CIC Services, LLC v. IRS

The Anti-Injunction Act bars any “suit for the purpose of restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a). However, a reporting requirement is not a tax, and a suit brought to set aside such a rule is not one to restrain the “assessment or collection” of a tax—even if the information will help the Internal Revenue Service (IRS) collect future tax revenue. See Direct Marketing Assn. v. Brohl, 575 U.S. 1, 9-10 (2015).

Petitioner challenged IRS Notice 2016-66 which requires taxpayers and “material advisors” like Petitioner to report information about micro-captive transactions. Noncompliance can result in both civil tax penalties and criminal prosecution. Petitioner challenged the Notice as invalid under the Administrative Procedure Act. The District Court dismissed the action as barred by the Anti-Injunction Act, which would require Petitioner to pay the tax prior to filing a legal challenge. The Sixth Circuit affirmed. In support of its conclusion that a suit to enjoin the Notice does not trigger the Anti-Injunction Act, the Court identified three aspects of the regulatory scheme to refute the government’s contention that petitioner’s suit is “a tax action in disguise.” The Court first explained that the Notice “imposes affirmative reporting obligations, inflicting costs separate and apart from the statutory tax penalty.” Second, the Court clarified that “the Notice’s reporting rule and the statutory tax penalty are several steps removed from each other.” Finally, the Court stated that the fact that violation of the Notice is punishable not only by a tax, but by separate criminal penalties “clinches the case for treating a suit brought to set aside the Notice as different from one brought to restrain its back-up tax.”  The Court concluded that petitioner’s suit does not trigger the Anti-Injunction Act. REVERSED AND REMANDED.