CIC Servs., LLC v. IRSCIC Servs., LLC v. IRS
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.
Syllabus
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,
(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, 416 U. S. 725, 743, and the Anti-Injunction Act kicks in even if a plaintiff‘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.
925 F. 3d 247, reversed and remanded.
Kagan, J., delivered the opinion for a unanimous Court. Sotomayor, J., and Kavanaugh, J., filed concurring opinions.
Justice Kagan delivered the opinion of the Court.
The Anti-Injunction Act,
I
Americans have never had much enthusiasm for paying taxes. The Nation‘s first income taxes—adopted to finance the Civil War—met with considerable (one might even say “taxing“) legal resistance. See Hickman & Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1723–1725 (2017). Some taxpayers, alleging the taxes illegal, sought to enjoin collection efforts. And some courts granted the requested relief. See, e.g., Roback v. Taylor, 20 F. Cas. 852, 854 (No. 11,877) (CC SD Ohio 1866); Bank for Savings v. Collector, 3 Wall. 495 (1866). Those rulings disrupted the flow of revenue to the Federal Government. As one late-19th century treatise writer described the problem,
Congress responded by enacting the Anti-Injunction Act. See Act of Mar. 2, 1867, §10, 14 Stat. 475. In its current form (differing little from the original), the Act provides: “[N]o suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.”
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.
As every taxpayer knows, the Internal Revenue Service (IRS) has broad power to require the submission of tax-related information that it believes helpful in assessing and collecting taxes. See
Using that authority, the IRS determined that so-called micro-captive transactions must be reported because of their potential for tax evasion. A micro-captive transaction is typically an insurance agreement between a parent company and a “captive” insurer under its control. The Code provides the parties to such an agreement with tax advantages. The insured party can deduct its premium payments as business expenses. See
Noncompliance with Notice 2016–66 subjects a taxpayer or material advisor to stiff penalties—at last bringing us to the tax involved in this case, as well as to non-tax criminal
This suit challenges the lawfulness of Notice 2016–66. The petitioner is CIC Services, a material advisor to taxpayers participating in micro-captive transactions. It brought this action before the Notice‘s first reporting date, rather than after a reporting violation, let alone payment of penalty. (As far as we know, CIC has still not committed a violation, instead complying with the Notice while pressing this suit.) CIC‘s complaint mainly asserts that the IRS violated the Administrative Procedure Act (APA) by issuing the Notice without notice-and-comment procedures. The complaint also alleges that the Notice is arbitrary and capricious under the APA because it imposes new reporting requirements without proven need. So the complaint asks the court to “set[ ] aside IRS Notice 2016–66“—more specifically, to “enjoin the enforcement of Notice 2016–66 as an
But the suit has not yet proceeded to the merits. The Government moved to dismiss the action based on the Anti-Injunction Act, arguing that CIC‘s “requested relief would prevent the IRS from assessing a tax penalty against material advisors” that disregard the Notice‘s reporting requirements. Motion to Dismiss in No. 17–cv–110 (ED Tenn., May 30, 2017), Doc. 25–1, p. 9. In the Government‘s view, the way for CIC to bring its claims is to disobey the Notice and then sue for a refund of any resulting tax penalty. The District Court agreed. It reasoned that CIC‘s suit sought “to restrain the IRS‘s assessment or collection” of the tax penalty that could be imposed for noncompliance. 2017 WL 5015510, *4 (ED Tenn., Nov. 2, 2017). The Court of Appeals for the Sixth Circuit affirmed in a divided decision. According to the majority, CIC‘s suit would “restrain (indeed eliminate)” the tax penalty by “invalidat[ing] the Notice, which is [that tax‘s] entire basis.” 925 F. 3d 247, 255 (2019). Judge Nalbandian dissented. “[T]his is not,” he wrote, “a dispute over taxes“: “[A] suit to enjoin the enforcement of a reporting requirement is not” one to restrain a tax‘s collection. Id., at 259–260. Under the majority‘s view, the dissent also objected, CIC could challenge the reporting scheme only by “violat[ing] the law” and risking “criminal prosecution.” Id., at 263. The Sixth Circuit denied a petition for rehearing en banc, over a dissent from seven judges.
We granted certiorari, 590 U. S. ___ (2020), and now reverse.
II
A
The issue here, most concretely stated, is whether the Anti-Injunction Act bars CIC‘s suit complaining that Notice 2016–66‘s reporting requirements violate the APA. Once
If that downstream tax penalty did not exist, this case would be a cinch: The Anti-Injunction Act would not apply and the suit could proceed. A reporting requirement is not a tax; and a suit brought to set aside such a rule is not one to enjoin a tax‘s assessment or collection. That is so even if the reporting rule will help the IRS bring in future tax revenue—here, by identifying sham insurance transactions. See supra, at 3. We said as much in Direct Marketing Assn. v. Brohl, 575 U. S. 1 (2015).1 In that case, out-of-state retailers wanted to invalidate a Colorado law requiring them to report to the State‘s Department of Revenue any sale to a state resident on which they had not collected tax. We allowed the suit to proceed, explaining that a suit about reporting requirements is not about the “assessment” or “collection” of taxes. Id., at 9–10. “Information gathering,” we stated, is “a phase of tax administration procedure that occurs before assessment [or] collection.” Id., at 8. And it did not matter that the reporting requirements would “facilitate collection of taxes“—there, by identifying residents who owed sales taxes. Id., at 12. The statute‘s limit on injunctions, we said, is “not keyed to all activities that may improve a State‘s ability to assess and collect taxes.” Id., at
The complication here is that Notice 2016–66‘s reporting obligations (unlike those in Direct Marketing) are backed up by a statutory tax penalty. As earlier described, the Code provides that a taxpayer who violates a demand for information about a reportable transaction—including those specified in the Notice—is subject to civil monetary penalties. See supra, at 3–4. And the Code “deem[s]” those civil penalties to be “tax[es]” as the Anti-Injunction Act uses that term.
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. The parties agree on that interpretation, as both consistent with the Act‘s ordinary meaning and necessary for the Act‘s administration. See Brief for Respondents 40; Reply Brief 4; Tr. of Oral Arg. 15, 34. The purpose of a measure is “the end or aim to which [it] is directed.” N. Webster, An American Dictionary of the English Language (rev. ed. 1844); see Webster‘s Third New International Dictionary 1847 (1976). And in this context, that aim is not best assessed by probing an individual taxpayer‘s innermost reasons for suing. Down that path lies too much potential for circumventing the Act. Instead, this Court has looked to the face of the taxpayer‘s complaint. See, e.g., Bob Jones Univ. v. Simon,
It is in characterizing the purpose of CIC‘s suit that the parties’ disagreement emerges. Recall that CIC‘s complaint avers that Notice 2016–66 violates the APA. See supra, at 4–5. And the complaint describes the relief requested as “setting aside IRS Notice 2016–66,” “enjoin[ing] the enforcement of Notice 2016–66 as an unlawful IRS rule,” and “declaring that Notice 2016–66 is unlawful.” Complaint 2, 16. According to CIC, all of that reveals the suit‘s aim as invalidating the Notice and thereby eliminating its onerous reporting requirements—not as blocking the downstream tax penalty that may sanction the Notice‘s breach. See Reply Brief 6. By contrast, the Government contends that the suit‘s purpose is to stop the collection of the tax itself. See Brief for Respondents 12. In making that claim, the Government picks up on the word “enforcement” in CIC‘s request for relief: Because the Notice is enforced through tax penalties, the Government claims, “enjoin[ing] the [Notice‘s] enforcement,” as CIC wants, means preventing the IRS from collecting taxes. Id., at 23, 37–38. And even putting aside that word, the Government insists that there is no real difference between a suit to invalidate the Notice and one to preclude the tax penalty. See id., at 38; Tr. of Oral Arg. 54–56. Avoiding the burdens of compliance with
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.
And we reject the Government‘s argument that an injunction against the Notice is the same as one against the tax penalty—just “two sides of the same coin.” Brief for Respondents 37. If that view were right, of course, no amount of artful pleading would avail: CIC‘s suit targeting the Notice would then in fact target the tax, and the Anti-Injunction Act would apply. But the Government‘s take is wrong. Three aspects of the regulatory scheme here, taken in combination, refute the idea that this is a tax action in disguise. They show that in addressing Notice 2016–66, this suit (and any resulting injunction) addresses something other than the tax penalty helping to back it up.
First, the Notice imposes affirmative reporting obligations, inflicting costs separate and apart from the statutory tax penalty. As described earlier, the Notice levies no tax. Rather, it compels taxpayers and their material advisors to collect and submit detailed information about micro-captive transactions and their participants. See supra, at 3. And obeying that mandate is likely to involve significant time and expense. Here, for example, CIC estimates that it will have to spend “hundreds of hours of labor and in excess of $60,000 per year” to comply with the Notice. See Complaint ¶40. Costs of that kind may well exceed, or even dwarf, the tax penalties for a violation. So in bringing this suit, CIC challenges a regulatory mandate that (1) is not a tax and (2) entails compliance costs whose amount is not tied to, and often goes beyond, any tax. Simply stated, this suit attempts to get out from under the (non-tax) burdens of a (non-tax) reporting obligation. Of course, if the suit succeeds, CIC will never have to worry about the tax penalty; once the reporting duty disappears, the sanction becomes irrelevant. But that is the suit‘s after-effect, not its substance. The suit still targets the reporting mandates—the independently onerous reporting mandates—of the Notice itself.
Second and relatedly, the Notice‘s reporting rule and the statutory tax penalty are several steps removed from each other. Consider what has to happen before CIC owes taxes to the IRS. To start, CIC has to withhold required information about a micro-captive transaction that the Notice covers. (And note, for whatever it is worth, that CIC disclaims any intent to do so while the Notice remains the law. See Brief for Petitioner 29.) Next, the IRS must determine (often no small matter) that a violation of the Notice has in fact occurred. And finally, the IRS must make the—entirely discretionary—decision to impose a tax penalty. See
Third, violation of the Notice is punishable not only by a tax, but by separate criminal penalties. As noted above, any “[w]illful failure” to comply with the Notice‘s reporting rules can lead to as much as a year in prison.
For all these reasons, the purpose of CIC‘s suit is not to
B
The Government worries that a ruling for CIC will enfeeble the Anti-Injunction Act. If CIC can bring this suit now, the Government claims, a wave of pre-enforcement actions will follow. Canny plaintiffs will assert non-tax reasons (including objections to regulatory demands) for contesting the imposition of taxes. See Brief for Respondents 32, 38. And in that way, taxpayers will obtain just what the Anti-Injunction Act is meant to foreclose—orders “preemptively shield[ing]” their activities or transactions from “tax consequences.” Id., at 13. More and more, the Government warns, tax litigation will shift from refund actions to pre-enforcement suits. And the IRS‘s ability to assess and collect taxes will decline in proportion.
The Government, however, much overstates the possible consequences of today‘s ruling. As we have explained, this suit falls outside the Anti-Injunction Act because the injunction it requests does not run against a tax at all. See supra, at 9–13. The suit contests, and seeks relief from, a separate legal mandate; the tax appears on the scene—as criminal penalties do too—only to sanction that mandate‘s violation. Or as Judge Nalbandian put the point below:
That is just as true when the tax in question is a so-called regulatory tax—that is, a tax designed mainly to influence private conduct, rather than to raise revenue. This Court has long since “abandoned the view that bright-line distinctions exist between regulatory and revenue-raising taxes.” Bob Jones, 416 U. S., at 743, n. 17; see id., at 741, n. 12; Sonzinsky v. United States, 300 U. S. 506, 513 (1937) (“Every tax is in some measure regulatory“). And for just as long, we have rejected the view that regulatory tax cases have a special pass from the Anti-Injunction Act. A century ago, the Court in Bailey v. George, 259 U. S. 16 (1922), held that the Act barred a pre-enforcement suit challenging a tax intended to discourage the (then lawful) use of child labor. Some 50 years later, the Court in Bob Jones and Americans United similarly held that the Act barred pre-enforcement suits challenging IRS decisions to revoke the
What sets this suit apart is that it no more targets a regulatory tax than a revenue-raising one. One last time: CIC‘s action challenges, in both its substantive allegations and its request for an injunction, a regulatory mandate—a reporting requirement—separate from any tax. Or said otherwise, the suit targets not a regulatory tax, but instead a regulation that is not a tax. Here, the tax functions, alongside criminal penalties, only as a sanction for noncompliance with the reporting obligation. Had Congress, or the IRS acting through a delegation, imposed a tax on micro-captive transactions themselves—and had CIC then brought a pre-enforcement suit to prevent the IRS from applying that tax—the Anti-Injunction Act would have kicked in. Then, CIC would have had to pay the tax and seek a refund. But Congress and the IRS chose a different path. They imposed a non-tax, reporting obligation to address their concerns about micro-captive agreements. And by that choice, they took suits to enjoin their regulatory response outside the Anti-Injunction Act‘s domain.
III
CIC‘s suit aims to enjoin a standalone reporting requirement, whose violation may result in both tax penalties and criminal punishment. That is not a suit “for the purpose of restraining the [IRS‘s] assessment or collection” of a tax, and so does not trigger the Anti-Injunction Act. We reverse the judgment below and remand the case for further proceedings consistent with this opinion.
It is so ordered.
I concur because I agree that CIC Services, a material advisor to taxpayers engaged in micro-captive transactions, does not bring this suit “for the purpose of restraining the assessment or collection of any tax,”
I write separately to highlight that the answer might be different if CIC Services were a taxpayer instead of a tax advisor. Taxpayers who are subject to reporting requirements backed by tax penalties face a choice: (1) provide information about their own finances to the Internal Revenue Service (IRS), which may in turn use that information to calculate the taxpayers’ liability more accurately, or (2) refuse to provide such information and pay a noncompliance penalty, which Congress has deemed a tax. For a given taxpayer, then, a tax on noncompliance may operate as a rough
This case provides no occasion for the Court to inquire into the full quantity or variety of IRS reporting requirements that are backed by tax penalties, nor to predetermine whether the AIA would allow hypothetical taxpayers to challenge those requirements in court. Whether such suits may proceed will depend on a context-specific inquiry into “the relief the suit requests” and the “aspects of the regulatory scheme” at issue. Ante, at 7, 9. On that understanding, I concur.
I join the Court‘s opinion in full. I write separately to underscore what remains (and does not remain) of Alexander v. “Americans United” Inc., 416 U. S. 752 (1974), and Bob Jones Univ. v. Simon, 416 U. S. 725 (1974), in the wake of the Court‘s decision today.
In Americans United and Bob Jones, this Court adopted a straightforward and broad rule for determining whether a pre-enforcement suit is barred by the Anti-Injunction Act. Under that rule, if a pre-enforcement suit would “necessarily preclude” the assessment or collection of a tax, that suit is barred by the Act and the taxpayer needs to bring a refund suit after paying the tax. Bob Jones, 416 U. S., at 732; see also Americans United, 416 U. S., at 760–761. In other words, Americans United and Bob Jones instruct courts to look to the effects of a suit. And if a pre-enforcement suit would have the effect of preventing the assessment or collection of a tax, then that suit is barred by the Anti-Injunction Act.
Many courts have taken Americans United and Bob Jones at their word. And the Sixth Circuit did so here. In this case, CIC challenged a regulation that was backed by tax penalties—more specifically, penalties that the Tax Code labels as “taxes” for purposes of the Anti-Injunction Act.
The Court today holds, however, that CIC‘s pre-enforcement suit is not barred by the Anti-Injunction Act. In so holding, the Court in effect carves out a new exception to Americans United and Bob Jones for pre-enforcement suits challenging regulations backed by tax penalties. I agree with the Court‘s decision to narrow Americans United and Bob Jones because the broad “effects” rule articulated in those decisions is hard to square with the text of the Anti-Injunction Act, which bars only a pre-enforcement “suit for the purpose of restraining the assessment or collection of any tax.”
In short, as I understand the Court‘s opinion today, the rule going forward is that pre-enforcement suits challenging regulatory taxes or traditional revenue-raising taxes are still ordinarily barred by the Anti-Injunction Act. But pre-enforcement suits challenging regulations backed by tax penalties are ordinarily not barred, even though those suits, if successful, would necessarily preclude the collection or assessment of what the Tax Code refers to as a tax.
With those observations, I join the Court‘s opinion in full.