CIC Services, LLC v. Internal Revenue Service

LII note: the oral arguments in CIC Services, LLC v. Internal Revenue Service are now available from Oyez. The U.S. Supreme Court has now decided CIC Services, LLC v. Internal Revenue Service .


Does the Anti-Injunction Act bar pre-enforcement challenges under the Administrative Procedure Act to newly promulgated agency guidelines that include discretionary tax-penalty enforcement provisions, or is the act narrowly confined to direct tax assessments and collections?

Oral argument: 
December 1, 2020

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.

Questions as Framed for the Court by the Parties 

Whether the Anti-Injunction Act’s bar on lawsuits for the purpose of restraining the assessment or collection of taxes also bars challenges to unlawful regulatory mandates issued by administrative agencies that are not taxes.


The Internal Revenue Service has the authority to require taxpayers and some third parties to submit certain records about “reportable transactions.” CIC Services, LLC v. Internal Revenue Serv. at 249. The Internal Revenue Service also defines what constitutes a reportable transaction. Id. The penalty for not following these requirements can be a steep fine, including losing 75% of whatever they would have saved on those transactions, up to $200,000. Id.

On November 21, 2016, Respondent Internal Revenue Service (“IRS”) published a notice (“Notice”) indicating that some “micro-captive transactions” had to be reported to the IRS, or else taxpayers and “material advisors” could be penalized. Id. at 249–50. Petitioner CIC Services, LLC (“CIC”) is a material advisor, someone who “provides material aid to a taxpayer” by helping them report certain transactions and who receives a certain minimum payment for doing so. Id.

On March 27, 2017, CIC sued the IRS in the United States District Court for the Eastern District of Tennessee and claimed that this Notice violated the Administrative Procedure Act (“APA”) because it required a public comment period, was arbitrary and capricious, and required congressional review. Id. at 250. The IRS responded that the District Court did not have jurisdiction because of the Anti-Injunction Act (“AIA”), which prevents federal courts from hearing lawsuits “for the purpose of restraining the assessment or collection of any tax.” Id. The District Court dismissed the case on November 2, 2017, after which CIC appealed to the United States Court of Appeals for the Sixth Circuit. Id.

The Court of Appeals said that there was a two-step inquiry here: whether this provision of the AIA applies, and if so, whether there is an exception in the AIA that would allow the District Court to hear the case. Id. at 250–51. The Court of Appeals found that the AIA did apply in this case. Id. at 251. The Court of Appeals looked at how the United States Supreme Court had interpreted the meanings of “restrain,” “assessment,” “levy,” and “collection” used in a similar statute, the Tax Injunction Act (“TIA”). Id. at 252. The Court of Appeals also looked at how the D.C. Circuit interpreted “tax” and “for the purpose of” in the AIA in Florida Bankers Ass’n v. Dep’t of the Treasury, which it distinguished from Direct Marketing Ass’n v. Brohl, both of which addressed the scope of the TIA. Id. at 251–52. The Court of Appeals found that the analysis in both of those cases was relevant here and that the AIA applied because CIC’s purpose of the lawsuit was to “restrain[] the assessment or collection of any tax.” Id. at 254, 258. The Court of Appeals also decided that there was no exception that would allow the District Court to hear the case. Id. at 258. Finally, the Court of Appeals found that even though the IRS has violated the APA in the past, that does not mean that federal courts have jurisdiction in this case. Id. at 258–59.

The Court of Appeals affirmed the District Court decision dismissing the case on May 22, 2019. Id. The United States Supreme Court granted CIC’s petition for a writ of certiorari on May 4, 2020. Brief for Respondents, Internal Revenue Service at 1.



CIC argues that an APA lawsuit is the proper way to challenge the IRS’s Notice, as the language in the AIA does not bar CIC’s challenge. Brief for Petitioner, CIC Services at 18–19. CIC contends that Congress intended for broad pre-enforcement review of regulatory action under the APA. Id. at 32. CIC posits that Congress did not intend for ever-expanding regulatory agencies to be able to evade judicial review simply by adding a tax-penalty enforcement clause to any given regulation. Id. CIC asserts that it should not have to risk fines or criminal liability to obtain judicial relief, as that situation would contravene Congress’s original motive in enacting the AIA itself. Id. at 34. Additionally, CIC maintains that a refund suit—or any other alternative—would be unfeasible, as a potential challenger would have to not only willfully violate the regulation, but the IRS would also have to exercise its discretion to impose the tax-penalty. Id. at 34–35. CIC maintains that a refund suit is also not a recognized viable alternative under Supreme Court precedent, as there is no available functional alternative way to seek a remedy. Id. at 36–37. This, CIC argues, renders any potential exception to the AIA useless. Id.

The IRS argues that the AIA contains clear language that this lawsuit is precluded. Brief for Respondents, Internal Revenue Service at 15–16. The IRS notes that there are other methods that taxpayers can use to resolve tax disputes, such as refund suits, which requires that the taxpayer “pay the tax and request a refund from the IRS” and then sue if the IRS denies the refund. Id. at 16. The IRS asserts that this method entitles the taxpayer to an opportunity to dispute the legality of a tax, and that previous cases involving challenges to IRS regulations have been done this way. Id. The IRS maintains that although there are some exceptions to this process, the AIA was designed in such a way to prevent taxpayers from taking shortcuts. Id. at 17. Furthermore, the IRS further contends that regardless of those exceptions, none of them apply here. Id.


CIC argues that the Supreme Court’s analysis in Direct Marketing controls on the issue of whether pre-enforcement suits challenging reporting requirements restrain the collection or assessment of a tax. Brief for Petitioner at 17–18. CIC contends that the Supreme Court’s earlier rationale in Direct Marketing is germane, as the AIA was the template for the TIA: a nearly identical statute that prohibits pre-enforcement suits aimed at enjoining the collection of state taxes in court. Id. at 17–18, 20. CIC additionally avers that NFIB v. Sebelius, and the entire tax/penalty distinction, is irrelevant to whether the reporting requirement itself is a tax. Id. at 26, 28. CIC contends that even if the tax-penalty enforcement provisions were severed from the IRS’s new Notice, CIC’s defiance of the statutory reporting requirements could still implicate criminal liability under the statute. Id. at 26. This, CIC maintains, means that the reporting requirement provision is operating independently of the tax-penalty provision as challenged. Id. at 29. CIC further argues that courts have not dismissed pre-enforcement challenges to other regulations under the AIA, including the Affordable Care Act’s mandates and the Environmental Protection Agency’s fuel economy standards, despite those regulations having accompanying tax-penalty provisions. Id. at 26–29.

The IRS states that CIC’s lawsuit is challenging the enforcement of certain requirements under the relevant IRS regulation. Brief for Respondents at 21. The IRS maintains that the penalties for violating those requirements are a tax and therefore subject to the AIA. Id. The IRS brings support from NFIB, where the Supreme Court upheld certain penalties as taxes for the purpose of the AIA, and argues that the penalties here are located in the provision of the statute that the Supreme Court held to be a tax. Id. at 21–22. Furthermore, IRS argues that there is a presumption that someone who does not provide the relevant information to the IRS is involved in tax avoidance, and that the penalties are an alternate way for the IRS to obtain the tax revenue. Id. at 22–23. The IRS also asserts that CIC’s reliance on Direct Marketing is faulty because Direct Marketing does not address lawsuits over penalties that are actually considered taxes. Id. at 26. Finally, the IRS argues that there is no longer any distinction between “regulatory and revenue-raising taxes,” and that even though the disputed moneys here may be thought of as a penalty, the law treats it as a tax. Id. at 29.


CIC argues that its challenge targets the IRS’s Notice, as the reporting requirements are what burden CIC’s interests, rather than the tax penalty itself. Brief for Petitioner at 17. CIC maintains that its challenge does not interfere with the assessment or collection of taxes, as those stages of taxation axiomatically follow the reporting—or “information gathering”—stage at issue here. Id. at 18, 21. CIC further argues that its challenge to the new reporting requirement guidance is not a restraint on the power of the IRS to tax; CIC proffers that its suit is, at most, a hindrance to the IRS’s promulgation of new regulations under the APA. Id. at 19, 24.

In addition, CIC asserts that if the Supreme Court interprets the AIA to shield regulatory Notices, the lack of available pre-enforcement review would violate constitutional due process. Id. at 36.

CIC contends that the AIA only applies to lawsuits aimed at resolving a potential challenger’s tax liability. Reply Brief for Petitioner, CIC Services at 13. CIC submits that its purpose is not to target a potential tax-penalty liability in the future, but rather to have the IRS’s Notice declared void on its own terms. Id. CIC argues that its injuries are not potential tax liability, but costs of compliance with the new rule. Id. at 13–14.

The IRS maintains that the AIA should be read more broadly than CIC says. Brief for Respondents at 33. The AIA applies, the IRS argues, even though CIC has not yet been penalized by the IRS for failing to follow the relevant regulations. Id. at 29. The IRS asserts that even though the AIA is generally invoked only after a taxpayer owes a tax, the AIA’s language does not limit its application in other cases. Id. at 30. The IRS contends that Congress intended the AIA to bar these kinds of lawsuits in all cases unless a statutory exception applies. Id. Moreover, the IRS says that previous Supreme Court cases, Bob Jones v. Simon and Alexander v. Americans United, held that the AIA applies even though the taxpayers in those cases had not yet paid the IRS. Id. at 34.

Further, the IRS asserts that how CIC characterizes the purpose of this lawsuit does not mean that the AIA does not apply. Id. at 37. The IRS argues that CIC’s purpose in bringing this suit should be understood as what happens if CIC wins, and CIC’s purpose in bringing the suit is to restrain the collection of the relevant tax, which the AIA is meant to prevent. Id. at 31. Additionally, the IRS contends that the AIA applies regardless of what the APA says, since the APA does not authorize review by a court in lawsuits about the AIA. Id. at 41. Finally, the IRS argues that applying the AIA would not violate CIC’s due process rights, since CIC could pay the tax and then initiate a refund suit. Id. at 42.



National Taxpayers Union Foundation (“NTUF”), in support of CIC Services, argues that the system of review that the IRS envisions would not mesh well with the IRS’s checkered history under the APA. Brief of Amicus Curiae National Taxpayers Union Foundation, in Support of Petitioner at 10–13. NTUF contends that the IRS and Treasury have recently weaponized tax law against payors to an unprecedented level. Id. at 13. NTUF maintains that the IRS’s actions of late have had tragic consequences for consumers, small business owners, non-filing third parties, and average taxpayers. Id. at 13–14. NTUF asserts that in some cases persons are deluged with requests to produce documents; in other cases, IRS asset forfeiture has caused small business owners to lose their businesses. Id. NTUF posits that the IRS’s preferred interpretation of the AIA would disincentivize agency accountability and would adversely effect transparency. Id. at 14. According to NTUF, adopting the IRS’s interpretation of the AIA would result in systemic overreach by executive agencies, potentially destabilizing the tax system entirely. Id. at 11–13.

Professor Bryan T. Camp (“Camp”), in support of the IRS, posits that the AIA should be seen in light of the entire system of taxation. Brief of Amicus Curiae Professor Bryan T. Camp, in Support of Respondents at 3. Camp states that the AIA is meant to fill a need for taxpayers if they have to seek a remedy from the IRS. Id. at 4. Camp further argues that Congress intended the AIA to create specific recourse for taxpayers instead of overwhelming the courts with lawsuits. Id. at 6. Camp opines that the regulation here helps the tax system function smoothly by making sure that taxpayers file their taxes correctly. Id. at 22. Camp also states that this regulation helps the IRS identify tax returns that should be audited. See id. Finally, Camp argues that even if there is no good remedy here, Congress should be the one to fix that, not the Supreme Court. Id. at 32.


Patrick Smith, in support of CIC Services, contends that the AIA was primarily intended to allow the quick collection of government revenue via imposed taxes. Brief of Amicus Curiae Patrick J. Smith, in Support of Petitioner at 18. Smith argues that even the revenue-generating rationale has been undermined by the availability of the modern Tax Court forum to taxpayer litigants. Id. at 18–19. Smith asserts that a broad interpretation of the AIA would present a nearly insurmountable obstacle to most dissatisfied taxpayers. Id. at 23. Smith maintains that a broad interpretation of the AIA would ensnare taxpayers wishing to challenge a regulation in a lose-lose scenario. Id. at 22. Smith claims that this procedural dilemma would result in a weaker regulatory tax system, whereby flawed regulations and guidelines are seldom challenged ex post in refund claims. Id.

Former government officials (“Officials”), arguing in support of the IRS, say that the AIA is important in the fight against abusive tax shelters. Brief of Amicus Curiae Former Government Officials, in Support of Respondents at 4. The Officials argue that the AIA helps the federal government collect taxes. Id. According to the Officials, the regulation at issue here is just the latest step in the federal government being able to track down and prevent tax shelters from costing the government money. See id. at 8–10. The Officials point to bipartisan legislation attempting to combat this problem and argue that the regulation here is in line with what Congress intended. Id. The Officials further argue that without this regulation, the IRS would be unlikely to notice that money is being hidden. See id. at 15. The Officials emphasizes that it takes time to find tax shelters, but due to statutes of limitations, the IRS might run out of time and that this regulation helps the IRS discover tax shelters faster. Id. at 16.

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