For a simply worded statute, the Anti-Injunction Act has generated considerable litigation. The statute, codified at IRC 7421, provides in relevant part that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person[.]”
Lots of recent cases have focused on the meaning of assessment or collection for these purposes. Despite the Supreme Court’s CIC Services opinion, we are starting to see some courts seemingly moving in inconsistent directions. For more, see my recent post 11th Circuit Affirms That Anti-Injunction Act Prevents Taxpayer Seeking Access to Appeals and First Circuit Finds Anti-Injunction Act Does Not Bar Challenge to IRS’s Use of John Doe Summons That Gathered Taxpayer’s Virtual Currency Transactions.
This takes us to today’s post and the recent 11th Circuit opinion in US v Meyer. Meyer involves a different issue, namely whether the AIA “bars a defendant from moving—in an action initiated by the government—for a protective order to restrain the government from using his responses to requests for admission when assessing a tax penalty in a separate administrative proceeding.”
In reversing the district court and finding that the AIA did not apply, the opinion concludes that “moving for a protective order in an action filed by the government does not amount to maintenance of a “suit”.
The facts somewhat simplified involved a 2018 suit that the government had brought to enjoin Meyer from operating a business that purported to peddle a tax evasion scheme premised on phony charitable deductions. In that earlier suit the government sought over 1,500 requests for admission under Federal Rule of Civil Procedure 36. Meyer, with counsel, answered the admission requests.
By 2019 Meyer and the government settled the case, resulting in Meyer agreeing to no longer represent others before the IRS; prepare federal tax returns for others; or furnish tax advice regarding charitable contributions.
A little over a year after the settlement, the IRS informed Meyer that he owed millions in dollars in penalties in connection with his promotion of an abusive tax shelter. As part of the explanation, the government relied on the admissions Meyer agreed to in the earlier case, and for good measure attached the admissions as an exhibit.
Federal Rule Civil Procedure 36(b) states that “[a]n admission . . . is not an admission for any other purpose and cannot be used against the party in any other proceeding.” Meyer responded to the IRS notice, and objected to the IRS use of the admissions on the grounds that it was inconsistent with Rule 36(b).
The IRS disagreed, stating that the Rules of Civil Procedure do not apply to its administrative determinations.
After some more back and forth with the IRS, in the fall of 2020 Meyer filed a motion in the now closed injunction case that the government had brought two years earlier. That motion sought a protective order prohibiting the government from using his Rule 36 admissions “as the factual basis for penalties in a separate IRS penalty examination.”
At district court, the government argued that the government had not waived sovereign immunity and the AIA barred the suit. The district court agreed with the government, as I discussed in a post in 2021.
The Eleventh Circuit disagreed, noting that the statute did not define the term suit and looking to its dictionary definition and ordinary usage, which generally involved “[a]n action or process in a court for the recovery of a right or claim.”
Contrary to the government’s assertion, a “motion” has long been understood as distinct from a suit. See, e.g., Alexander M. Burrill’s Law Dictionary and Glossary 730 (1867) (defining “motion” as “an application made to the judge or judges of a court . . . for the purpose of obtaining a rule or order directing some act to be done in favor of the applicant”); Black’s Law Dictionary 1164 (6th ed. 1951) (defining “motion” as “[a]n application for a rule or order made . . . to a court or judge”). A party may make a motion within a suit, but a motion generally does not constitute a suit unto itself. See II Bouvier Law Dictionary Desk Ed. 1786 (2012) (“A motion is presented to a court in a pending action by one party, the movant, who moves some matter for consideration[.]”) (emphasis added); The American Heritage Dictionary of the English Langauge 1147 (4th ed. 2009) (defining a “motion” as “[a]n application made to a court for an order or ruling”).
Given that the motion that Meyer sought sprung from the government’s assertion of a claim, the Eleventh Circuit held that the AIA did not bar the taxpayer from seeking a protective order from the court that had proper jurisdiction over that suit:
Based on these uniform sources, a “suit” is a judicial proceeding or action initiated for the purpose of enforcing a right or ensuring compliance with the law. That is how the term was understood when the Anti-Injunction Act first became law and how it is understood today. The government, and not Mr. Meyer, is the only party that filed a “suit” here—i.e., the 2018 tax case—and that action was not “for the purpose of restraining the assessment or collection of a tax.” (emphasis added)
In finding for the taxpayer, the court leaned on a few related cases that approached the issue similarly. One case was United States v. Mellon Bank, N.A., 521 F.2d 708 (3d Cir. 1975). In Mellon Bank, the government brought an action against a bank, seeking to access a taxpayer’s safe deposit box. The taxpayer intervened, and the district court held that the AIA barred the intervention. In reversing, the Third Circuit emphasized that the taxpayer “did not sue to enjoin the assessment or collection of any tax. In fact[,] he filed no suit at all.”
Distinguishing Dema
The opinion also took pains to distinguish the Seventh Circuit’s holding in United States v. Dema, 544 F.2d 1373 (7th Cir. 1976). That case involved the US bringing an action to enforce a summons for a taxpayer’s business and personal records, and the taxpayer seeking to quash the summonses. The district court ordered production of the business records but quashed the request for personal records.
The IRS immediately issued a notice of deficiency to the taxpayer with respect to the taxpayer’s individual tax liability. The taxpayer went back to the district court, “asking the district court to issue an order to show cause why the IRS agent working on the case should not be held in contempt of court for violating the previous order quashing the summons as to personal records, and for an order directing withdrawal of the notice of deficiency.”
The government argued that the AIA prevented the district court from entertaining the motion, and the district court disagreed, relying in large part on the rationale that underlies the Mellon Bank decision.
On appeal the Seventh Circuit reversed, though acknowledged that the government had in fact brought the original action to enforce the summons:
Although we concede, as we must, that appellee did not initiate proceedings against appellant in an attempt to enjoin the assessment or collection of taxes, it must be admitted that for all practical purposes appellee sought the identical result when he filed his motion for an order directing withdrawal of the notice of deficiency. The net result of appellee’s motion, and the obvious intent thereof, was to restrain the IRS from pursuing any activities relating to the assessment and collection of taxes. Accordingly, it could reasonably be argued that appellee herein instituted his own sub-action against appellant for injunctive relief, the potential result of which was in contravention of the spirit and purpose of § 7421(a)
In Meyer, the government urged the Eleventh Circuit rely on the Seventh Circuit’s approach in Dema and find that the AIA should prevent the district court from entertaining the motion. In noting that the term suit in the AIA was not a peripheral term in the statute, the court felt compelled to follow the Supreme Court’s admonition that “each word in a statute” should “carr[y] meaning,”
Moreover, the court declined to avoid the meaning of the term suit even if the government position was consistent with the AIA’s broad purpose, again citing Supreme Court precedent that looking to purpose should not defeat plain meaning. Continuing its focus on the statute’s text, the opinion also noted that the AIA could have expressly barred any “motion, defense, intervention, or other legal maneuver.” As it did not, and only barred suits, the court, again looking to Supreme Court precedent on statutory interpretation, stated when “the terms of a statute [are] unambiguous, judicial inquiry is complete except in ‘rare and exceptional circumstances.’”
As a final point, the opinion noted that even if it were to apply a test that deviated from the text and looked to the spirit and purpose of the AIA, it still would find that the suit was not barred, with Dema’s motion much closer to the assessment and collection process that the AIA seeks to insulate:
The taxpayer in Dema did not request, as Mr. Meyer does, an order enforcing the limitations of the discovery rules on material obtained in an action filed by the government. Instead, he sought an order directing the IRS, among other things, to withdraw a notice of deficiency—the IRS’ determination of the taxes he owed. The order at issue in Dema, moreover, prohibited the IRS from subpoenaing any documents from the taxpayer. This essentially constituted a total restraint on the IRS’ ability to assess penalties against him. That is not the case here. Mr. Meyer’s motion seeks only to enforce his understanding of the rules of discovery, not to restrain the IRS from using other mechanisms to investigate and assess tax penalties against him.
Conclusion
Hats off to the taxpayer’s counsel for a clever way to get a possible judicial consideration on whether the IRS is entitled to use the earlier admissions in a subsequent administrative proceeding. The government has not conceded on whether the district court has jurisdiction to reopen the closed case to consider issuing a protective order. The appellate court declined to consider that issue, and it is one that the district court will likely take up on remand. If it gets over that hurdle, perhaps we will see an opinion discussing the relationship between Federal Rule Civil Procedure 36(b) and the IRS’s administrative actions.
Note that readers interested in the issue should also check out Jack Townsend’s recent blog post on the case. Jack’s blog is always worth a read.