taxes

Issues

This case asks the Supreme Court to interpret the Anti-Injunction Act and to determine whether it bars pre-enforcement legal challenges to agency guidelines and regulations that incorporate a tax-penalty enforcement mechanism into the framework. CIC Services argues that the Supreme Court should construe the Administrative Procedure Act’s review provisions broadly enough and the Anti-Injunction Act’s prohibitory provisions narrowly enough to provide material tax advisors relief from the Internal Revenue Service’s new interpretative guidelines concerning reportable transactions. The Internal Revenue Service counters that the Anti-Injunction Act applies to CIC’s challenge so the lawsuit is barred and that none of the available exceptions to the Anti-Injunction Act’s provisions apply to CIC’s sought injunction. This case has important implications for corporations whose business involves reporting earnings to the Internal Revenue Service, as well as for federal agencies’ abilities to avoid lawsuits by tying in certain tax-penalty provisions.

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Issues

Elmer and Dorothy Cullers created the EC Term of Years Trust (“the Trust”) to reduce the impact of federal taxes on their estate. When the IRS claimed the Cullers had transferred property to the Trust to avoid paying taxes, the Trust opened a bank account to pay the back-taxes. The IRS levied on the account.  Afterwards , the Trust sought to recover the funds under 26 U.S.C. § 7426 (wrongful levy statute) and 28 U.S.C. § 1346 (tax refund statute). At  issue in this case  is whether 26 U.S.C. § 7426, with its shorter statute of limitations, is the exclusive remedy for wrongful levy actions by third parties, or whether third parties may alternatively seek relief under the more general tax refund provisions of 28 U.S.C. § 1346, which has a longer statute of limitations. The Court’s  decision in this case  will determine whether wrongful levy claimants will have this longer statutory period during which to bring suit against the U.S. The Court’s decision will also implicitly give weight to particular methods of statutory interpretation and ways of determining congressional intent.

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Both the State and the City of New York have enacted laws that require the imposition of taxes on all cigarettes sold or used within their boundaries. The City of New York sued a group of Internet cigarette retailers under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The City of New York claimed that the retailers had violated federal and state laws in selling cigarettes to New York residents without charging a tax on tobacco products, constituting a form of consumer fraud as well as tax evasion. The District Court for the Southern District of New York dismissed the City's claims, holding that the City did not plead that the Internet retailers were an enterprise as defined by RICO. The Court of Appeals for the Second Circuit vacated the judgment of the lower court and held that the State could hold the retailers liable for its loss of tax revenue. The Supreme Court's decision in this case will affect the ability of Internet sites to sell tobacco products at a discounted price, as well as refine the application of RICO in civil suits.

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