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,

Petitioner,

v.

INTERNAL REVENUE SERVICE, ET AL.,

Respondents.

____________________________________________________________________________________________________

On 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

July 22, 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...................................... 16

IV. The IRS’s pattern and practice of rule-of-law

violations must be subject to judicial review ... 21

Conclusion ................................................................... 25

ii

TABLE OF AUTHORITIES

Cases

Page(s)

Abbott Laboratories v. Gardner,

387 U.S. 136 (1967) ............................................... 11

Adams Fruit Co. v. Barrett,

494 U.S. 638 (1990) ............................................... 23

Allegheny Defense Project v. FERC,

No. 17-1098, 2020 U.S. App. LEXIS 20363

(D.C. Cir. June 30, 2020) ...................................... 23

Arbaugh v. Y & H Corp.,

546 U.S. 500 (2006) ......................................... 17, 18

Armstrong v. Manzo,

380 U.S. 545 (1965) ................................................. 2

Bowen v. Michigan Academy of Family Physicians,

476 U.S. 667 (1986) ............................................... 20

Bowles v. Russell,

551 U.S. 205 (2007) ............................................... 19

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

iii

Cohen v. United States,

650 F.3d 717 (D.C. Cir. 2011)......................... 14, 23

Commissioner v. Shapiro,

424 U.S. 614 (1976) ............................................... 21

Direct Marketing Ass’n v. Brohl,

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

Ex parte Young,

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

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

799 F.3d 1065 (D.C. Cir. 2015)............................. 20

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).............................. 9

Free Enterprise Fund v. Public Co. Accounting

Oversight Board, 561 U.S. 477 (2010) ................. 13

Gardner v. Toilet Goods Ass’n,

387 U.S. 167 (1967) ............................................... 13

Gonzalez v. Thaler,

565 U.S. 134 (2012) ............................................... 18

Guerrero-Lasprilla v. Barr,

140 S. Ct. 1062 (2020) ........................................... 20

Henderson v. Shinseki,

562 U.S. 428 (2011) ......................................... 17, 18

iv

Hobby Lobby Stores, Inc. v. Sebelius,

723 F.3d 1114 (10th Cir. 2013) ............ 5, 17, 18, 19

Immigration & Naturalization Service v. St. Cyr,

533 U.S. 289 (2001) ............................................... 21

Kucana v. Holder,

558 U.S. 233 (2011) ............................................... 20

Laing v. United States,

423 U.S. 161 (1976) ............................................... 21

Landgraf v. Usi Film Prods.,

511 U.S. 244 (1994) ................................................. 8

Liberty University, Inc. v. Geithner,

671 F.3d 391 (4th Cir. 2011) ................................ 21

Life & Casualty Insurance Co. v. McCray,

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

Lipke v. Lederer,

259 U.S. 557 (1922) ................................... 11, 15, 20

Matthews v. Eldridge,

424 U.S. 319 (1976) ............................................... 15

Mayo Foundation for Medical Education & Research

v. United States,

562 U.S. 44 (2011) ................................................. 22

Miller v. Standard Nut Margarine Co.,

284 U.S. 498 (1932) ............................................... 19

v

National Federation of Independent Business

v. Sebelius, 567 U.S. 519 (2012) ............................. 6

National Restaurant Ass’n. v. Simon,

411 F. Supp. 993 (D.D.C. 1976).................. 9, 10, 21

Nelson v. Colorado,

137 S. Ct. 1249 (2017) ........................................... 15

Oakbrook Land Holdings v. Commissioner,

No. 5444-13, 2020 U.S. Tax Ct. LEXIS 12

(T.C. May 12, 2020) ............................................... 22

Oklahoma Operating Co. v. Love,

252 U.S. 331 (1920) ......................................... 11, 13

Regal Drug Corp. v. Wardell,

260 U.S. 386 (1922) ......................................... 14, 15

Sackett v. Environmental Protection Agency,

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

Sebelius v. Auburn Regional Medical Center,

568 U.S. 145 (2013) ............................................... 18

Seven-Sky v. Holder,

661 F.3d 1 (D.C. Cir. 2011) ................................... 13

South Carolina v. Regan,

465 U.S. 367 (1984) ..................................... 3, 16, 21

Steffel v. Thompson,

415 U.S. 452 (1974) ............................................... 13

vi

Tennessee Valley Authority v. Whitman,

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

Thryv, Inc. v. Click-To-Call Techs., LP,

140 S. Ct. 1367 (2020) ........................................... 16

Thunder Basin Coal Co. v. Reich,

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

United States v. Nourse,

34 U.S. 8 (1835) ..................................................... 13

United States v. Rumely,

345 U.S. 41 (1953) ................................................. 16

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, 13

Statutes

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

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

26 U.S.C. § 7203 ...................................................... 7, 13

26 U.S.C. § 7421 ...................................................... 5, 18

vii

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 .................................. 22

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, 17, 19, 20

Gerald S. Kerska,

Criminal Consequences and the AntiInjunction Act,

104 Minn. L. Rev. Headnotes 51 (2020) .............. 16

Kristin E. Hickman & Gerald Kerska,

Restoring the Lost Anti-Injunction Act,

103 Va. L. Rev. 1683 (2017)................ 14, 22, 23, 24

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) .............. 22, 23

Kristin E. Hickman,

Of Lenity, Chevron, and KPMG,

26 Va. Tax Rev. 905 (2007)............................. 24, 25

1

BRIEF OF AMICUS CURIAE

IN SUPPORT OF PETITIONER

Under Supreme Court Rule 37.3, 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 (“AIA”) 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 dueprocess 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

penalties and imprisonment as a weapon to shield its

1 All parties have consented to the filing of this brief.

No counsel

for a party authored this brief in whole or in part and no person

other than amicus made any monetary contributions intended to

fund the preparation or submission of this brief.

2

actions from judicial review. Due process requires

that Petitioner, and other parties regulated by the

IRS, not face an unconstitutional Hobson’s choice:

comply with an administrative requirement they

believe is unlawful or violate the law, bet their liberty,

and risk imprisonment.

SUMMARY OF ARGUMENT

Effective and accountable agency rulemaking

requires both public input and robust judicial review

of agency authority, its process 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, especially when criminal consequences

are involved. But the IRS often escapes judicial

review of its rulemaking by invoking an overbroad

reading of the AIA. Here, a divided panel of the Sixth

Circuit sided with the agency, allowing it to escape

the judicial review of Notice 2016-66 that 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. This would give

regulated parties an unconstitutional choice: (1)

comply and forgo any opportunity for judicial review

3

or (2) violate 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 Constitution does not permit the

IRS to force Petitioner to violate the law and risk

those severe consequences to obtain 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 rules

creating recordkeeping and reporting requirements.

This Court should construe the AIA to respect due

process by allowing APA pre-enforcement review of

IRS rules when there is no alternative remedy.

4

The decision below not only conflicts with this

Court’s precedent in Direct Marketing and the

Constitution but it also undermines the rule of law

and the separation of powers vital to liberty. If left to

stand, the decision below will have profound, negative

impacts radiating far beyond this case by insulating

an array of Treasury and IRS rules from judicial

review, rewarding the IRS’s pattern of lawlessness.

This Court should reject the IRS’s proposal to

immunize its actions from accountability. Petitioners

are entitled to their day in court now.

ARGUMENT

I.

THE DECISION BELOW CONFLICTS WITH THIS

COURT’S DECISION IN DIRECT MARKETING

ASS’N V. BROHL.

As Petitioner explains, see Pet. Br. 16–31, a

straightforward application of this Court’s decision in

Direct Marketing forecloses the Sixth Circuit’s holding

that the AIA bars pre-enforcement review of

Petitioner’s challenge to Notice 2016-66’s reporting

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 usetax liability and to report tax-related information to

customers and the . . . Department of Revenue.” 575

U.S. at 4. The TIA is functionally indistinguishable

5

from, and modeled after, the AIA.2 This Court

“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). But here, the underlying regulatory

command is not the assessment or collection of a tax

but instead 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 teaches, 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 rule addressing who is subject to taxation under

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 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 Pet. App. 5a, 21a, 24a (referring

to the AIA as depriving courts of subject-matter jurisdiction).

2

6

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). Cf. Nat’l

Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 543-46

(2012) (AIA does not bar constitutional challenge to

IRC provision establishing penalty).

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 PRE ENFORCEMENT REVIEW OF NOTICE 2016-66.

If a court construed the AIA to bar preenforcement review of Notice 2016-66—forcing

Petitioner’s officers to risk prison to challenge its

legality—that construction would violate due process.

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

transactions” to be “transactions of interest,” making

them reportable transactions that material advisors

like Petitioner must report to the IRS or face civil and

criminal penalties. See Pet. App. 3a–4a. Under the

Sixth Circuit’s decision, Petitioner “only has two

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

options: (1) acquiesce to a potentially unlawful

reporting requirement that will 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.” Pet. App. 34a (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[.]” Pet. App. 34a (Nalbandian, J., dissenting).

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 Pet. App. 35a

(Nalbandian, J., dissenting) (citing 26 U.S.C. § 7203).

And because those criminal penalties are not limited

to transactions of interest, the Sixth Circuit’s

rationale would apply to a host of Treasury and IRS

rules. Thus, it would insulate a wide swath of actions

from judicial review by forcing regulated parties 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

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

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

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 Sixth Circuit, “having to break

the law by violating the Notice, and then suing for a

refund . . . is exactly what the AIA is designed to

require.” Pet. App. 23a (cleaned up). 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”

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

with money to pay the penalty and “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 barred from refund

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

taxpayer would risk up to $50,000 for each failed disclosure.

9

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

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

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 offends the Fifth

Amendment’s Due Process Clause.

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 Pet. App. 62a (Thapar, J., dissenting from

denial of rehearing en banc) (citing 26 U.S.C. § 7203).

6 “If that seems like it must be wrong, think again.” Pet. App. 35a

n.5 (Nalbandian, J., dissenting). Pointedly, the IRS does not

deny or foreclose the possibility that, under their interpretation

of the AIA, regulated parties like Petitioner risk criminal

liability as a condition precedent to having their day in court.

Instead, the IRS says, “[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). Interestingly, the IRS’s brief in opposition to

CIC’s cert petition conspicuously omits discussion of the criminal

penalties parties face if they violate the reporting requirements

in a bid to obtain judicial review.

10

“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

fortitude of anyone . . . [and is] precisely the bind that

pre-enforcement judicial review was meant to avoid.”

Pet. App. 35a (Nalbandian, J., dissenting); cf. Nat’l

Rest. Ass’n, 411 F. Supp. at 996 (holding AIA did not

bar challenge to IRS revenue ruling, oting, “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.” Pet. App. 37a

(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 . . . prohibited . . .

[judicial review] 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

11

requirement in this case (and many others)

unreviewable.” Pet. App. 62a (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 Sixth Circuit has deprived

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

12

necessarily having to face ruinous penalties if the suit

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.” Pet. App. 25a (Nalbandian, J., dissenting).

For as Chief Justice Marshall observed:

It would excite some surprise if, in a

government of laws and of principle,

furnished with a department whose

appropriate duty it is to decide questions

of right, not only between individuals,

but between the government and

individuals; a ministerial officer might,

at his discretion, issue this powerful

process . . . leaving to [the citizen] no

remedy, no appeal to the laws of his

country, if he should believe the claim to

be unjust. But this anomaly does not

exist; this imputation cannot be cast on

the legislature of the United States.

United States v. Nourse, 34 U.S. 8, 28–29 (1835).

“Yet the IRS seems to think people should bet their

liberty” for a chance at judicial review of IRS reporting

requirements. Pet. App. 62a (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.” Pet. App. 58a (Thapar, J., dissenting from

denial of rehearing en banc). “Obviously a judicial

review beset by such deterrents does not satisfy the

13

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

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); 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). As this Court has long made

clear, one need not “first expose himself to actual

arrest or prosecution to be entitled to challenge” the

validity of a government mandate.

Steffel v.

Thompson, 415 U.S. 452, 459 (1974); see Gardner v.

Toilet Goods Ass’n, 387 U.S. 167, 172 (1967) (forcing

regulated entities to “refuse to comply . . . and test the

The IRS has not foreclosed the possibility of criminally

prosecuting violations of Notice 2016-66’s reporting

requirements. See Pet. App. 35a n.5 (Nalbandian, J., dissenting)

(citing Gov’t’s Br. at 58).

7

14

regulations by defending against government

criminal, seizure, or injunctive suits against them” is

not “a satisfactory alternative to” pre-enforcement

judicial review). 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.

Pet. App. 55a (Sutton, J., concurring in the denial of

rehearing). The IRS’s interpretation of the AIA

essentially forecloses judicial review of Notice 2016-66

and is more than a bridge too far. That interpretation

is untethered from the AIA’s text, structure, and

history. 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

15

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

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.

16

III.

THIS COURT SHOULD CONSTRUE THE AIA TO

RESPECT

DUE

PROCESS

CONSTITUTIONAL INFIRMITY.

AND

AVOID

The Sixth Circuit erroneously held regulated

parties must risk prison to challenge reporting

requirements.

In so doing, the Sixth Circuit

effectively insulated the IRS’s actions from judicial

review. Cf. Gerald S. Kerska, Criminal Consequences

and the Anti-Injunction Act, 104 Minn. L. Rev.

Headnotes 51, 65 (2020) (“[D]oes a person have an

alternative avenue [to judicial review] if he must risk

criminal prosecution to secure judicial review of a

Treasury regulation? The answer must be no[.]”). If

left to stand, the decision below “carries us another

step down the road of . . . leaving the disposition of

private rights and liberties to bureaucratic mercy.”

Thryv, Inc. v. Click-To-Call Techs., LP, 140 S. Ct.

1367, 1378 (2020) (Gorsuch, J., dissenting). It would

also violate due process.

But as Judge Thapar explained, “the law does not

condone—let alone require—that result[.]” Pet. App.

58a (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). “[W]hat Congress

has written . . . must be construed with an eye to

possible constitutional limitations so as to avoid

doubts as to its validity.” United States v. Rumely, 345

U.S. 41, 45 (1953) (cleaned up). So too here. The

doctrine of constitutional avoidance warrants

construing the AIA consistent with due process. E.g.,

Kerska, 104 Minn. L. Rev. Headnotes at 70 ([T]he no

alternative avenue exception should apply if a

17

challenger must otherwise risk criminal prosecution

to secure judicial review.”).

This is particularly true because the AIA does not

limit the power of Article III courts to reach the merits

of cases, as it does not limit courts’ subject-matter

jurisdiction. Instead, the AIA is a claims-processing

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,

90 Notre Dame L. Rev. at 90–110, 125–32.

“Jurisdiction . . . is a word of many, too many,

meanings.” Arbaugh v. Y & H Corp., 546 U.S. 500,

510 (2006) (cleaned up). And courts “ha[ve] sometimes

been profligate in [their] use of the term,” Id., as the

Sixth Circuit was here.8 “[J]urisdictional statutes

speak to the power of the court rather than to the

rights or obligations of the parties[.]” Landgraf v. Usi

Film Prods., 511 U.S. 244, 274 (1994) (cleaned up).

“[A] rule should not be referred to as jurisdictional

unless it governs a court’s adjudicatory capacity, that

is, its subject-matter or personal jurisdiction.”

Henderson v. Shinseki, 562 U.S. 428, 435 (2011)

(cleaned up). Conversely, among the rules “that

should not be described as jurisdictional are . . . claimprocessing rules. These are rules that seek to promote

the orderly progress of litigation by requiring that the

The Sixth Circuit erroneously characterized the AIA as a

“jurisdictional” statute limiting the subject-matter jurisdiction of

Article III courts. See Pet. App. 21a (“Plaintiff's complaint is

within the purview of the AIA and the district court does not have

subject matter jurisdiction over it[.]”) (emphasis added).

8

18

parties take certain procedural steps at certain

specified times.” Id. Because the AIA does not govern

courts’ adjudicatory capacity, it is not jurisdictional.

Given the drastic consequences that flow from

treating a statutory requirement as jurisdictional,

this Court has made clear that courts should not do so

lightly. See Gonzalez v. Thaler, 565 U.S. 134 (2012).

Thus, “[a] rule is jurisdictional ‘[i]f the Legislature

clearly states that a threshold limitation on a statute’s

scope shall count as jurisdictional.’” Id. at 141–42

(quoting Arbaugh, 546 U.S. at 515). “But if ‘Congress

does not rank a statutory limitation on coverage as

jurisdictional, courts should treat the restriction as

nonjurisdictional.’” Id. at 142 (quoting Arbaugh, 546

U.S. at 516)). This Court has “adopted a readily

administrable bright line for determining whether to

classify a statutory limitation as jurisdictional. . . .

[A]bsent . . . a clear statement” by Congress that a

statute bars the courthouse doors, “courts should treat

the restriction as nonjurisdictional in character.”

Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 153

(2013) (cleaned up).

Congress did not do so here. To begin with, the

AIA does not use the word “jurisdiction” or otherwise

speak in jurisdictional language. See 26 U.S.C.

§ 7421(a); Hobby Lobby, 723 F.3d at 1158 (Gorsuch, J.,

concurring). In fact, “the AIA does not even appear in

the same title of the Code as most statutes bearing on

federal courts’ jurisdiction. Instead, Congress chose

to place the AIA in Title 26, in a chapter of the tax

code discussing claims processing rules in proceedings

brought by ‘Taxpayers and Third Parties.’” Hobby

Lobby, 723 F.3d at 1158 (Gorsuch, J., concurring)

(citation omitted). “[I]n both of these respects . . . the

19

AIA contrasts sharply with its cousin, the . . . [TIA], .

. . [which] speaks directly to courts rather than to the

parties” and “is located within the same chapter of the

same title of the U.S. Code as the other principal

statutes governing federal jurisdiction.” Id. The

AIA’s text and structure, particularly as juxtaposed

against that of the TIA, squarely forecloses attaching

to it a “jurisdictional” label.

Historical context further confirms that the AIA

has nothing to do with Article III courts’ subjectmatter jurisdiction and power to adjudicate cases on

the merits. “[T]he Supreme Court has repeatedly

recognized equitable exceptions to the AIA’s

application.” Id.; see also Miller v. Standard Nut

Margarine Co., 284 U.S. 498, 510–11 (1932)

(upholding pre-enforcement injunction, explaining

that “enforcement of the Act against respondent

would be arbitrary and oppressive, would destroy its

business, ruin it financially and inflict loss for which

it would have no remedy at law. It is clear that, by

reason of the special and extraordinary facts and

circumstances, [the AIA] . . . does not apply.”). So, too,

have numerous early lower court decisions. See

Hawley, 90 Notre Dame L. Rev. at 114 nn. 246–47

(collecting cases). If the AIA was a jurisdictional

statute limiting the power of Article III courts to

adjudicate concrete case and controversies, then

courts could not have recognized equitable exceptions

to its scope.9 See Hobby Lobby, 723 F.3d at 1158–59

(Gorsuch, J., concurring). It is not. “In sum, neither

That is because “courts have ‘no authority to create equitable

exceptions to jurisdictional requirements.’” Hobby Lobby, 723

F.3d at 1158 (Gorsuch, J., concurring) (quoting Bowles v. Russell,

551 U.S. 205 (2007)).

9

20

the text nor the structure nor the history of the AIA

indicates that the statute is jurisdictional. As for the

oft-relied upon ‘long line’ of precedent, that precedent

points in the opposite direction—allowing waiver and

equitable exceptions—demonstrating that the AIA

cannot possibly be jurisdictional.” Hawley, 90 Notre

Dame L. Rev. at 110.

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”); Kucana v. Holder,

558 U.S. 233, 251–52 (2010).10

Plainly, the AIA does not foreclose a construction

consistent with the constitutional requirements. “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 (D.C. Cir. 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 pre-enforcement

10 As the Court recently affirmed when a “provision is reasonably

susceptible to divergent interpretation, [the Court] adopt[s] the

reading that accords with traditional understandings and basic

principles: that executive determinations generally are subject to

judicial review.” Guerrero-Lasprilla v. Barr, 140 S. Ct. 1062,

1069 (2020) (cleaned up).

21

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 bar preenforcement lawsuit, given “obvious constitutional

problems” of requiring plaintiffs to break the law to

obtain 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); Laing v.

United States, 423 U.S. 161, 183–85 (1976).

The Court should do the same here. The Sixth

Circuit’s application of the AIA “raise[s] serious

constitutional problems,” and the Court is “obligated

to construe the statute to avoid such problems.” INS

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

IV.

THE IRS’S PATTERN AND PRACTICE OF RULEOF-LAW VIOLATIONS MUST BE SUBJECT TO

JUDICIAL REVIEW.

Additional considerations militate in favor of

allowing pre-enforcement review. 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

22

requirements.’”11 Pet. App. 24a (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

(2011).12 Yet Treasury and the IRS have exhibited a

systematic reluctance to do so. As Judge Thapar put

it: “In recent years, the agency has begun to regulate

an ever-expanding sphere of everyday life—from

childcare and charity to healthcare and the

environment. That might be okay if the IRS followed

basic rules of administrative law. But it doesn’t.” Pet.

App. 62a (Thapar, J., dissenting from denial of

rehearing en banc). 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

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, well, 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.

12 But cf. Oakbrook Land Holdings v. Commissioner, No. 544413, 2020 U.S. Tax Ct. LEXIS 12, at *77 n.2 (T.C. May 12, 2020)

(Holmes, J., dissenting) (“Courts interpret . . . the AIA [to]

‘generally bar[] pre-enforcement challenges to certain tax

statutes and regulations.’ This does make tax law exceptional,

but even on this topic there has been one powerful dissental, and

academic analysis that suggest a change may be coming.”).

11

23

Requirements, 82 Notre Dame L. Rev. 1727 (2007).

She found Treasury, even when issuing notice and

soliciting comments, rarely complies with the APA’s

requirements. Id. at 1748–50. In almost ninety-three

percent of the cases 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. And

“[f]ederal agencies [like the IRS] do not administer

and have no relevant expertise in enforcing the

boundaries of the courts’ jurisdiction.” Allegheny Def.

Project v. FERC, No. 17-1098, 2020 U.S. App. LEXIS

20363, at *24 (D.C. Cir. June 30, 2020) (en banc). Nor

has Congress “empower[ed] the . . . [IRS] to regulate

the scope of the judicial power” of the federal courts.

Adams Fruit Co. v. Barrett, 494 U.S. 638, 650 (1990).

The IRS’s efforts to evade judicial review must end.

See Hickman & Kerska, 103 Va. L. Rev. at 1706

(“Congress subjected the Treasury Department and

IRS, like other executive agencies, to the

requirements of the APA. Without judicial review,

however, the good government principles embodied by

the APA are largely left to the IRS’s good intentions.”).

The Sixth Circuit’s overbroad and unconstitutional

interpretation of the AIA, if allowed to stand, will

have “alarming” consequences extending far beyond

this case. Pet. App. 36a (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

24

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

courts, but disserving taxpayers and the credibility of

the tax system as a whole.” Hickman & Kerska, 103

Va. L. Rev. at 1747. That result not only harms untold

taxpayers but also is an affront to the rule of law.

More broadly, unless this Court corrects the Sixth

Circuit’s plain error, “[g]oing forward . . . the IRS will

have the power to impose sweeping ‘guidance’ across

areas of public and private life, backed by civil and

criminal sanctions, and left unchecked by

administrative or judicial process.” Pet. App. 62a–63a

(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.

Pet. App. 63a (Thapar, J., dissenting from denial of

rehearing en banc) (citations omitted); see also Kristin

E. Hickman, Of Lenity, Chevron, and KPMG, 26 Va.

Tax Rev. 905, 911 (2007) (explaining that “the

[Internal Revenue] Code includes many delegations of

25

authority to the Treasury Department more or less to

make regulatory law out of whole cloth.”).

The Court should protect the due-process right to

meaningful judicial review and make clear the AIA

does not displace the APA’s presumption of preenforcement review when no other avenue of review is

available and the regulated party faces the risk of

criminal prosecution. The IRS is not above the law.

CONCLUSION

For these reasons, and those described by the

Petitioner, the judgment below should be reversed.

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

July 22, 2020