here, however, because Direct
Marketing is distinguishable in another respect as well.
A retailer that failed to comply with Colorado’s notice
or reporting requirements was subject to a financial
penalty—$5 for each transaction for which the retailer
failed to provide the required notice to a customer, and
$10 for each required report the retailer failed to submit
to the State. See Direct Marketing, 575 U.S. at 5-6.
Enjoining the notice and reporting requirements would
preclude imposition of that penalty. But that penalty
“was not itself a tax, or at least it was never argued or
suggested that the penalty in that case was itself a tax.”
Florida Bankers, 799 F.3d at 1069. The Court in Direct
Marketing therefore had no occasion to address the
26
question whether the Tax Injunction Act bars a suit to
enjoin enforcement of a penalty that constitutes a tax.
Here, as in Florida Bankers, the penalty imposed for
noncompliance with the reporting and recordkeeping
requirements is a tax for purposes of the Anti-Injunction
Act. See pp. 15-18, supra; Pet. App. 14a; see also Florida
Bankers, 799 F.3d at 1069. Whether or not the relief that
petitioner seeks would “restrain” assessment or collection of taxes on the underlying micro-captive transactions covered by Notice 2016-66, enjoining enforcement
of the reporting and recordkeeping requirements necessarily precludes assessment and collection of the penalty,
which is deemed to be a tax, that the Code imposes for
noncompliance.
ii. Petitioner contends (Pet. 2-3, 25-30) that construing the Anti-Injunction Act to bar its suit is inconsistent
with the APA and with broader administrative-law principles that favor pre-enforcement judicial review of
agency action. Those contentions also lack merit.
Petitioner suggests (Pet. 2-3, 25-28) that the decision
below improperly “insulate[s]” IRS action from APA
review. Pet. 25 (emphasis omitted). That is incorrect.
Although the APA generally provides for judicial review
of “final agency action,” 5 U.S.C. 704, that authorization
does not apply “to the extent that * * * statutes preclude judicial review,” 5 U.S.C. 701(a)(1). And the APA
provision that waives federal sovereign immunity,
5 U.S.C. 702, does not “affect[ ] other limitations on judicial review or the power or duty of the court to dismiss
any action or deny relief on any other appropriate legal
or equitable ground,” 5 U.S.C. 702(1). Those exceptions
to APA review readily encompass the Anti-Injunction
Act (and the federal-tax exception to the Declaratory
Judgment Act). See Cypress v. United States, 646 Fed.
27
Appx. 748, 754-755 (11th Cir. 2016) (per curiam); We the
People Found ., Inc. v. United States, 485 F.3d 140,
142-143 (D.C. Cir. 2007) (Kavanaugh, J.), cert. denied
sub nom. Schultz v. United States, 552 U.S. 1102 (2008);
Fostvedt v. United States, 978 F.2d 1201, 1203-1204
(10th Cir. 1992), cert. denied, 507 U.S. 988 (1993);
Hughes v. United States, 953 F.2d 531, 537 (9th Cir.
1992); Smith v. Booth, 823 F.2d 94, 97-98 (5th Cir. 1987)
(per curiam). Indeed, the legislative history indicates
that Congress had the Anti-Injunction Act specifically
in mind when it enacted Section 702(1). See, e.g., H.R.
Rep. No. 1656, 94th Cong., 2d Sess. 12-13 & n.35 (1976).
Relying on Abbott Laboratories v. Gardner, 387 U.S.
136 (1967), petitioner contends (Pet. 2, 28-29) that the
decision below conflicts with a broader principle that
“law-abiding citizens can challenge illegal regulations in
court, without having to violate the regulation first.”
That is incorrect. In the first passage of Abbott Laboratories that petitioner cites (Pet. 2, 28), the Court
observed that the APA “embodies the basic presumption of judicial review” and held that Congress had not,
in a particular later statute, “intended to forbid preenforcement review” of certain regulations adopted by
the Commissioner of Food and Drugs. 387 U.S. at
139-140; see id. at 139-148. The other portion of the
Abbott Laboratories decision that petitioner cites (Pet.
2) concerned whether a suit seeking review of the foodand-drug regulations at issue, even though not statutorily precluded, was ripe for judicial resolution. See
Abbott Labs., 387 U.S. at 152-153; see also Lujan v.
National Wildlife Fed’n, 497 U.S. 871, 891-892 (1990).
Nothing in Abbott Laboratories mandates that agency
action must be subject to pre-enforcement judicial
review where, as here, Congress has unambiguously
28
precluded such review and has channeled litigation over
the agency’s action to post-enforcement proceedings.
To the contrary, the Court in Abbott Laboratories
expressly qualified the rule it announced by observing
that “access to the courts under the Administrative Procedure Act and the Declaratory Judgment Act” is available in appropriate circumstances “absent a statutory
bar or some other unusual circumstance.” 387 U.S. at
153.
Finally, petitioner speculates that the decision below
risks “depriv[ing] aggrieved taxpayers of ‘any opportunity to obtain review,’ ” Pet. 28 (quoting South Carolina v. Regan, 465 U.S. 367, 380-381 (1984)). Petitioner
suggests in passing (Pet. 28 n.6) that the Anti-Injunction
Act would be unconstitutional if it were construed to
have that effect. Petitioner’s argument lacks merit.
In South Carolina, the Court held that the AntiInjunction Act did not bar a suit “where * * * Congress
ha[d] not provided the plaintiff with an alternative legal
way to challenge the validity of a tax.” 465 U.S. at 373.
The Court emphasized that the plaintiff State had no
avenue of seeking review, id. at 378-380, contrasting the
State’s situation with that of typical tax plaintiffs who
have “the alternative remedy of a suit for a refund,” id.
at 374; see id. at 374-376. Here, as the court of appeals
explained, Pet. App. 23a, the Code affords taxpayers
and material advisors precisely that alternative remedy: they may “decline to submit a required report, pay
the penalty, and then sue for a refund.” Florida Bankers, 799 F.3d at 1067; see 26 U.S.C. 6532, 7422.
Petitioner identifies no Code or regulatory provision
that would preclude a taxpayer or material advisor who is
assessed a tax for failing to comply with the reporting and
recordkeeping requirements from challenging Notice
29
2016-66 in a refund suit. Petitioner “d[id] not contest”
below “that it has this alternative remedy.” Pet. App.
23a. Petitioner instead suggests (Pet. 27-28) that, if it
fails to comply, the IRS might not impose the statutorily required penalty. Petitioner does not identify any
injury it would suffer in that scenario. And because the
same possibility of government non-enforcement exists
with respect to every tax to which the Anti-Injunction Act
applies, that possibility provides no sound basis for an
exception to the Act’s ban on pre-enforcement review.
2. Petitioner contends that the decision below conflicts with decisions of the Seventh and Tenth Circuits.
Pet. 23-25 (citing Korte v. Sebelius, 735 F.3d 654
(7th Cir. 2013), cert. denied, 573 U.S. 958 (2014), and
Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114
(10th Cir. 2013) (en banc), aff ’d, 573 U.S. 682 (2014)).
That is incorrect.
Neither Korte nor Hobby Lobby involved a challenge
to enforcement of Notice 2016-66 or to another analogous
tax-reporting requirement. Instead, each case involved
a challenge to a requirement adopted by the Department
of Health and Human Services (HHS), under authority
delegated to that agency by the Affordable Care Act,
42 U.S.C. 300gg-13(a), mandating that covered healthinsurance plans provide coverage for certain contraceptives. Korte, 735 F.3d at 659-665; Hobby Lobby, 723 F.3d
at 1122-1123; see 77 Fed. Reg. 8725 (Feb. 15, 2012).
Although a covered plan that did not comply with that
requirement was subject to a penalty that was labeled a
“tax,” 26 U.S.C. 4980D(a), the government construed the
Anti-Injunction Act not to bar those challenges to the
contraceptive-coverage mandate itself. Korte, 735 F.3d
at 666 & n.7; Hobby Lobby, 723 F.3d at 1126. The government explained that the mandate had “resulted from
30
express delegated authority outside the Treasury Department” to HHS; that it “[wa]s enforced independently
outside the Internal Revenue Code” by HHS, the Department of Labor, and the States; and that it was “subject to
immediate challenge by other regulated entities” who
were not subject to the tax. Gov’t Supp. Br. at 15, Hobby
Lobby, supra (No. 12-6294); see id. at 13-15 (citing, inter
alia, 29 U.S.C. 1132(a)(5) and 42 U.S.C. 300gg-13(a)(4),
300gg-22). The government viewed that “unique” statutory structure as evincing “congressional intent not to
bar pre-enforcement challenges to” the contraceptivecoverage mandate. Id. at 13, 15.
The Seventh and Tenth Circuits agreed with the government’s reading. See Korte, 735 F.3d at 669-671
(explaining that the contraceptive-coverage “mandate
[wa]s not structured as a predicate to the imposition of
a tax but is instead an independent regulatory mandate,” and that the mandate was not “properly classified
as a ‘tax’ within the meaning of the Anti-Injunction Act”
in light of the statutory context and purpose, including
the attributes the government had identified); Hobby
Lobby, 723 F.3d at 1127-1128 (similar). Neither of those
decisions conflicts with the holding of the court below.
The Code unambiguously classifies the penalty imposed
for noncompliance with the reportable-transaction
requirements as a tax, and the injunctive and declaratory relief petitioner seeks would necessarily preclude
collection of that tax. See pp. 15-23, supra. And unlike
the contraceptive-coverage mandate, the requirements
at issue here did not result from any exercise of authority conferred independent of the Code on an agency outside the Treasury; they are not enforced by agencies
other than the IRS; and they are not subject to preenforcement challenges by other persons.
31
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
NOEL J. FRANCISCO
Solicitor General
RICHARD E. ZUCKERMAN
Principal Deputy Assistant
Attorney General
ELLEN PAGE DELSOLE
BETHANY B. HAUSER
Attorneys
MARCH 2020
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.