Another District Court Applies The Anti-Injunction Act to Dismiss A Pre-Enforcement Challenge to IRS Notice

Readers of Procedurally Taxing are familiar with the Anti-Injunction Act (AIA) and the CIC Services case that is pending in the Supreme Court. CIC Services raises whether the AIA bars a challenge brought under the Administrative Procedure Act in a pre-enforcement proceeding. It involves the hefty penalties under Section 6707A for failing to comply with information reporting obligations. Last week, in Govig and Associates v US a federal district court in Arizona considered a similar issue. In Govig, the taxpayers claimed that an IRS notice identifying listed transactions violated the APA because it was issued without going through the notice and comment process. In Govig the court concluded that the AIA precluded a pre-enforcement challenge to the IRS notice that triggered the immediately assessable penalty under Section 6707A.

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At issue in Govig is Notice 2007-83. That notice informed taxpayers that tax benefits claimed for a category of trust arrangements were not allowable for federal tax purposes and designated as “listed transactions” trust arrangements that had been “promoted to small businesses and other closely held businesses as a way to provide cash and other property” to owners “on a tax-favored basis.” As the opinion notes, the Notice targeted transactions where businesses used trusts to create welfare benefit funds that included cash-value life insurance policies.

The taxpayers in Govig are participants in trusts that have been designated as “listed transactions” under the Notice.  The plaintiffs in the case paid the penalties that were assessed in 2019 for violations relating to the 2015 year. They then filed a complaint in federal court, alleging that the IRS failed to comply with the notice and comment regime generally required for legislative rules under the APA and asking the court to set aside the notice as arbitrary and capricious.

In granting the government’s motion to dismiss for lack of jurisdiction, the district court explicitly embraced the reasoning of the DC Circuit in the Florida Bankers case. (For prior posts on Florida Bankers, see my discussion here and Patrick’s Smith’s two part post here and here). As the opinion notes, the challenge was framed as one directed to the “information gathering mandated by the Notice’s disclosure requirement and has nothing to do with the assessment or collection of a tax.”  The court reasoned that this is a “distinction without difference”  and agreed with the conclusion reached by then-Judge Kavanaugh in Florida Bankers, that the AIA applies “even if the plaintiff claims to be targeting the regulatory aspect of the regulatory tax . . . because invalidating the regulation would directly prevent collection of the tax.” 799 F.3d at 1070-71.

It also distinguished the Direct Marketing opinion, emphasizing differences in the text between the Tax Injunction Act (TIA) and the AIA at issue in Govig (and CIC Services):

The pertinent part of the TIA provides that federal district courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law.” 28 U.S.C. § 1341 (emphasis added). The AIA in contrast states that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.” 26 U.S.C. § 7421 (emphasis added).

In reasoning that Direct Marketing should not be read to support pre-enforcement challenges to federal information reporting  requirements backstopped by Title 26 penalties the Govig court leaned in on the differences in wording between the TIA and AIA, noting that those differences mattered in the majority Direct Marketing opinion:

There the Court, applying the cannon against surplusages as well as Noscitur a sociis, found that: the words “enjoin” and “suspend” are terms of art . . . referring to different equitable remedies that restrict or stop official action to varying degrees, strongly suggesting that “restrain” does the same. As used in the TIA . . . “restrain” acts on a carefully selected list of technical terms — “assessment, levy, collection” — not on an all-encompassing term, like “taxation.” To give “restrain” the broad meaning selected by the Court of Appeals would be to defeat the precision of that list, as virtually any court action related to any phase of taxation might be said to “hold back” “collection.” Such a broad construction would thus render “assessment [and] levy” — not to mention “enjoin [and] suspend” — mere surplusage, a result we try to avoid.

In Govig, these differences led the district court to conclude that while the TIA and AIA are similar the differences were enough to justify the AIA’s barring of the pre-enforcement challenge:

The AIA is not so limited by “technical” or “precise” language. Instead, it contains a broader restriction on any suit “for the purpose of” restraining the assessment or collection of taxes. 26 U.S.C. § 7421. The Court can only conclude this different wording is intended to carry a different broader meaning; a conclusion supported by the Supreme Court’s prior applications of the AIA

Finally, the district court in Govig held that the case did not implicate exceptions to the AIA, including the South Carolina v. Regan exception when there is no alternative for posing a legal challenge and the Williams Packingexception when “(1) it is ‘clear that under no circumstances could the government ultimately prevail’ and (2) ‘equity jurisdiction’ otherwise exists, i.e., the taxpayer shows that he would otherwise suffer irreparable injury.”Church of Scientology v. United States, 920 F.2d 1481, 1485 (1990) (citing Commissioner v. Shapiro, 424 U.S. 614, 627 (1976) (quoting Williams Packing, 370 U.S. at 7)).

Conclusion

The Govig case itself breaks no new ground.  While it recognizes that the challenge in Govig is to a reporting regime, rather than the underlying tax, its approach in rejecting the challenge closely follows the reasoning in Florida Bankers.  In the next few months we will see whether this approach is the law of the land, as CIC Services tees this issue up directly.

What is not clear to me from reading the opinion (admittedly I did not dig deeper into the pleadings or underlying briefs) is why the taxpayers did not bring their APA challenge in a refund proceeding. The opinion notes that the plaintiffs fully paid the assessed penalties imposed under Section 6707A. In a refund proceeding, the plaintiffs could have raised the same allegations, i.e., that the alleged IRS notice was issued contrary to the APA. In addition, while the plaintiffs asked the court to take judicial notice that violations of the reporting requirements could lead to criminal penalties, the court declined, noting that Section 6707A merely preserves the possibility for other penalties. The issue of potential criminal liability for violating these notices is also raised in CIC Services, where the plaintiff has alleged that the possibility of criminal liability itself makes the traditional refund process inadequate as a forum for raising alleged violations of the APA. 

The Barrier of the Anti-Injunction Act for Low Income Taxpayers

Today we welcome back guest blogger Omeed Firouzi, who discusses a recent case involving a dispute over employees’ tax withholding. Omeed notes that withholding disputes may become more frequent as the payroll tax deferral plays out. Christine

The Tax Anti-Injunction Act has been the subject of several posts on this site over the years. The law garnered national political attention in the summer of 2012 in the aftermath of the U.S. Supreme Court’s NFIB v. Sebelius decision. In NFIB, the Supreme Court upheld the Affordable Care Act’s individual mandate on the basis that the shared responsibility payment was within Congress’ taxing authority. The Tax Anti-Injunction Act (26 U.S.C. Section 7421) reads, in relevant part:

No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

This law was at the center of a recent case decided in the U.S. District Court for the District of Oregon in July 2020. The plaintiff in this case, Alex Wright, alleged in a class action suit that his employer, Atech Logistics, Inc., wrongly withheld more taxes than they should have. Wright alleged unpaid wages and unpaid overtime as well.

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With regard to the federal tax component of his case, Wright specifically alleged that Atech improperly rounded up his Federal Insurance Contributions Act (FICA) withholding on his paychecks to the next penny “instead of down as required by 26 C.F.R. Section 31.3102-1(d).” Consequently, Wright “on behalf of a proposed class of all current and former Atech employees…[sought] a $200 statutory penalty, a declaratory judgment that Atech violated the law, and attorney’s fees and costs.”

The magistrate judge agreed with Atech’s claim that the Anti-Injunction Act and the Declaratory Judgment Act “bar Wright’s claims relating to Atech’s alleged FICA tax miscalculation.” Virtually all of the court’s analysis relies on controlling precedent in the Ninth Circuit courtesy of the very similar case Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1124 (9th Cir. 2016). In Fredrickson, the Ninth Circuit ruled that the Anti-Injunction Act barred Starbucks employees’ claims of improper federal and state tax withholding that the employees alleged was “based on an improper estimate of tips received.” The Fredrickson court cited U.S. Supreme Court precedent to justify its ruling, specifically United States v. Am. Friends Serv. Comm., 419 U.S. 7, 10 (1974), a case that found an employer’s withholding of taxes to be a kind of collection that can’t be enjoined under the Anti-Injunction Act. The Wright magistrate here, in turn, cited these precedents to recommend that the district court “grant Atech’s motion to dismiss.” The magistrate states plainly that Wright and his fellow employees could not challenge their employer’s tax withholding because the employees were attempting to restrain a collection of tax in direct contravention of the Anti-Injunction Act.

The court’s ruling here presents a frustrating predicament for taxpayers like Mr. Wright. When employers actively withhold more taxes than they should, workers are seemingly left with little recourse because of courts’ sweepingly broad interpretation of a decades-old statute. Such rulings mean that taxpayers like Mr. Wright are forced to pursue other options. One such option might be a refund suit, as suggested by the court in a footnote (“he can seek a refund of any amount Atech improperly withheld.”)

This route would lead Mr. Wright down a path of paying, through withholding, taxes that he should not have to pay, in violation of the “right to pay no more than the correct amount of tax,” per the Taxpayer Bill of Rights. He would then need to file a return or make a claim on which he would somehow seek a refund of the improperly withheld taxes. If that fails, he would then possibly have to file a refund suit (six months after filing the return or within two years from a notice of disallowance) – something he could of course only do after having paid all the taxes in full thanks to the Flora rule much discussed on this blog. During this entire process, it is unclear, per that very same Am. Friends case, whether he could seek injunctive relief against his employer, because of the Anti-Injunction Act, if he continues to work for him and the employer continues to withhold improperly.

What to make of the fact that this timeline may not yield success and could be cumbersome? The Supreme Court made clear in Am. Friends that the “frustrat[ing]” or “inadequate” nature of a refund suit does not change the fact the Anti-Injunction Act bars such suits. There are at least a couple of perplexing questions that come to mind here. First, if a worker can sue their employer under the Fair Labor Standards Act (FLSA) for failure to pay them proper wages or overtime pay, why can’t a worker sue their employer for failure to pay them enough in net take-home pay after tax deductions? The same principle of adequate, proper pay under federal law would seem to apply in the case of FICA deductions as would apply in FLSA cases (and of course both FICA and FLSA are products of the same New Deal progeny of the Depression-era federal social safety net overhaul).

Second, a worker can challenge their active misclassification, for example, as an independent contractor. If the worker succeeds, and their employer is ineligible for Section 530 safe harbor protections, the employer would have to abide by the IRS SS-8 determination and start withholding income and employment taxes. The tax withholding would change in real time as a result of the worker’s action to challenge their status; no separate proceeding is required. In addition to filing form SS-8, workers can also file a Form 3949-A to report “failure to pay tax” or “failure to withhold,” among other tax violations. If workers are permitted, even with the Anti-Injunction Act on the books, to take these actions related to their employers’ withholding, why should Mr. Wright’s claims be barred?

If these results seem inconsistent, consider the vexing nature of the Anti-Injunction Act that was articulated in the Supreme Court’s aforementioned NFIB decision. In NFIB, the Court famously saved the Affordable Care Act and its individual mandate partly on the grounds that the penalty for lack of health insurance (“the shared responsibility payment”) functionally amounted to a tax that Congress had the power to create.

But the Court interestingly held that the Anti-Injunction Act was not applicable to the shared responsibility payment because Congress specifically structured it as a “penalty” rather than as a “tax” that would be couched in the language of the Anti-Injunction Act. Therefore, while the individual mandate was upheld, the tax that enforces it was considered a “penalty” that was constitutionally a tax but notably not a tax for purposes of the Anti-Injunction Act – so suits against it could be maintained and the court could rule on its merits.

If Congress decided to recategorize FICA taxes in a way that did not explicitly tie them to the language of the Anti-Injunction Act, then Mr. Wright may have gotten past the initial barrier here. However, even with the Anti-Injunction Act firmly in place, we likely have not heard the final say on this matter.

Consider that currently some employers are following through on President Trump’s recent executive order on suspension of the employee share of FICA taxes. Absent congressional action, these taxes will have to be repaid. That could lead to large amounts of FICA withholding on some paychecks right before the deadline for repayment. That could mean miscalculations and inaccuracies, whether intentional or not, that produce improper withholding on paychecks. In turn, frustrated taxpayers might turn to the courts to recoup unauthorized deductions as workers try to make ends meet during an economic crisis. It remains to be seen how all of these developments will unfold considering courts’ generally broad reading of the Anti-Injunction Act.

Why a Win for CIC Services Would Be a Win for Tax Shelters

We welcome a group of guest bloggers who filed an amicus brief in CIC Services earlier this week.  Professors Susie Morse, Clint Wallace and Daniel Hemel and attorneys at Gupta Wessler filed a brief on behalf of former government officials Lily Batchelder, Mark Mazur, Eileen O’Connor, Leslie Samuels, Stephen Shay and George Yin.  Today, they provide us with an explanation of why the Supreme Court should uphold the decision of the 6th Circuit, which held that the Anti-Injunction Act bars CIC Services’ suit.  The Supreme Court has now scheduled this argument for December 1, 2020.  Keith

This week, a group of former government officials filed an amicus brief in support of the government in CIC Services v. IRS, the Anti-Injunction Act case before the Supreme Court this term. The case involves a tax shelter promoter that seeks to prevent the IRS from imposing penalties on the promoter and its clients if they fail to comply with tax-shelter reporting requirements. A ruling for CIC Services would, as the Solicitor General emphasizes in its brief, go a long way toward gutting the 153-year-old Anti-Injunction Act. It would also—as our brief demonstrates—deal a serious blow to the IRS in the agency’s decades-long battle to combat abusive tax shelters.

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Ever since the first wave of abusive tax shelters gathered momentum in the 1960s, Congress has taken a series of actions to give the IRS tools to fight back. Those include the at-risk rules in the Tax Reform Act of 1976, the passive activity loss limitations in the Tax Reform Act of 1986 and, at issue here, the reportable transaction disclosure regime in the American Jobs Creation Act of 2004. Specifically, in the 2004 law, Congress required tax shelter promoters and their clients to disclose certain large-dollar shelter transactions to the IRS, and it enacted new penalties so that those disclosure requirements had teeth. Of particular importance to this case, Congress placed those penalties in Subchapter 68B of the Code, which means that they qualify as “taxes” for purposes of the AIA.

The disclosure regime was, by most accounts, a resounding success. Prior to the disclosure rules, the IRS often found itself “looking for the tax shelter needle in the haystack of a complicated business tax return.” By requiring parties who arrange and participate in specific potentially abusive transactions to identify themselves to the IRS or face stiff penalties, Congress made it possible for the IRS to find the needle. To be sure, taxpayers still have the opportunity to argue that their transactions claim legal tax benefits. What they can’t do any more is keep their transactions outside the IRS’s view.

The reportable transaction scheme is designed to be agile. Congress wanted the IRS, upon learning of a new shelter, to require disclosure from promoters of the shelter and their clients. Congress specifically blessed the IRS’s practice of issuing reportable-transaction designations under already-existing authority (section 6011). That regime provides for issuance of designations by the IRS via notice in the Internal Revenue Bulletin—backed by penalties under the AJCA for failure to comply. Indeed, the IRS has designated dozens of transactions in this way, starting before Congress enacted the penalties for failure to report in the AJCA and continuing in recent years. CIC Services’ substantive argument is that the IRS should promulgate these notices through Administrative Procedure Act rulemaking rather than relying on the section 6011 framework. We think the AJCA endorsed the IRS’s approach. But in any event, the only issue here is whether CIC Services can obtain a pre-enforcement injunction that would block the IRS from imposing penalties for nondisclosure.

Allowing pre-enforcement challenges to these penalties—i.e., allowing taxpayers to challenge reportable transaction designations and to delay revealing to the IRS their participation in such transactions—would have severe consequences for the effort to fight abusive tax shelters. As we detail in our brief, injunctions of the sort that CIC Services seeks would yield three specific effects. First, they would prevent the IRS from detecting many abusive transactions. Second, when injunctions delayed detection, it would be likelier that the statute of limitations would lapse before the IRS could assess taxes that are rightfully owned. Third, in cases where the IRS is able to assess taxes before the statute of limitations runs out, delaying assessments would increase the risk of non-collection. The longer the delay, the likelier it is that taxpayers will have spent down their assets or moved their wealth beyond the IRS’s reach.

The petitioner wants to cast its effort in a different light. By its telling, the case has nothing to do with tax shelters at all. Petitioner tells the Court in its brief that its micro-captive products allow for “customized” risk management and a “more seamless claims process,” though it advertises itself to clients as a provider of a “legal tax shelter” that “can often double a business owner’s wealth.”

As readers of Procedurally Taxing know, petitioner’s argument received support from Professors Fogg and Book, who joined with the Center for Taxpayer Rights in an amicus brief opposing the Sixth Circuit’s interpretation of the AIA. Their brief argues that low-income taxpayers are especially disadvantaged when forced to rely on the AIA’s required remedy of post-enforcement judicial review. As Professor Fogg has written, under the Flora full-payment rule, in practice this can mean that post-payment judicial review for low-income taxpayers who face failure-to-report penalties is out of reach. And as Professor Book has written, the government’s approach to enforcing the tax law applicable to low-income taxpayers may excessively target taxpayers who make unintentional mistakes and lack access to constructive government guidance about how to comply.

Like Professors Fogg and Book, the authors of this blog post are concerned about the interaction between tax law enforcement and the situations faced by low-income taxpayers. But we think the remedy is to relax the full-payment rule in cases where it forces hardship for low-income individuals, and not to exempt CIC Services from the Anti-Injunction Act’s plain text.

The immediate result of a ruling for CIC Services would be to make it easier for tax-shelter promoters and their predominantly high-income clients to avoid paying the taxes they owe. That would result in less revenue overall, and more of the federal tax burden would be borne by lower-income taxpayers. The distributive result would be regressive.

Also, a ruling for petitioner is unlikely to provide relief for low-income taxpayers fighting the IRS. Petitioner’s theory is that it is challenging a “regulatory mandate” unrelated to its own tax liability. “Win or lose,” petitioner says in its brief, “the IRS will collect no additional revenue from CIC.” Petitioner accepts that taxpayers litigating about their own liabilities are covered by the Anti-Injunction Act but asks the Court to distinguish tax shelter promoters like CIC Services who are litigating about penalties for failure to disclose other taxpayers’ transactions. 

We agree with the government that the distinction that CIC Services draws is not a valid one. (Whether CIC Services wins or loses will affect the ability of the IRS to collect penalties from CIC Services itself under §§ 6707 and 6708—penalties that Congress has deemed to be taxes.) But let’s imagine that the Court disagrees and accepts CIC Services’ argument. That helps tax shelter promoters, but what does it accomplish for low-income taxpayers seeking to claim the earned income tax credit or the child tax credit? They are arguing about their own taxes and tax credits. 

In addition, a ruling for the government in CIC Services would leave undisturbed any equitable exceptions to the Anti-Injunction Act, which would allow low-income taxpayers to seek prepayment remedies in a case of clear government overreach. In the Bob Jones case, the Court said that such an equitable exception could be available where a plaintiff can show both a “certainty of success on the merits” and “irreparable injury.”  CIC Services has not sought that exception, and as our brief argues, it would not be eligible anyway. But Bob Jones may provide relief for low-income taxpayers in situations like the ones that Professors Fogg and Book highlight.  

The AIA lies at the foundation of federal tax administration and the modern tax shelter disclosure regime. That regime relies on a nimble IRS, backed by the threat of penalties for failure to disclose. Permitting tax shelter promoters to resist disclosure requirements with strategic lawsuits and pre-enforcement injunctions would mean trouble for tax collection.

Center for Taxpayer Rights Files Amicus Brief in Support of CIC in Supreme Court

Readers are likely familiar with CIC v IRS, which we originally discussed back in 2017 when a federal district court in Tennessee dismissed a suit that a manager of captive insurance companies and its tax advisor had brought that sought to invalidate IRS disclosure obligations on advisors and participants in certain micro captive insurance arrangements. Having made its way through a Sixth Circuit opinion affirming the district court and a colorful and divided denial of a request for an en banc hearing, the Supreme Court granted cert earlier this spring. 

This week the Center for Taxpayer Rights, under the leadership of Nina Olson, filed an amicus brief in support of CIC, with Keith, Carl Smith, and Meagan Horn of Thompson & Knight LLC, on behalf of the Harvard Tax Clinic, and I, all as counsel for the Center.

The issue in the case involves whether the Anti Injunction Act (AIA) shields the IRS’s information gathering requirements issued in IRS Notice 2016-66 from APA scrutiny outside traditional tax enforcement proceedings. The Sixth Circuit reasoned that the presence of a potential penalty for failing to comply with the Notice that would be assessed in the same manner as taxes shielded the IRS from pre-payment APA review. 

The case provides an opportunity to explore the reach of the AIA in light of a number of recent developments, including the 2015 Supreme Court opinion in Direct Marketing Association v Brohl and recent scholarship from Professor Kristin Hickman and Gerald Kerska calling into question whether the AIA should bar pre-enforcement challenges.

Our brief requests that the Supreme Court reverse the decision of the Sixth Circuit because in our view it improperly restricts taxpayers from challenging certain IRS requests for information in situations where the taxpayer is not bringing suit to contest the underlying merits of the tax liability. 

In our brief, consistent with the mission of the Center for Taxpayer Rights, which is dedicated to furthering taxpayers’ awareness of and access to taxpayer rights, we highlight the potential negative effect that the Sixth Circuit’s approach may have for a wide spectrum of taxpayers, including low income taxpayers. To bring that point home we explore past IRS practices requiring information from refundable credit claimants and the possible harm that future information reporting efforts could have on participation and the welfare of low income taxpayers .

As we discuss in the brief, we believe that the Sixth Circuit’s holding is inconsistent with the Court’s holding in Direct Marketing Ass’n v. Brohl:

[Direct Marketing] demonstrates that the AIA’s reach is limited with respect to challenges to requests for information by taxing authorities. The Internal Revenue Service cannot avoid this limitation by threatening taxpayers with a penalty if they do not comply with the rule-making (even if such penalty is “assessed and collected in the same manner as taxes” under the Code). If the Sixth Circuit’s overly broad interpretation stands, low-income taxpayers will be subjected to potentially severe adverse effects. The IRS will hold the unilateral right to shield their rule-making from APA scrutiny by choosing to include the right to impose a potential penalty for noncompliance. The low-income taxpayer will be at the mercy of the IRS in these circumstances with no practical ability to contest the rule-making authority of the IRS without first violating the rule established by the IRS and then paying the full amount of the penalty imposed.

The case is teed up for the fall term, and there will likely be many amicus briefs filed in the coming days.

Update: late yesterday CIC filed its opening brief, emphasizing that challenges to tax reporting requirements that are backstopped by penalties should not implicate the AIA. The brief explores the implications of Direct Marketing, questions whether the presence of an assessable penalty should meaningfully distinguish the case from Direct Marketing, argues that the Sixth Circuit’s holding furthers neither the interest of the APA or the AIA, and considers the practical consequences of an approach that prevents challenges until after a potentially sizable penalty is assessed.

For readers interested in a nuance, I note that CIC’s brief raises an issue that lurks below the main issue, namely whether the AIA is a jurisdictional statute or merely a claim processing rule (see page 23). That issue is teed up because CIC argues that the principle that jurisdictional rules should be clear merits a finding that it should be able to bring the challenge. The brief does not, however, concede on the issue that the AIA is jurisdictional , and in so doing refers to a concurring opinion by now Justice Gorsuch in the 2013 Tenth Circuit Hobby Lobby opinion. I explore the issue of whether the AIA is jurisdictional in the upcoming update to Chapter 1.6 in Saltzman Book IRS Practice and Procedure. The issue of whether the AIA is jurisdictional may be more important if the Supreme Court affirms the Sixth Circuit.

CIC: Supreme Court Review?

We have discussed CIC Services v IRS on the blog numerous times. As readers may recall, CIC involves an IRS Notice that imposes additional reporting obligations on captive insurance companies and their advisors. CIC, a manager of captives, and an individual who also managed captives and provides tax advice to them, sued. The suit claimed that the Notice imposed substantial costs and that the IRS in the Notice effectively promulgated legislative rules without complying with the APA’s mandatory notice and comment requirements. The plaintiffs sought an injunction prohibiting the IRS from enforcing the Notice and a declaratory judgment claiming that the notice was invalid. The Sixth Circuit, affirming the district court, held that the Anti-Injunction Act (AIA) barred an APA challenge to the Notice.

In August the Sixth Circuit denied a petition for rehearing (see here for my prior blog post discussing that denial). Judge Sutton in his concurring opinion accompanying the rehearing denial strongly encouraged that the Supreme Court grant cert to resolve open questions concerning the reach of the Anti-Injunction Act. 

Since that time CIC filed a cert petition. The Harvard Tax Clinic (through Keith, Carl and students Tyler Underwood, Lauren Hirsch and Oliver Roberts), Meagan Horn (at Thompson and Knight in Dallas serving as pro bono counsel to the clinic) and I have filed an amicus brief flagging the importance of the issue. In our amicus brief we emphasize that the implications of the case extend to low and moderate-income taxpayers. The amicus brief, as well as an amicus from the American College of Tax Counsel and the cert petition itself, can be found on the SCOTUSblog cite.  The government originally was supposed to respond by February 24th but it has asked the Court for a one- month extension.

As an aside, I, along with one of  my colleagues on the Saltzman/Book IRS Practice and Procedure treatise, Contributing Author Marilyn Ames, have posted on SSRN The Morass of the AIA: A Review of the Cases and Major Issues. The article will be published in the Summer 2020 issue of the Tax Lawyer and is based on the heavily rewritten Chapter 1.6 of the Saltzman Book treatise which likewise discusses and analyzes the AIA.  As the article is in draft form I encourage readers to offer comments. This, and other developments such as the Silver case Keith discussed here, suggest that the reach of the AIA is a very hot issue in tax procedure. Stay tuned.

Trying to Find Order in the Anti-Injunction Act and the Tax Injunction Act

We welcome back Marilyn Ames who has blogged for us several times in the past.  She graciously agreed to write about some recent litigation that highlights the confusion currently surrounding these provisions.  Keith

In the past few weeks, I have been revising the subchapter in Saltzman and Book, IRS Tax Practice and Procedure on the Anti-Injunction Act.  It has been an exercise in frustration, as, although the Supreme Court says it likes “rule[s] favoring clear boundaries in the interpretation of jurisdiction statutes,” it doesn’t necessary mean what it says.  That’s a quote from Direct Marketing Association v. Brohl, 135 S. Ct. 1124, 1131 (2015), discussing the lesser known sibling of the AIA, the Tax Injunction Act, which is aimed at preventing federal courts from hearing suits intended to restrain the assessment, levy, and collection of state taxes.  And in the midst of this attempt to make some sort of order out of something which does not have any, two district courts have added their opinions to the fray.

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In State of New York, et al. v. Mnuchin, which can be found here, the Southern District of New York takes on the issue of whether the Anti-Injunction Act prevents four states from bringing suit to litigate the constitutionality of the $10,000 ceiling placed on the deduction of state and local taxes (SALT) by the 2017 Tax Cuts and Jobs Act. The federal government raised three challenges to the Court’s subject matter jurisdiction, including the limitation imposed by the Anti-Injunction Act (AIA). The AIA, located at 26 USC § 7421(a) provides, with numerous exceptions, that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.”  (For those of you interested in historical/legal trivia, the initial iteration of the AIA was passed in 1867.) In addition to the exceptions to the AIA actually contained in the statute, the Supreme Court created a judicial exception to the AIA in Enochs v. Williams Packing & Navigation Co.,370 U.S. 1 (1962), requiring the plaintiff to meet a two-part test to overcome the bar of the AIA: (1) it is clear at the time the suit is filed that under no circumstances could the government prevail on the merits; and (2) the action at issue will cause the plaintiff irreparable injury. And with this opinion, the race began to explore the boundaries of this court-made exception. 

One of these cases, and the one relied on by the court in State of New York v. Mnuchin, is South Carolina v. Regan,465 US 367 (1984).  In Regan, South Carolina invoked the Supreme Court’s original jurisdiction and asked leave to file a complaint against Donald Regan, the Secretary of the Treasury at the time to litigate whether a provision of TEFRA was unconstitutional. The provision in question required state obligations to be issued in registered rather than bearer form in order to qualify as tax exempt under IRC § 103.  The government raised the AIA in its objection to South Carolina’s motion, arguing that the state did not fall within any of the specific exceptions or within the judicial exception created in Williams Packing.  The Supreme Court then created an exception to its exception, holding that the AIA was not intended to bar a suit when Congress has not provided the plaintiff with an alternative legal way to challenge the validity of a tax.  Because South Carolina was not liable for a tax which it could then pay and use as the basis for a refund suit, it had no other way to litigate the constitutionality of the TEFRA provision.  In this situation, the Supreme Court said “a careful reading of Williams Packing and its progeny supports our conclusion that the [AIA] was not intended to apply in the absence of such a remedy.”

In State of New York v. Mnuchin, four states that impose lots of state and local taxes sued to have the $10,000 ceiling on the deduction of SALT declared unconstitutional.  The federal government argued that the suit was barred by the AIA and that the Williams Packing exception did not apply.  This is not like South Carolina v. Regan, the federal government argued, because the taxpayers affected in these four states have a motivation to file refund actions to challenge the law.  (It’s not clear from the opinion why the federal government felt that the bond holders in Regan who bought bonds that no longer qualified as tax exempt would not have a similar motivation.) The district court rejected the federal government’s argument, and noted that in both Regan and the suit before the court, the plaintiff-states were seeking to protect their own interests, rather than those of their taxpayers. In this situation, the court in State of New York v. Mnuchin held, a state has no other legal remedy to assert its sovereign interests. When a plaintiff has no other legal remedy to litigate the issue, then the AIA does not apply even if the plaintiff cannot meet the Williams Packing test.  Having won the jurisdictional battle, the states in New York v. Mnuchin then lost the war when the district court held that the ceiling on SALT deductions is constitutional.  Lots for everyone to argue about on appeal.

The second opinion of American Trucking Associations, Inc. v. Alviti, 377 F.Supp.3d 125 (D.R.I. 2019)involves the Tax Injunction Act, 28 USC § 1341, which provides “the district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” As the Supreme Court recognized in Williams Packing, the TIA “throws light on the proper construction to be given” to the AIA.  In other words, these statutes have similar language and purpose. In the Alviti case, which can be found here, the plaintiffs are long distance trucking companies and associations that filed suit against the state of Rhode Island challenging the constitutionality of a bridge toll scheme.  The statute, known as the “Rhodeworks” Act, expressly prohibits the imposition of the bridge toll on any vehicles other than large commercial trucks. Under the Rhodeworks Act, the toll is set by state agencies in terms of the amount and the locations where it will be collected, and the funds go into a special account to be used only for the replacement, rehabilitation, and maintenance of bridges. The scheme instituted sets maximum daily amounts that can be collected based on the routes traveled, which the plaintiffs argue falls more heavily on trucks involved in interstate rather than intrastate travel.

The state of Rhode Island raised the TIA as a defense to the suit, arguing that although the fees were labelled as tolls, they were actually taxes subject to the TIA.  Although the Supreme Court has indicated it prefers clear boundaries, the district court framed the issue as one “which pits the actual language of the TIA and the context surrounding its enactment in the 1930s against several more modern decisions of the First Circuit that attempt to distinguish between fees and taxes.” In other words, let’s make this more confusing. The district court then cited a number of cases decided prior to enactment of the TIA, including one decided by the Supreme Court in 1887, that a toll is not a tax and that they are distinct and serve different purposes. Despite these decisions, the court then discussed whether the exaction in question fell within the three-pronged test of San Juan Cellular Telephone Co. v. Pub. Serv. Comm’n of P.R., 967 F.2d 683 (1st Cir. 1992), the purpose of which is to decide if a challenged assessment is more like a tax or a regulatory fee.  Despite finding that two of the three prongs were more in the nature of a fee, the court relied on the final prong of the test to decide the bridge tolls were actually taxes, and the suit was thus barred by the TIA. The case has been appealed to the First Circuit, and as the trucking company plaintiffs note in the brief to the circuit, this is the first case involving an exaction labelled a toll that has been found to be a tax.

It seems that while the mirage of clear boundaries for the AIA and the TIA is out there, the courts have difficulties in making their way to it.  I am reminded of a scene from Monty Python and the Holy Grail – “Bring me a shrubbery.” “Not THAT shrubbery.”

And we go on trying to make sense of what the courts really want.

Time for the Supreme Court to Step In?: Sixth Circuit Denies Petition for Rehearing in CIC Services v IRS

Last month the Sixth Circuit declined to grant a petition for rehearing en banc in the case of CIC Services v IRS. The case, which I discussed following the original panel decision in In CIC Sixth Circuit Sides With IRS in Major Anti Injunction Act Case, involves the reach of the Anti Injunction Act (AIA). But the frank concurring opinions and the dissent accompanying the denial of the en banc petition reveal differing views on the role of the modern administrative state and how tax administration fits in with broader administrative law norms. At issue is when taxpayers or advisors can challenge tax rules: the AIA has pushed challenges to issues like IRS compliance with the Administrative Procedure Act (APA) rulemaking requirements (including whether the rule was issued under the APA’s notice and comment regime) to deficiency cases or refund proceedings. 

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CIC highlights some differences between the IRS and other federal agencies. First, tax practitioners and the IRS itself refer to regulations as guidance. IRS treats certain non-regulatory guidance published in its Internal Revenue Bulletin, including the Notice in the case at issue, as binding on the IRS (and for that matter taxpayers can rely on it). Other agencies distinguish between regulations and guidance, with those agencies treating regulations as binding but guidance as not.  In addition, other agencies generally expect that they will face pre-enforcement judicial challenges to the regulations that they issue. In contrast, pre-enforcement challenges to tax regulations or other binding IRS guidance are unusual, in large part because the AIA prevents suits to restrain the assessment or collection of tax.

So, tax administration rests somewhat uneasily within the broader framework of administrative law. To recap, the AIA generally pushes challenges to IRS rulemaking to traditional tax controversy venues, that is in Tax Court in deficiency cases (if the tax or penalty is subject to deficiency procedures) or federal courts in refund matters after having to fully pay and comply with the Flora full payment rule. Many other agencies gear up for challenges immediately after they promulgate binding rules rather than having to wait for enforcement proceedings. 

All of this comes into sharp focus in CIC. The IRS issued informal guidance (a Notice) without going through APA notice and comment. The Notice imposed additional reporting obligations on captive insurance companies and their advisors. Failure to comply with the requirements could trigger substantial civil penalties that are not subject to deficiency procedures. Failing to comply with the reporting theoretically could result in criminal sanctions for willful noncompliance. CIC, a manager of captive insurance companies, and an individual who also managed captives and provides tax advice to them, sued. They claimed that the Notice imposed substantial costs and that the IRS effectively promulgated legislative rules without complying with the APA’s notice and comment requirements. The plaintiffs sought to enjoin the IRS from enforcing the Notice and asked the district court to issue a declaratory judgment claiming that the notice was invalid.

The district court dismissed the suit, and the Sixth Circuit affirmed. That led to the petition for rehearing and last month’s brief but telling order accompanied by two concurring opinions and a dissent. In rejecting the petition for rehearing, one of the concurring opinions (authored by Judge Clay, who wrote the majority Sixth Circuit opinion), largely stuck to his guns and framed the issue as one that is covered by existing AIA precedent:

A suit seeking to preemptively challenge the regulatory aspect of a regulatory tax “necessarily” also seeks to preemptively challenge the tax aspect of a regulatory tax because invalidating the former would necessarily also invalidate the latter. Bob Jones Univ.,; see also NFIB, (“The present challenge to the mandate thus seeks to restrain the penalty’s future collection.” (emphasis added)). Otherwise, a taxpayer could simply “characterize” a challenge to a regulatory tax as a challenge to only the regulatory aspect of the tax and thereby evade the AIA. Fla. Bankers,. And “as the Supreme Court has explained time and again . . . the [AIA] is more than a pleading exercise.” see also RYO Machine, LLC v. U.S. Dep’t of Treasury, (6th Cir. 2012) (“Regardless of how the claim is labeled, the effect of an injunction here is to interfere with the assessment or collection of a tax. The plaintiff is not free to define the relief it seeks in terms permitted by the [AIA] while ignoring the ultimate deleterious effect such relief would have on the Government’s taxing ability.” (quotation and many citations omitted)).

Judge Sutton also concurred in the opinion denying the petition but his concurrence has a different flavor altogether.

(As an aside, this summer  I listened to the very entertaining Malcom Gladwell podcast Revisionist History. Season 4 Episode 1 (Puzzle Rush) and Episode 2 (The Tortoise and the Hare) feature Judge Sutton as one of the protagonists in Gladwell’s take down of the LSAT and the metrics for deciding who should gain entry into the nation’s elite law schools. Spoiler: Judge Sutton, who clerked for the late Justice Scalia and who attended the very respectable but not top five Moritz College of Law at THE Ohio State University is Gladwell’s poster child for why the LSAT and for that matter the way most law schools test students are in need of a major makeover).  

For one thing, Judge Sutton states that he agrees with the dissent’s view on the merits of whether the AIA prevents the courts from hearing the challenge to the Notice. Yet, Judge Sutton still believes that the case was not appropriate for an en banc hearing. His reason is that the Supreme Court, rather than the entire Sixth Circuit, should step in: 

[T] his case does not come to us on a fresh slate. Whatever we might do with the issue as an original matter is not the key question. As second-tier judges in a three-tier court system, our task is to figure out what the Supreme Court’s precedents mean in this setting. That is not easy because none of the Court’s precedents is precisely on point and because language from these one-off decisions leans in different directions.

Judge Sutton notes that the views are fairly well drawn on the issue—between the dissent in the panel opinion and the dissent in the denial of the petition by Judge Thapar, as well as the Florida Bankers DC Circuit opinion (authored by now Justice Kavanaugh) there is enough fodder for the Supreme Court to put together the seemingly (although not necessarily) contradictory approaches in the Direct Marketing and circuit court precedent on the reach of the AIA:

The last consideration is that we are not alone. The key complexity in this case—how to interpret Supreme Court decisions interpreting the statute—poses fewer difficulties for the Supreme Court than it does for us. In a dispute in which the Court’s decisions plausibly point in opposite directions, it’s worth asking what value we would add to the mix by en-bancing the case in order to create the very thing that generally prompts more review: a circuit split. As is, we have Judge Thapar’s dissental and Judge Nalbandian’s dissent at the panel stage on one side and Judge Clay’s opinion for the court on the other. These three opinions together with then-Judge Kavanaugh’s opinion say all there is to say about the issue from a lower court judge’s perspective. All of this leaves the Supreme Court in a well-informed position to resolve the point by action or inaction—either by granting review and reversing or by leaving the circuit court decisions in place.

The final part of the denial is Judge Thapar’s stinging dissent. Taking up the mantle of Judge Nalbandian’s dissent in the Sixth Circuit panel opinion, Judge Thapar discusses the differing legal takes on the reach of the AIA (and whether challenges to reporting requirements that are backstopped by penalties really count as a challenge to a tax rather than a challenge to the reporting requirement), but he also ups the rhetoric around how the majority approach to the AIA is out of sorts with broader principles of fairness. He warns of the parade of horribles associated with unchecked IRS power and a read of the AIA that requires parties to violate tax rules (and possibly have to go to jail) to get their day in court. For good measure, he points to how the IRS (at Congress’ direction) has taken on a more expansive role in society beyond collecting revenues.  This mission creep of the IRS makes the exceptional approach to the timing of when agency guidance is subject to challenge less justifiable. Absence of a right to pre-enforcement challenge, according to Judge Thapar, is inconsistent with principles of our constitutional system of checks and balances:

The Founders gave Congress the “Power To lay and collect Taxes.” U.S. Const. art. I , § 8 , cl. 1. They limited this power to Congress because they understood full well that “the power to tax involves the power to destroy.” M’Culloch v. Maryland, 17 U.S. 316 ,431 (1819) (Marshall, C.J.). But today, the IRS (an executive agency) exercises the power to tax and to destroy, in ways that the Founders never would have envisioned. E.g., In re United States ( NorCal Tea Party Patriots ), 817 F.3d 953 (6th Cir. 2016). Courts accepted this departure from constitutional principle on the promise that Congress would still constrain agency power through statutes like the Administrative Procedure Act. 5 U.S.C. § 500 et seq. We now see what many feared: that promise is often illusory.
 

Conclusion

Underlying the technical legal issues surrounding the reach of the AIA are fundamental policy questions concerning the power that the IRS has to issue guidance that is effectively and at times practically absent from meaningful court review. There are many good reasons for rethinking the path that requires taxpayers to not comply before having an institutional check on the IRS’s fidelity to the APA—especially if the challenged tax or penalty is not subject to deficiency procedures. As Judge Clay notes in his opinion affirming the denial of the petition, these policy questions raise issues that seem to call for a legislative fix. I discussed the need for possible legislation in a post earlier this year in the post Is it Time to Reconsider When IRS Guidance is Subject to Court Review?  In the absence of legislation, the opinions accompanying the denial of the request for en banc provide a strong signal that this issue is headed to the Supreme Court. CIC may be the vehicle that gets it there.

In CIC Sixth Circuit Sides With IRS in Major Anti Injunction Act Case

Earlier this summer there were two major circuit court opinions examining the validity of guidance. First, there was Altera v. Commissioner, where the Ninth Circuit again reversed the Tax Court and upheld the validity of regulations under Section 482. The second opinion is CIC Services v IRS. That case generated a little less fanfare than Altera, but it is significant and it highlights fundamental differences in the interpretation of the Anti Injunction Act (AIA). In CIC, the Sixth Circuit found that the AIA barred an APA challenge to an IRS notice that required the reporting of micro captive insurance companies as transactions of interest under Section 6011.

In this post I will discuss the CIC case. We may return to Altera – that case in its multiple permutations remains the most blogged about case on PT; in my read the recent Altera opinion follows the approach of the prior panel, with the majority and dissents authored by the same judges. Jack Townsend’s overview and comments are worth reading, here.

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The AIA is codified at IRC § 7421(a). It provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” While the language is straightforward, recent opinions have struggled to apply its reach, especially in the context of challenges to information reporting requirements backstopped by the possible imposition of penalties.

CIC is a case we discussed previously when a district court in Tennessee dismissed the suit. CIC, a manager of captives, and an individual who also managed captives and provides tax advice to them, sued claiming in part that the Notice imposed substantial costs and that the IRS in the Notice effectively promulgated legislative rules without complying with the APA’s mandatory notice and comment requirements. The plaintiffs sought an injunction prohibiting the IRS from enforcing the Notice and a declaratory judgment claiming that the notice was invalid.

The district court and now the Sixth Circuit held that the AIA prohibited the suit. The AIA landscape when considering challenges to reporting requirements is somewhat in flux as a result of the Supreme Court’s discussion of the related Tax Injunction Act (TIA) in the Direct Marketing case from a few years ago. As you may recall, Direct Marketing involved a Colorado law that required out-of-state retailers to provide the state with information reports on their sales to residents of the state. In Direct Marketing, the Supreme Court held that the requirements were not sufficiently connected with the collection or assessment of tax for the challenge to be barred by the Tax Injunction Act, legislation that is similar to though slightly different from the AIA in that it imposes restrictions on cases involving taxes imposed by the states rather than the federal government.

Shortly after Direct Marketing, in Florida Bankers the DC Circuit (in an opinion by then Judge Kavanaugh) held that the AIA prevented bankers from challenging heightened reporting requirements when the failure to comply would lead to civil tax penalties under Subchapter 68B of the Code. In Florida Bankers the DC Circuit, relying in large part on the ACA case Nat’l Fed’n of Indep. Bus. v. Sebelius, held that the civil penalty for violating the reporting requirements was a tax and thus subject to the AIA’s reach.

Not surprisingly the plaintiffs in CIC attempted to situate the case within Direct Marketing and focused their arguments on the challenge to the IRS’s implicit regulatory regime rather than a challenge to the assessment or collection of any tax.

The Sixth Circuit in CIC disagreed, and adopted the Florida Bankers rationale in finding that the AIA prevented the suit challenging the IRS Notice. In so doing it focused on the consequences to failing to comply with the reporting requirements; that is, the civil penalties for failing to compile and maintain records relating to reportable transactions:

Plaintiff argues that the “information gathering” and “records maintenance” requirements of the Notice are focused on the act of reporting to the taxing authority information used to determine tax liability, not the discrete, subsequent acts of assessment or collection of that liability. This argument misses the mark.

While it is true that information reporting is a separate step in the taxation process that occurs before assessment or collection, see Direct Marketing, 135 S. Ct. at 1130, Plaintiff’s argument presupposes that the relevant taxes in this AIA analysis are the third-party taxes the collection of which the Notice is designed to facilitate. As previously discussed, that is incorrect. Like the challenged regulation in Florida Bankers, the Notice is indeed “two or three steps removed” from any third-party taxes. 799 F.3d at 1069. But once it is established that the relevant tax is the penalty imposed for violation of the Notice’s requirements, it becomes clear that Plaintiff’s suit is focused on that tax’s assessment or collection. Plaintiff’s suit seeks to invalidate the Notice, which is the entire basis for that tax. If successful, Plaintiff’s suit would “restrain (indeed eliminate)” it. Id. at 1067.

After finding that the matter was covered by the AIA, the majority opinion concluded that the narrow “no alternative remedy” exception to the AIA  did not apply because there was the opportunity to challenge the notice by failing to comply with its requirements, paying the associated penalties and then pursuing a refund suit.

Conclusion

The majority opinion (as does the dissent) extensively cites the Hickman and Kerska article Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017), an article PT has reviewed and I discussed earlier this year. In the opinion’s conclusion, there is an explicit acknowledgement (in part based on that article and related scholarship) that there may be legitimate grievances associated with limits on challenging the IRS’s purported failure to comply with the APA.  As I said earlier this year in PT and in an upcoming article in Temple Law Review, perhaps it is time for a fresh legislative look at ways taxpayers can challenge IRS guidance – an idea that I adopt from a 2017 article from Professor Stephanie Hunter McMahon (blogged by PT here), also cited by the dissent (as is Pat Smith, who has written about these issues for PT too).

One final point. This brief blog post does not dive deeply into the argument that Florida Bankers is wrongly decided. The dissent believes that to be the case.

In Florida Bankers, a divided panel of the D.C. Circuit held that the Anti-Injunction Act barred a similar suit challenging the legality of a reporting requirement that the IRS enforced with a tax. See 799 F.3d at 1072. That is because, the court reasoned, the tax is “imposed as a direct consequence of violating the regulation,” and so “[i]nvalidating the regulation would directly bar collection of that tax.” Id. at 1069. For the D.C. Circuit majority, this distinguished the case from Direct Marketing because “the tax . . . is not two or three steps removed from the regulation in question.” Id. In other words, there was no attenuation between the assessment and collection of the tax, on the one hand, and invalidating the regulation on the other.

That misses the mark. Enjoining a reporting requirement enforced by a tax does not necessarily bar the assessment or collection of that tax. That is because the tax does not result from the requirement per se. The only way for the IRS to assess and collect the tax is for a party to violate the requirement. So enjoining the requirement only stops the assessment and collection of the tax in the sense that a party cannot first violate the requirement and then become liable for the tax. Surely, this is the kind of attenuated relationship between “restrain,” “assessment,” and “collection” that Direct Marketing rejected.

Underlying the dissent’s different take on the reach of the AIA is its practical concern for the consequences of the majority’s approach, including the difficult position people find themselves in if they believe that the guidance that the IRS issues is either procedurally or substantively improper:

Under the majority’s decision, CIC now only has two options: (1) acquiesce to a potentially unlawful reporting requirement that will cost it significant money and reputational harm or (2) flout the requirement, i.e., “break the law,” to the tune of $50,000 in penalties for each transaction it fails to report. See 26. U.S.C. § 6707(a)–(b). Only if it (or someone else) follows the latter path—and only when (or if) the Government comes to collect the penalty—will any court be able to pass judgment on the legality of the regulatory action.

The dissent goes on to note that there are possible criminal sanctions under 7203 for willfully failing to keep the records that the Notice required:

In other words, the only lawful means a person has of challenging the reporting requirement here is to violate the law and risk financial ruin and criminal prosecution. That is probably enough to test the intestinal fortitude of anyone. And it leaves CIC in precisely the bind that pre-enforcement judicial review was meant to avoid.

I strongly suspect we will see more circuit opinions and perhaps the Supreme Court weigh in on whether it is possible to reconcile Direct Marketing and the DC Circuit’s approach. For more on these issues and the tension between Direct Marketing and Florida Bankers, including a detailed discussion of how the term “restrain” may differ in the context of the TIA and AIA (including an analysis of the Tenth Circuit’s approach to the issue in the 2017 decision Green Solution Retail which like CIC emphasized the differences between the TIA and the AIA), see the most recent update to IRS Practice and Procedure at ¶ ¶ 1.06[2] Restraining the Assessment or Collection of Tax: The Necessary Nexus to Assessment or Collection.