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U.S. Supreme Court
May 17, 2021
19 - 930
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
No. 19-930. Argued December 1, 2020 -- Decided May 17, 2021
Internal Revenue Service (IRS) Notice 2016-66 requires taxpayers and "material advisors" like petitioner CIC to report information about certain insurance agreements called micro-captive transactions. The consequences for noncompliance include both civil tax penalties and criminal prosecution. Prior to the Notice's first reporting deadline, CIC filed a complaint challenging the Notice as invalid under the Administrative Procedure Act and asking the District Court to grant injunctive relief setting the Notice aside. The District Court dismissed the action as barred by the Anti-Injunction Act, which generally requires those contesting a tax's validity to pay the tax prior to filing a legal challenge. A divided panel of the Sixth Circuit affirmed.
Held: A suit to enjoin Notice 2016-66 does not trigger the Anti-Injunction Act even though a violation of the Notice may result in a tax penalty. Pp. 5-16.
(a) The Anti-Injunction Act, 26 U. S. C. § 7421(a), 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." Absent the tax penalty, this case would be easy: the Anti-Injunction Act would pose no barrier. A suit to enjoin a requirement to report information is not an action to restrain the "assessment or collection" of a tax, even if the information will help the IRS collect future tax revenue. See Direct Marketing Assn. v. Brohl, 575 U. S. 1, 9-10. The addition of a tax penalty complicates matters, but it does not ultimately change the answer. Under the Anti-Injunction Act, a "suit['s] purpose" depends on the ac-tion's objective purpose, i.e., the relief the suit requests. Alexander v. "Americans United" Inc. [ 74-1 USTC P 9439], 416 U. S. 752, 761. And CIC's complaint seeks to set aside the Notice itself, not the tax penalty that may follow the Notice's breach. The Government insists that no real difference exists between a suit to invalidate the Notice and one to preclude the tax penalty. But three aspects of the regulatory scheme here refute the idea that this is a tax action in disguise. First, the Notice imposes affirmative reporting obligations, inflicting costs separate and apart from the statutory tax penalty. Second, it is hard to characterize CIC's suit as one to enjoin a tax when CIC stands nowhere near the cusp of tax liability; to owe any tax, CIC would have to first violate the Notice, the IRS would then have to find noncompliance, and the IRS would then have to exercise its discretion to levy a tax penalty. Third, the presence of criminal penalties forces CIC to bring an action in just this form, with the requested relief framed in just this manner. The Gov-ernment's proposed alternative procedure -- having a party like CIC disobey the Notice and pay the resulting tax penalty before bringing a suit for a refund -- would risk criminal punishment. All of these facts, taken together, show that CIC's suit targets the Notice, not the downstream tax penalty. Thus, the Anti-Injunction Act imposes no bar. Pp. 5-13.
(b) Allowing CIC's suit to proceed will not open the floodgates to pre-enforcement tax litigation. When taxpayers challenge ordinary taxes, assessed on earning income, or selling stock, or entering into a business transaction, the underlying activity is legal, and the sole target for an injunction is the command to pay a tax. In that scenario, the Anti-Injunction Act will always bar pre-enforcement review. And the analysis is the same for a challenge to a so-called regulatory tax -- that is, a tax designed mainly to influence private conduct, rather than to raise revenue. The Anti-Injunction Act draws no distinction between regulatory and revenue-raising tax laws, Bob Jones Univ. v. Simon [ 74-1 USTC P 9438], 416 U. S. 725, 743, and the Anti-Injunction Act kicks in even if a plain-tiff's true objection is to a regulatory tax's regulatory effect. By contrast, CIC's suit targets neither a regulatory tax nor a revenue-raising one; CIC's action challenges a reporting mandate separate from any tax. Because the IRS chose to address its concern about micro-captive agreements by imposing a reporting requirement rather than a tax, suits to enjoin that requirement fall outside the Anti-Injunction Act's domain. Pp. 13-15.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2021-1 U.S. Tax Cas. (CCH) P 50,150
CIC Services, LLC v. Internal Revenue Service et al
notice, tax penalty, the Anti-Injunction Act, tax collection, pre-enforcement, injunction, restrain, enjoin, reporting requirements, adviser, micro-captive, target, criminal penalty, requested relief, refund, noncompliance, tax liability, pay tax, downstream, contest, reporting obligation, revenue-raising, invalidate, non-tax