Supreme court decides CIC Anti Injunction Case for Taxpayer and against Treasury.
As you may recall, the Supreme Court took up a case involving the Anti-Injunction Act - one of the key defences that the Treasury has in our case. See prior posts listed below. Yesterday, the the Supreme Court issued it's ruling. As I predicted in articles I published (below) after the Court's oral arguments, the Court found a narrow ground to rule for the TAXPAYER!!! This is very good news for our cases. See below.
LAW360. Top 5 tax cases to watch. CIC is #1. We are 2 and 3. www.silvercolaw.com/post/5-federal-tax-cases-to-watch-in-the-2nd-half-of-2020
SEE SUPREME COURT RULING
SUMMARY OF RULING.
In an ordinary Anti-Injunction Act case, that short primer on the statute would naturally bring us to a description of the tax under dispute. But describing the tax implicated here will have to wait. For that tax—the thing that raises the Anti-Injunction Act question—comes into play only at the back end of a complex information-reporting scheme. The reporting scheme itself is where we must begin.
The question thus becomes whether that added tax penalty changes the analysis. Does its presence—as a sanction for flouting the Notice—mean that CIC’s suit is, as the Anti-Injunction Act provides, “for the purpose of restraining the assessment or collection of any tax”?
In considering a “suit[’s] purpose,” we inquire not into a taxpayer’s subjective motive, but into the action’s objective aim—essentially, the relief the suit requests. Instead, this Court has looked to the face of the taxpayer’s complaint. And most especially, we have looked to the “relief requested”—the thing sought to be enjoined.
To begin with, we agree with CIC’s reading of its complaint. The complaint contests the legality of Notice 2016– 66, not of the statutory tax penalty that serves as one way to enforce it. CIC alleges that the Notice is procedurally and substantively flawed; it brings no legal claim against the separate statutory tax. And CIC’s complaint asks for injunctive relief from the Notice’s reporting rules, not from any impending or eventual tax obligation. Contra the Government’s view, a request in an APA action to “enjoin the enforcement” of an IRS reporting rule is most naturally understood as a request to “set aside” that rule (as the complaint elsewhere says), not to block the application of a penalty that might be imposed for some yet-to-happen violation.
Three aspects of the regulatory scheme here, taken in combination, refute the idea that this is a tax action in disguise.
1. First, the Notice imposes affirmative reporting obligations, inflicting costs separate and apart from the statutory tax penalty. Costs of that kind may well exceed, or even dwarf, the tax penalties for a violation
2. Second and relatedly, the Notice’s reporting rule and the statutory tax penalty are several steps removed from each other. Even the Government concedes that when there is “too attenuated a chain of connection” between an upstream duty and a “downstream tax,” a court should not view a suit challenging the duty as aiming to “restrain the assessment or collection of a tax.”
3. Third, violation of the Notice is punishable not only by a tax, but by separate criminal penalties. And that is not the kind of thing an ordinary person risks, even to contest the most burdensome regulation