Maze v. Internal Revenue Service
2017 U.S. App. LEXIS 12598
| D.C. Cir. | 2017Background
- Eight taxpayers enrolled in the IRS’s 2012 Offshore Voluntary Disclosure Program (OVDP), which required payment of eight years’ accuracy-based penalties (26 U.S.C. § 6662(a)) as a condition of enrollment.
- In 2014 the IRS expanded its Streamlined Procedures, which impose no accuracy-based penalties for the covered three-year period and have lighter compliance requirements.
- The IRS created “Transition Rules” allowing existing 2012 OVDP participants to get some benefits of the Streamlined Procedures (e.g., offshore penalty reduced to 5%) but not relief from the eight years’ accuracy-based penalties; participants could not simply transfer programs.
- The plaintiffs sought to leave the 2012 OVDP and enroll in the Streamlined Procedures; the IRS denied their requests and said they must use the Transition Rules.
- Plaintiffs sued seeking (1) to invalidate the Transition Rules under the APA, (2) an injunction permitting transfer into the Streamlined Procedures, and (3) an injunction barring enforcement of the Transition Rules.
- The district court dismissed for lack of jurisdiction under the Anti-Injunction Act (AIA); the D.C. Circuit affirmed, concluding the AIA barred the suit and that plaintiffs have an adequate alternative remedy (pay then sue for refund).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the AIA bars Plaintiffs’ suit challenging the Transition Rules | "Restraining" in the AIA should be read narrowly to mean only actions that completely stop assessment or collection; this suit merely seeks eligibility to apply, not an order halting collection | "Restraining" includes suits that inhibit or prevent collection; allowing plaintiffs to transfer would prevent collection of accuracy-based penalties they now owe | AIA bars the suit: permitting transfer would stop collection of accuracy-based penalties treated as taxes, so suit is for purpose of restraining assessment/collection |
| Whether accuracy-based penalties are "taxes" for AIA purposes | Plaintiffs implied these penalties are not the kind of tax-provisions intended to trigger the AIA | IRS: accuracy-based penalties are treated as taxes under the Code and thus fall within the AIA | The court treats the accuracy-based penalties as taxes under the AIA, citing the Code’s provisions treating such penalties as taxes |
| Whether the plaintiffs’ request for eligibility (not immediate relief) avoids AIA | Eligibility alone has no immediate tax effect, so plaintiffs argue AIA should not apply | Court: practical effect matters; plaintiffs concede they will enroll if eligible, which would stop collection | Court rejects plaintiffs’ form-over-substance argument; practical impact places suit within AIA |
| Whether plaintiffs have an adequate alternative remedy so AIA applies | Plaintiffs argued they cannot adequately challenge the Transition Rules in a refund suit | IRS says plaintiffs can opt out, be examined, pay assessed liabilities, file an administrative refund claim, then sue for refund and challenge the rules | Court holds an adequate alternative exists (pay then sue for refund), so AIA precludes the pre-enforcement suit |
Key Cases Cited
- Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (AIA’s purpose: allow assessment/collection without preenforcement judicial intervention)
- Bob Jones Univ. v. Simon, 416 U.S. 725 (protecting government’s ability to collect revenue with minimal preenforcement judicial interference)
- Cohen v. United States, 650 F.3d 717 (D.C. Cir.) (need to examine remedy sought and practical effect under AIA)
- Florida Bankers Ass’n v. U.S. Dep’t of Treasury, 799 F.3d 1065 (D.C. Cir. 2015) (penalties treated as taxes under the AIA; refund suit alternative)
- Z Street v. Koskinen, 791 F.3d 24 (D.C. Cir. 2015) (AIA does not apply when no alternative remedy exists)