Review of “Restoring the Lost Anti-Injunction Act”

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We welcome back guest blogger Sonya Watson who has changed her last name since the last time she posted. Sonya, a former student at Villanova who studied under both Les and me while obtaining her LLM, is back in her home town and her “home” law school of UNLV where she is an assistant professor in residence and the director of the Rosenblum Family Foundation Tax Clinic. Today she launches a new feature on PT – a review of law review articles addressing issues of tax procedure. Last year we launched a new feature on designated orders which allows us to examine the critical orders issued by the Tax Court that tend to go unnoticed. Sonya and others to be introduced soon will provide a similar regular guest feature providing insight on the latest thinking from those writing longer articles on tax procedures issues we cannot easily address in our blog posts. The first article being reviewed is co-authored by Kristin Hickman and Gerald Kerska. Kristin is a professor at University of Minnesota Law School and a prolific writer who deserves great credit for her pioneering work to push for recognition of the Administrative Procedure Act’s applicability to tax law. Gerald is a 2017 graduate of University of Minnesota Law School. We hope you enjoy their excellent article examining the history and logic of the anti-injucntion act. Keith

In “Restoring the Lost Anti-Injunction Act,” Kristin Hickman & Gerald Kerska, 103 Virginia Law Review 1683 (2017) the authors ask whether Treasury regulations and IRS guidance documents, such as IRS Revenue Rulings, should be eligible for pre-enforcement judicial review. The answer depends on how courts interpret the Anti-Injunction Act (“AIA”). The AIA prohibits tax lawsuits that would “restrain the assessment or collection of [a] tax.” A broad interpretation of the AIA, such that the AIA applies whenever the issues in a tax case even remotely relate to the assessment or collection of taxes, would tend to preclude pre-enforcement judicial review of Treasury regulations and IRS guidance documents. A narrower interpretation would allow application of the AIA only when the issues in a tax case involve the imminent assessment or collection of taxes. Hickman and Kerska argue that the AIA should be construed narrowly.

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The AIA prohibition of lawsuits that restrain the assessment or collection of taxes is not without exceptions. One familiar statutory exception is that which provides the right to file suit in the U.S. Tax Court when the IRS proposes a tax deficiency. Case law creates further exceptions to the AIA.

Some courts have interpreted the AIA so broadly that the government may invoke the AIA to preclude judicial review of just about any case that may relate to the assessment or collection of taxes, no matter how tangential the relation. For example, in the case of California v. Regan, 641 F.2d 721 (9th Cir. 1981) the Court found that the AIA precluded a lawsuit challenging an ERISA regulation that required the State of California to file annual information returns concerning its employees’ pension plan. The Court reasoned that the AIA applied because the IRS could use the information in the returns to determine whether employees qualified for favorable tax treatment, which in turn would “have an impact on the assessment of federal taxes.” Such broad interpretations contributed to the court’s finding in Florida Bankers Ass’n v. U.S. Department of the Treasury, 799 F.3d 1065 (D.C. Cir. 2015) that pre-enforcement judicial review of a set of Treasury Regulations was precluded under the AIA. However, the court in Chamber of Commerce v. IRS, No. 1:16-CV-944-LY, 2017 WL 4682049 (W.D. Tex. Sept. 29, 2017) came to the opposite conclusion, holding that the AIA does not preclude pre-enforcement judicial review of Treasury regulations. The conflicting opinions in Florida Bankers and Chamber of Commerce could lead to a split in the circuits, adding to the long history of jurisprudential inconsistency regarding the application of the AIA.

As outlined in detail in Hickman and Kerska’s article, courts have had to rely on a hodgepodge of case law to determine when the AIA applies to preclude a tax case, sometimes coming to conclusions that do not mesh well with prior precedent. In their article, Hickman and Kerska propose what appears to be workable, if not perfect, as acknowledged by Hickman and Kerska, solutions to what has thus far been an incoherent framework regarding the scope and meaning of the AIA.

Hickman and Kerska believe that a narrower interpretation of the AIA is warranted to protect taxpayers’ presumptive right to pre-enforcement judicial review of agency rules and regulations under the Administrative Procedure Act (“APA”). They argue that this is especially true in light of the IRS’ less than stellar history of complying with the APA; the historical context of the AIA itself; the jurisprudence surrounding the Tax Injunction Act (“TIA”), which Congress modeled after the AIA; and the many Treasury regulations and IRS guidance documents that relate to the IRS’ function as the middleman for social policy efforts rather than its function as tax assessor and collector.

Hickman and Kerska note that the IRS has viewed itself as the exception to the rule when it comes to the APA, emphasizing that for decades the IRS has claimed that many of its rules and regulations are outside the purview of the APA. The APA applies to regulations that carry the force of law. In the past, Treasury regulations have been labeled as either legislative or interpretative based on whether the regulations were the result of specific legislative authority (legislative) or general authority provided by I.R.C. Section 7805(a) (interpretive). Although courts have held that both legislative and interpretative regulations carry the weight of law, and are therefore subject to the APA, Hickman and Kerska assert that the IRS has continued to attempt to distinguish between legislative and interpretive regulations in attempts to sidestep the APA. Hickman and Kerska further note that even when the Treasury purports to comply with the APA, its compliance is dubious, choosing to follow some provisions of the APA and ignore others. Further, regarding IRS guidance documents such as revenue rulings, revenue procedures, and notices, the Treasury does not even purport to comply with the APA. The foregoing highlights why it is important to determine whether the AIA applies to pre-enforcement judicial review of Treasury regulations and IRS guidance documents. Allowing the government to invoke the AIA regarding Treasury regulations and IRS guidance documents may encourage the government to feel further empowered to ignore the APA.

The AIA is the result of Civil War-era tax legislation, which used significantly different procedures for the assessment and collection of tax than are used today. Hickman and Kerska examine the history of the mechanisms of assessment and collection during the Civil War to show that it was not Congress’ intent to use the AIA to prevent lawsuits that are only tangentially related to the assessment or collection of taxes.

Congress created the income tax in 1861 to help finance the Civil War. At that time, and again in 1862, it created administrative procedures for the assessment and collection of tax. The process by which taxes were assessed and collected was lengthy:

Congress tasked assistant assessors with receiving tax returns, with visiting taxpayers in their districts individually to investigate their potential liability for taxes, and, if a taxpayer either failed to file or submitted a fraudulent return, with preparing a return on the taxpayer’s behalf “according to the best information” available. Based on the returns filed and investigations performed, assistant assessors had thirty days after the statutory filing deadline to provide the assessors with alphabetized lists of taxpayers and the taxes they allegedly owed. The assessors then made the lists publicly available, advertising in county newspapers and posting in public places the time and location where taxpayers might examine the lists. These lists served as tentative assessments, informing taxpayers of their proposed tax liabilities. Taxpayers could appeal from those proposed assessments, and assessors were responsible for considering such appeals before submitting final lists of “sums payable” to their respective collection districts. Upon receiving said final lists from the assessors, collectors were charged with publishing the lists again, this time designating the listed taxes as due. People who failed to pay the taxes owed within a specified period after such publication—ten days generally, but thirty days for income taxes, for example—were assessed an additional ten percent penalty and given another ten days to comply. After that, a delinquent taxpayer’s personal or real property could be levied, “distrained” (i.e., seized), and sold.

Over time, procedures for collection and assessment of tax evolved but what remained the same, until fairly recently, was that people paid their taxes yearly and there was a period of time between when taxes were assessed and when they were collected. In contrast, today we overwhelmingly pay our taxes all throughout the year by way of withholding and estimated payments. During the Civil War-era up until World War II, there sometimes wasn’t a large and steady enough stream of revenue for the government to operate, making it vital that there be some way to prevent hinderances to the assessment or collection of taxes. This is why Congress created the AIA in 1867; to make sure the government had the funds it needed to operate. Today, for the most part, such hindrances are more the exception than the rule.

During Civil War-era tax administration when the AIA was created, because of the mechanisms of assessment and collection then in place, as described above and diagramed below, taxpayers had multiple opportunities to halt assessment or collection of taxes.

 

 

 

 

 

Taxpayers of the time frequently took advantage of these opportunities. Seeing that multiple opportunities to file a lawsuit to halt the assessment or collection of taxes were a barrier to the government’s goal of raising revenue to pay for the Civil War, Congress enacted the AIA. Given this historical context, Hickman and Kerska argue that the AIA was and is meant to prevent only a lawsuit that will imminently prevent the assessment or collection of taxes such that the government’s stream of revenue may be stopped. Therefore, they argue, the government should not be allowed to invoke the AIA in the face of just any lawsuit that is conceivably related to the assessment or collection of taxes. Further, the government certainly should not be allowed to invoke the AIA for lawsuits pertaining to pre-enforcement judicial review of Treasury regulations and IRS guidance documents given that at the time of the AIA’s enactment, taxing authorities would have been required to strictly adhere to the letter of the AIA and not allowed to adopt broad, legally substantive pronouncements that would legally bind taxpayers, as compared to taxing authorities’ power today to make rules and regulations that have the effect of law.

Recent TIA jurisprudence provides evidence for Hickman and Kerska’s assertion that the AIA should not preclude pre-enforcement judicial review of Treasury regulations and IRS guidance documents. The TIA, Tax Injunction Act, provides that federal district courts may not retain jurisdiction of tax cases regarding the assessment or collection of state taxes where the taxpayer may readily seek a remedy in a state court. Congress created the TIA, modeled after the AIA, for the purpose of protecting state revenue collection. In Direct Marketing Ass’n v. Brohl, 135 S. Ct. 1124 (2015) interpreting the TIA, the Court found that the assessment or collection of taxes were “discrete phases of the taxation process that do not include informational notices or private reports of information relevant to tax liability.” In other words, pre-enforcement judicial review of agency promulgated rules and regulations is distinct from judicial review of the assessment or collection of taxes. Hickman and Kerska argue that, given the connection between the TIA and AIA, the Court’s finding in Direct Marketing should apply when the government attempts to invoke the AIA to prevent pre-enforcement judicial review of Treasury regulations and IRS guidance documents.

The fact that many Treasury regulations and IRS guidance documents pertain to social policy considerations more so than to the assessment and collection of taxes provides another reason why Treasury regulations and IRS guidance documents should not be precluded from pre-enforcement judicial review under the AIA. Modern tax laws, Treasury regulations, and IRS guidance documents provide not only for taxation of income but also for the transfer of benefits meant to improve society as a whole and policy considerations also intended to benefit society. As Hickman and Kerska note, many Treasury regulations and IRS guidance documents concern “the environment, conservation, green energy, manufacturing, innovation, education, saving, retirement, health care, childcare, welfare, corporate governance, export promotion, charitable giving, governance of tax exempt organizations, and economic development,” which may not directly relate to the mechanisms for the assessment and collection of taxes. Such being the case, Hickman and Kerska note that

[p]arties subject to these regulations are not in the traditional position of paying more taxes with their tax return and then suing for a refund or filing a return documenting their noncompliance and opting to generate a deficiency notice. Absent pre-enforcement review, such regulations may be permanently shielded from judicial oversight, no matter how egregiously the IRS disregards APA requirements.

Hickman and Kerska propose two solutions to prevent the misuse of the AIA in the context of pre-enforcement judicial review of Treasury regulations and IRS guidance documents.

First, to ensure that the AIA is not applied to cut off lawsuits that are only tangentially related to the assessment or collection of taxes, they propose an engagement test. The engagement test would allow the AIA to apply only in cases where the IRS has initiated enforcement procedures against a particular taxpayer. Under such a test, the government could invoke the AIA only by demonstrating that it is engaged with a taxpayer regarding a potential issue or liability, which would be an easy burden for the government to meet given the paper trail it creates when pursuing an issue or liability regarding a particular taxpayer. Moreover, such a test would require taxpayers to exhaust administrative procedures prior to seeking a judicial remedy. Recognizing that courts may feel constrained in favor of prior precedents, however, Hickman and Kerska also offer a legislative fix as an alternative to the engagement test.

Hickman and Kerska provide proposed legislative language that would prevent the government from invoking the AIA in cases involving pre-enforcement judicial review of Treasury regulations and IRS documents:

Notwithstanding section 7421(a), not later than 60 days after the promulgation of a rule or regulation under authority granted by this title, any person adversely affected or aggrieved by such rule or regulation may file a petition for judicial review of such regulation with the United States Court of Appeals for the District of Columbia or for the circuit in which such person resides or has their principal place of business.

Jurisprudence providing exceptions to the AIA may leave taxpayers, practitioners, and judges alike befuddled when it comes to deciding when the AIA applies to prevent any tax case from going forward. Adding the question of when the AIA should apply to prevent a tax case from going forward for the purpose of determining whether pre-enforcement judicial review of Treasury regulations or IRS guidance documents further confuses the issue. Hickman and Kerska’s article provides considerable food for thought on how to determine the proper application of the AIA.

 

 

Comments

  1. Does the AIA apply to “non-acts” of the IRS?

    Allow me to explain the reasoning behind 13 lawsuits filed in U.S. District Court for the District of Columbia, the purpose of which is to:

    a.) enjoin the IRS from FALSIFYING its internal and public-facing records (see 18 U.S.C. §1001) to make it appear it CREATED “substitutes for income tax returns” (SFRs) on behalf of so-called “non-filers”, on competing dates, when, in fact, it never prepares SFRs on ANY date. The non-existent SFRs form the basis for Notices of Deficiency, invitations to Tax Court, liens, levies, wage garnishment, property seizures, etc.; and,

    b.) to enjoin the Department of Justice (DoJ) from USING IRS’ FALSIFIED records to indict, prosecute, convict and incarcerate otherwise innocent Americans.

    Evidence contained in transcripts from the IRS’ own Individual Master File (IMF) computer system shows that:

    1. By entering into its “Audit Information Management System” (AIMS), a specific 3-digit transaction code “424”, along with “pushcode 036”, IRS circumvents the strict security safeguards of the IMF (which transaction code, otherwise, would be rejected, per the Internal Revenue Manual “IRM”);
    2. Entry of this code inserts the phrase “SFR 150” into an American’s IMF record, indicating an SFR was CREATED on a specific date, showing an “Amount Due” of zero, and associated with a Document Locator Number (DLN) with the numerical sequence “xxxx-888-00000-x”.
    3. Accompanying this entry is the phrase “RET RCVD DT” (Return Received Date), which, curiously, is typically 22 days BEFORE the SFR was allegedly created.
    4. IRS responds to a Freedom of Information Act request to produce a copy of the SFR associated with DLN “xxxx-888-00000-x”, as follows: “A document is not created for every DLN shown on a transcript. The DLN you requested was generated by our Automated Substitute for Return program. Therefore, there are no documents responsive to your request.”

    In our lawsuits, the DoJ attorneys’ first act is to file a Motion to Dismiss, claiming that the suits are filed “to enjoin the IRS from PREPARING SFRs” (when evidence shows it never does) and “to enjoin the DoJ from USING the IRS’ prepared SFRs” in judicial proceedings against so-called “non-filers”. By rewriting, in such a fashion, the complaint allegations and relief sought, the attorneys make our lawsuits appear to “interfere with the assessment and collection of the income tax”, claiming, fraudulently, that the suits are barred by the Anti-Injunction Act.

    Frustratingly, EVERY District Court judge has granted the DoJ’s Motions to Dismiss, based on DoJ’s rewritten allegations and relief sought, citing the AIA as barring jurisdiction. This, even though, in every case, we filed Oppositions to the Motions to Dismiss, pointing out the DoJ’s felonious actions (see 18 U.S.C. §1001 and 18 U.S.C. §4) and claiming that IRS computer fraud falls within the “Extraordinary Circumstances” exception to the AIA. In those Oppositions, we, thereby, request the Court to invoke its equity jurisdiction and adjudicate the cases based on their merits.

    Further, the Appeals Court for the D.C. Circuit, through unsigned and unpublished Orders, has affirmed EVERY dismissal, stating that “Appellants have not shown that the District Court erred in it dismissal”, and that “Equitable exceptions to the Anti-Injunction Act are not present here.”

    So, to recap:

    Can the AIA be invoked to bar suits seeking to enjoin the IRS from FALSIFYING its records to make it appear it CREATES SFRs, when it never does, and such documents do not exist, and therefore, can never be produced as evidence in a court of law?

    Can the AIA be invoked to bar suits seeking to enjoin the DoJ from USING the IRS’ FALSIFIED records to indict, prosecute, convict and incarcerate otherwise innocent Americans?

    Thoughts?

    • I would think that government can use the AIA for lawsuits regarding SFRs. I’m thinking that, the IRS’ record keeping aside, if the taxpayers had a filing obligation and did not file a return, it’s possible that the taxpayers owe taxes. By not filing returns where taxes may be owed, the taxpayers are stopping the IRS from being able to collect.

      • As a strong proponent of the Rule of Law, and, as an American who stands firmly for the protection of our liberty, I am unwilling to even entertain the thought of setting aside the IRS’ falsification of it’s IMF records to justify the use of the AIA.

        No person, or government agency has the authority to commit felonies to enforce any law.

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