Pat Smith continues his discussion of the DC Circuit’s Florida Bankers decision. Les
In yesterday’s post I discussed the state of the law in Anti-Injunction Act cases as well as the Supreme Court’s Direct Marketing opinion. I described how the majority opinion is out of step with the law and is inconsistent with the narrow reading of the AIA as expressed in recent important developments. In today’s post, I will discuss Judge Henderson’s dissenting opinion in Florida Bankers, and describe why I think the dissent is the better reasoned opinion. Judge Henderson began by noting that while the bankers associations’ “challenge raises several difficult questions, the Anti-Injunction Act (AIA) is not one of them.” She correctly relied on the Direct Marketing decision as providing the applicable Supreme Court guidance for resolving the Anti-Injunction Act issue in Florida Bankers. As was the case in Direct Marketing, a challenge to an information reporting requirement does not relate to the assessment or collection of taxes under the Direct Marketing analysis because information reporting is a step in the overall revenue raising process that precedes the narrowly defined assessment and collection steps. Moreover, as she correctly notes, the information reporting requirement at issue in Florida Bankers is even farther removed from any assessment or collection of taxes than the reporting requirement in Direct Marketing because the interest income that is the subject of the Florida Bankers reporting requirement is not even subject to taxation by the U.S.read more...
She then addressed the issue of whether the fact that the penalty for violation of the reporting requirement is treated as a tax for purposes of the Anti-Injunction Act has the consequence that the Florida Bankers challenge is barred by the Anti-Injunction Act. She concluded that this issue had already been decided by the D.C. Circuit in Seven-Sky. That case held that when a plaintiff challenges a regulatory requirement that is enforced by a penalty that is treated as a tax for purposes of the Anti-Injunction Act, such a challenge is not barred by the Anti-Injunction Act, because the challenge relates to the regulatory requirement rather than the penalty. Putting this in the terms of the Direct Marketing analysis, the challenge could not possibly relate to the assessment or collection of a tax because the act that would give rise to liability to pay the penalty, namely a violation of the reporting requirement, has not occurred.
Judge Henderson also concluded that Bob Jones and Americans United were factually distinguishable from Florida Bankers because there was a much closer connection in those cases between the challenge to the revocation of tax-exempt status and the effect a successful challenge would have on the tax liability of the contributors to the organizations than any connection between the challenge in Florida Bankers and actual tax liability. Thus, contrary to the argument made by the government in its footnote in its reply brief in Z Street, it is not necessary to conclude that Direct Marketing has implicitly overruled those cases in order to apply the reasoning in Direct Marketing in interpreting the Anti-Injunction Act.
Judge Henderson also concluded that the 1987 D.C. Circuit decision in Foodservice, which was cited in the district court opinion, is directly on point and supports the conclusion that the Anti-Injunction Act does not apply to the Florida Bankers challenge. Finally, she noted that it would be particularly inappropriate to hold that the only way to challenge the information reporting requirement at issue in Florida Bankers is for a bank to violate the requirement, pay the resulting penalty, and sue for a refund of the penalty, in light of the fact that section 7203 of the Code makes willful violation of reporting requirements such as this one a misdemeanor.
With respect to Judge Kavanaugh’s majority opinion in Florida Bankers holding that the Anti-Injunction Act does apply to bar the Florida Bankers challenge, I could have understood how a judge might have agreed with the position taken by the government in the footnote in it Z Street reply brief, namely, that since the Direct Marketing decision did not say anything explicit about what effect the decision might have on the Bob Jones and Americans United holdings, as a consequence, the more prudent course of action for a lower court judge would be to wait until the Supreme Court has explicitly addressed the issue. While I do not agree with that position, since the reasoning in Direct Marketing is so clear and so obviously applicable under the Anti-Injunction Act as well as under the Tax Injunction Act, nevertheless, I can at least understand how a reasonable judge might hold that position.
However, that is not the approach Judge Kavanaugh took in his majority opinion. He did not attempt to engage with the reasoning in Direct Marketing at all. Instead, he distinguished Direct Marketing based on a point that had played no role at all in either the briefing of the case or in the Supreme Court’s opinion, namely, the contention that the penalty for violation of the reporting requirement in Direct Marketing was not a tax for purposes of the Tax Injunction Act, whereas the penalty for violation of the reporting requirement in Florida Bankers clearly is a tax for purposes of the Anti-Injunction Act.
While it might at first seem very surprising that the same judge who wrote such a strong opinion invalidating a regulation issued by the IRS and Treasury in Loving v. IRS 742 F.3d 1013 (D.C. Cir. 2014).could write as weak and misguided an opinion as the majority opinion in Florida Bankers. This result seems somewhat less surprising, however, when viewed in the context provided by Judge Kavanaugh’s opinions in other cases involving the Anti-Injunction Act. He wrote dissenting opinions addressing the Anti-Injunction Act issues in both the panel and en banc decisions in Cohen as well as in Seven-Sky.
One final collateral issue that was addressed briefly by both Judge Kavanaugh and Judge Henderson is the issue of whether the restriction imposed by the Anti-Injunction Act is jurisdictional. As both judges note, prior D.C. Circuit opinions characterize the restriction as jurisdictional, but as Judge Henderson points out, a line of Supreme Court decisions in recent years has called into question the loose analysis that has traditionally been applied in deciding whether particular statutory requirements for bringing suit are or are not jurisdictional, and this line of authority would often result in characterizing as non-jurisdictional certain requirements that may traditionally have been viewed as jurisdictional.
While the Tax Injunction Act is clearly jurisdictional, the reason for that conclusion rests on one point on which the Tax Injunction Act and the Anti-Injunction Act differ, namely, the fact that the Tax Injunction Act explicitly restricts the ability of district courts to hear the type of cases the Act covers, whereas the Anti-Injunction restricts only the ability of parties to maintain such suits. This difference should lead to the conclusion that the Anti-Injunction Act is not jurisdictional. I developed this position at length in a Tax Notes article written in the context of the issue that was subsequently resolved by the Supreme Court in NFIB v. Sebelius.
As noted at the outset, in light of the weakness of Judge Kavanaugh’s majority opinion, the strength of Judge Henderson’s dissenting opinion, the clear conflict between the analysis and conclusion in the majority opinion and the Supreme Court’s Direct Marketing decision, and the conflict between the majority opinion and numerous prior D.C. Circuit decisions, such as Z Street, Cohen, Foodservice, and Seven-Sky, the Florida Bankers decision is a very strong candidate for en banc review.