CIC SERVICES, LLC, Plaintiff-Appellant, v. INTERNAL REVENUE SERVICE; DEPARTMENT OF TREASURY; UNITED STATES OF AMERICA, Defendants-Appellees.
No. 18-5019
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
August 28, 2019
19a0219p.06
Before: SUHRHEINRICH, CLAY, and NALBANDIAN, Circuit Judges.
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b). Appeal from the United States District Court for the Eastern District of Tennessee at Knoxville. No. 3:17-cv-00110—Travis R. McDonough, District Judge. Argued: October 19, 2018.
COUNSEL
ON PETITION FOR REHEARING EN BANC AND REPLY: Adam R. Webber, ELLIOTT, FAULKNER & WEBBER, Beavercreek, Ohio, Cameron T. Norris, CONSOVOY MCCARTHY PLLC, Arlington, Virginia, for Appellant. ON RESPONSE: Teresa E. McLaughlin, Bethany B. Hauser, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. ON BRIEF: John J. Vecchione, CAUSE OF ACTION INSTITUTE, Washington, D.C., Kristin E. Hickman, UNIVERSITY OF MINNESOTA LAW SCHOOL, Minneapolis, Minnesota, for Amici Curiae.
The panel issued an order denying the petition for rehearing en banc. CLAY, J. (pp. 3–5), delivered a separate opinion concurring in the denial of rehearing en banc. SUTTON, J. (pp. 6–7), delivered a separate opinion concurring in the denial of rehearing en banc. THAPAR, J. (pp. 8–13), delivered a separate opinion dissenting from the denial of rehearing en banc, in which KETHLEDGE, BUSH, LARSEN, NALBANDIAN, READLER, and MURPHY, JJ., joined.
The court received a petition for rehearing en banc. The original panel reviewed the petition and concludes that the issues raised in the petition were fully considered upon the original submission and decision. The petition was then circulated to the full court. Less than a majority of the judges voted in favor of rehearing en banc.
Therefore, the petition is denied.
CONCURRENCE IN THE DENIAL OF REHEARING EN BANC
CLAY, Circuit Judge, concurring in the denial of rehearing en banc. In their latest attempt to inflict death by distorted originalism on the modern administrative state, some of my colleagues would have this Court directly contravene the Anti-Injunction Act (the “AIA“), which 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.”
Of course, that is precisely the result that my colleagues crave. They chide the IRS for its “regulat[ion] [of] an ever-expanding sphere of everyday life” and decry that it is exercising its powers “in ways the Founders never would have envisioned.” But such complaints were not persuasive when the original panel considered this case, were not persuasive when the full court considered the petition for rehearing en banc, and are not persuasive now. “[I]t
A suit seeking to preemptively challenge the regulatory aspect of a regulatory tax “necessarily” also seeks to preemptively challenge the tax aspect of a regulatory tax because invalidating the former would necessarily also invalidate the latter. Bob Jones Univ., 416 U.S. at 731; see also NFIB, 567 U.S. at 543 (“The present challenge to the mandate thus seeks to restrain the penalty‘s future collection.” (emphasis added)). Otherwise, a taxpayer could simply “characterize” a challenge to a regulatory tax as a challenge to only the regulatory aspect of the tax and thereby evade the AIA. Fla. Bankers, 799 F.3d at 1071. And “as the Supreme Court has explained time and again . . . the [AIA] is more than a pleading exercise.” Id.; see also RYO Machine, LLC v. U.S. Dep‘t of Treasury, 696 F.3d 467, 471 (6th Cir. 2012) (“Regardless of how the claim is labeled, the effect of an injunction here is to interfere with the assessment or collection of a tax. The plaintiff is not free to define the relief it seeks in terms permitted by the [AIA] while ignoring the ultimate deleterious effect such relief would have on the Government‘s taxing ability.” (quotation omitted)).
Against this wealth of precedent, my colleagues raise no new arguments sounding in either statutory text or caselaw. As the majority opinion in this case makes clear, Direct Mktg. Ass‘n v. Brohl, 135 S. Ct. 1124 (2015), Autocam Corp. v. Sebelius, 730 F.3d 618, 622 (6th Cir. 2013), vacated on other grounds by Autocam Corp. v. Burwell, 573 U.S. 956 (2014), Korte v. Sebelius, 735 F.3d 654, 669–70 (7th Cir. 2013), and Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1126–27 (10th Cir. 2013), are all largely inapposite. None of those cases involved a regulation enforced by a tax-penalty located in Subchapter 68B of the Internal Revenue Code. Where, as here, the regulation at issue is enforced by a tax-penalty located in Subchapter 68B of the Internal Revenue Code, that tax-penalty becomes the relevant tax for the AIA analysis, as opposed to any third-party taxes the collection of which the regulation is designed to facilitate. NFIB, 567 U.S. at 544; Fla. Bankers, 799 F.3d at 1068. And Plaintiff‘s suit plainly seeks to “restrain[] (indeed eliminat[e]) the assessment and collection of that tax.” Fla. Bankers, 799 F.3d at 1068; see also NFIB, 567 U.S. at 544. In contrast, Autocam, Korte, and Hobby Lobby all involved the Affordable Care Act‘s contraceptive mandate, which was a separate provision of the U.S. Code structured not as a predicate to the imposition of a tax, but as a mandate enforceable by a variety of different mechanisms.
Rather, in an instance of textbook judicial activism, my colleagues instead attempt to raise a plethora of policy concerns. Indeed, reading the dissent, one might be left with the mistaken impression that “policy concerns, rather than traditional tools of statutory construction, are shaping the judicial interpretation of statutes.” Zuni Pub. Sch. Dist. No. 89 v. Dep‘t of Educ., 550 U.S 81, 109 (2007) (Scalia, J., dissenting). Not so. As my colleagues well know, having admonished the IRS on the same grounds, “courts are[] [not] free to rewrite clear statutes under the banner of our own policy concerns.” Azar v. Allina Health Servs., 139 S. Ct. 1804, 1815 (2019). Regardless,
For instance, my colleagues evoke the prospect of righteous individuals forced to “bet the farm” or “risk prison time” in order to challenge regulatory taxes imposed by a purportedly illegitimate administrative state. Yet the Supreme Court has made clear that the AIA creates an exception to the general administrative law principle in favor of pre-enforcement judicial review, and that it applies even in the gravest of circumstances, such as the violation of individuals’ constitutional rights. See, e.g., United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 10 (2008) (“[T]he taxpayer must succumb [even] to an unconstitutional tax, and seek recourse only after it has been unlawfully exacted.“). If and when Congress has a change of heart, it remains free to amend the AIA as it sees fit.
My colleagues also opine about a supposed “elephant in the room“—the fact that “the IRS (an executive agency) exercises the power to tax and destroy, in ways the Founders never would have envisioned.” Yet the Founders’ expectations about how Congress would wield the power bestowed on it by the Constitution are entirely irrelevant to the case before this Court. This is a case about statutory interpretation, not about the constitutionality of the so-called administrative state, or even the constitutionality of the AIA. My colleagues thus misstep in letting their hostility toward the IRS, rather than traditional tools of statutory construction, guide their analysis. Apparently, it is no cause for doubt or self-reflection by my dissenting colleagues that no one else, including the parties litigating this case, can see the elephant.
At bottom, my colleagues raise no arguments that justify this Court‘s departure from settled Supreme Court precedent regarding the AIA. Accordingly, I respectfully concur in the denial of rehearing en banc.
CONCURRENCE IN THE DENIAL OF REHEARING EN BANC
SUTTON, Circuit Judge, concurring in the denial of rehearing en banc. Three cross-currents affect the resolution of this en banc petition.
One is that the dissenting opinion by Judge Nalbandian seems to be right as an original matter. I doubt that the words of the Anti-Injunction Act—that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person“—ban all prospective relief whenever the IRS enforces a regulation with a penalty that it chooses to call a “tax.”
A second reality is that this case does not come to us on a fresh slate. Whatever we might do with the issue as an original matter is not the key question. As second-tier judges in a three-tier court system, our task is to figure out what the Supreme Court‘s precedents mean in this setting. That is not easy because none of the Court‘s precedents is precisely on point and because language from these one-off decisions leans in different directions. A little caution thus is in order when it comes to judging the efforts of our colleagues on this court and on the D.C. Circuit to sort this out. See Fla. Bankers Ass‘n v. U.S. Dep‘t of the Treasury, 799 F.3d 1065, 1068–70 (D.C. Cir. 2015) (Kavanaugh, J.). Neither of the two court of appeals decisions—neither ours nor the D.C. Circuit‘s—purports to answer this question as an original matter. And reading between the lines of Supreme Court decisions is a tricky business—hard enough with a panel of three lower-court judges, utterly daunting with a slate of sixteen lower-court judges.
The last consideration is that we are not alone. The key complexity in this case—how to interpret Supreme Court decisions interpreting the statute—poses fewer difficulties for the Supreme Court than it does for us. In a dispute in which the Court‘s decisions plausibly point in opposite directions, it‘s worth asking what value we would add to the mix by en-bancing the case in order to create the very thing that generally prompts more review: a circuit split. As is, we have Judge Thapar‘s dissental and Judge Nalbandian‘s dissent at the panel stage on one side and Judge Clay‘s opinion for the court on the other. These three opinions together with then-Judge Kavanaugh‘s opinion say all there is to say about the issue from a lower court judge‘s perspective. All of this leaves the Supreme Court in a well-informed position to resolve the point by action or inaction—either by granting review and reversing or by leaving the circuit court decisions in place.
DISSENT FROM THE DENIAL OF REHEARING EN BANC
THAPAR, Circuit Judge, dissenting from the denial of rehearing en banc. In this country, people should not have to risk prison time in order to challenge the lawfulness of government action. In this circuit, they now do. Because the law does not condone—let alone require—that result, I respectfully dissent from the denial of rehearing en banc.
Although the details at first may seem technical, this is a straightforward case. In 2016, the IRS issued so-called guidance requiring taxpayers and their advisers to report certain information to the agency. Failure to do so can result in significant civil penalties.
The Supreme Court, this circuit, and other circuits have all told us that the answer to that question is no. Take the Supreme Court. Recently, it interpreted the Tax Injunction Act, which generally uses words “in the same way” as the Anti-Injunction Act. Direct Mktg. Ass‘n v. Brohl, 135 S. Ct. 1124, 1129 (2015). That case had two holdings. First, the Court held that the terms “assessment” and “collection“—used in both Acts—do not refer to reporting requirements. Rather, such “information gathering” is distinct from and occurs before these other stages of the taxation process. Id. at 1129–31. Second, the Court held that the term “restrain“—also used in both Acts—means to “prohibit” or “stop.” Id. at 1132 (internal quotation marks omitted). It did so because the term “‘restrain’ acts on a carefully selected list of technical terms” (e.g., “assessment” and “collection“), not “an all-encompassing term, like ‘taxation.‘” Id. To adopt a broader definition, the Court explained, would “defeat the precision of that list, as virtually any court action related to any phase of taxation” could “inhibit” tax collection. Id. And the narrower definition appropriately reflected the term‘s “meaning in equity.” Id. From these twin holdings, the Court easily concluded that a suit to enjoin a state law that required retailers to report certain information to the state revenue service could not “be understood to ‘restrain’ the ‘assessment’ . . . or collection‘” of a tax. Id. at 1133.
That conclusion nearly resolves this case. CIC filed its lawsuit to enjoin IRS “guidance” that required the company to report certain information to the agency. The company claimed that it would have to devote hundreds of hours of labor and tens of thousands of dollars to comply with that requirement. And for no good reason, the company said, because the IRS had issued its guidance in violation of the Administrative Procedure Act and the Congressional Review Act. See
This case, however, does pose one additional wrinkle. Congress has prescribed civil penalties for failing to comply with certain IRS regulations and has apparently decided that these penalties should count as “taxes” for purposes of the Anti-Injunction Act. See
Our circuit has reached the same conclusion in a nearly identical case. Specifically, we held that the Anti-Injunction Act did not apply to a lawsuit challenging the Affordable Care Act‘s contraceptive mandate, even though employers would have to pay a “tax” if they violated the mandate. See Autocam Corp. v. Sebelius, 730 F.3d 618, 621–22 (6th Cir. 2013), vacated on other grounds sub nom. Autocam Corp. v. Burwell, 573 U.S. 956 (2014). Our decision reasoned that the suit was “not intended to ‘restrain[]’ the IRS‘s efforts to ‘assess[] or collect[]’ taxes“; rather, it sought only to enjoin the underlying mandate. Id. at 622 (alterations in original). Although the Supreme Court later vacated that decision, it did so on other grounds. So the decision continues to be entitled to (at the very least) persuasive weight. And there was no good reason to disturb it here. Cf. United States v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir. 2006); Christianson v. Colt Indus. Operating Corp., 870 F.2d 1292, 1298 (7th Cir. 1989).
Our circuit was not alone in its conclusion. Two other circuits have reached the same result using the same reasoning. See Korte v. Sebelius, 735 F.3d 654, 669–70 (7th Cir. 2013); Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1126–27 (10th Cir. 2013) (en banc). And another applied the same reasoning to a similar case. See Seven-Sky v. Holder, 661 F.3d 1, 8–10 (D.C. Cir. 2011), abrogated on other grounds by NFIB, 567 U.S. 519.
Finally, these decisions just make sense. After all, the Supreme Court has long presumed that parties may challenge agency action before they suffer any harm. See, e.g., U.S. Army Corps of Eng‘rs v. Hawkes Co., 136 S. Ct. 1807, 1815–16 (2016); Abbott Labs. v. Gardner, 387 U.S. 136, 139–41, 152–53 (1967); United States v. Nourse, 34 U.S. 8, 28–29 (1835) (Marshall, C.J.). True, the Anti-Injunction Act creates a narrow exception to that rule. Yet the IRS‘s interpretation would not just broaden that exception but blast it wide open. 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. See Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1685, 1712–20 (2017). So with great power comes little accountability.
Even so, one 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. See
Going forward in this circuit, 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. Surely nobody in 1867 would have understood the Anti-Injunction Act to require such a result. See Pullan v. Kinsinger, 20 F. Cas. 44, 48 (C.C.S.D. Ohio 1870) (describing the Act as “wholly unnecessary, enacted only as a politic and kindly publication of an old and familiar [common law] rule“); Erin Morrow Hawley, The Equitable Anti-Injunction Act, 90
By this point, one might recognize the “elephant in the room.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1149 (10th Cir. 2016) (Gorsuch, J., concurring). The Founders gave Congress the “Power To lay and collect Taxes.”
The IRS offers some arguments in response. It first contends that several Supreme Court decisions support its interpretation. Specifically, the agency points to Alexander v. “Americans United” Inc., 416 U.S. 752 (1974) and Bob Jones Univ. v. Simon, 416 U.S. 725 (1974). In those cases, the Court held that the Anti-Injunction Act barred challenges to the IRS‘s decision to revoke the tax-exempt status of two nonprofits. The nonprofits each argued that their lawsuits sought only to maintain their flow of charitable donations, not to restrain a tax. But the Court recognized that the “primary” or “obvious purpose” of both lawsuits was to restrain the collection of taxes. “Americans United”, 416 U.S. at 760–61; Bob Jones, 416 U.S. at 738.1 Indeed, the plaintiffs in those cases were “defeated by [their] own pleadings, since the only injuries [they] identified involved tax liability.” Seven-Sky, 661 F.3d at 10 (citing “Americans United”, 416 U.S. at 761; Bob Jones, 416 U.S. at 738–39). Yet here CIC has a clear interest—separate from any potential “tax” liability—in avoiding the substantial costs of the reporting requirement. The “purpose” of its lawsuit is to obtain relief from costs the company must pay today, not to restrain a penalty it might have to pay tomorrow. The agency also cites NFIB, 567 U.S. 519. But that decision never reached the question whether the lawsuit had the “purpose of restraining” a tax because the penalty in that case was not a “tax.” See id. at 546.2
***
The IRS has long “envision[ed] 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). With today‘s decision, I fear we have made some large strides towards such a world. For these reasons, I respectfully dissent from the denial of rehearing en banc.
ENTERED BY ORDER OF THE COURT
Deborah S. Hunt, Clerk