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Supreme Court arguments are starting up in ‘CIC Services’! Stay tuned for updates on this thread. https://www.c-span.org/video/?477431-1/cic-services-llc-v-irs-oral-argument
This case is all about the scope of the Anti-Injunction Act, a law that originated in the Civil War Era and generally requires taxpayers to wait to bring a lawsuit challenging a tax rule until after the taxpayer has actually received an IRS tax bill or paid taxes under the rule.
The question for the firm CIC Services is whether the AIA applies to the penalty-backed reporting requirement the firm is challenging. The IRS issued the reporting requirement in order to get information that it says will help it combat certain tax shelters.
CIC Services wants a court to rule that the way the reporting requirement was issued didn’t follow proper procedures. The IRS says the Anti-Injunction Act blocks courts from ruling on that issue until after CIC Services violates the requirement and receives a penalty.
As a policy argument, some experts say limiting the scope of the AIA is important to holding the Treasury Department to account: they say further limits would help courts ensure the department follows the rules when it comes to how it exercises its regulatory authority. …
… But other experts say limiting the scope of the AIA through this case would strike a blow to the IRS’s ability to combat tax shelters—in part by delaying the IRS when it’s already racing against the clock (i.e., statute of limitations constraints).
Two justices to watch today: Neil Gorsuch and Brett Kavanaugh. Gorsuch ruled while on the 10th Circuit that a similarly-worded statute dealing w/state taxation blocked a federal lawsuit from going forward. But he was overturned by SCOTUS (the ‘Direct Marketing’ case). …
… Brett Kavanaugh, while on the DC Circuit, ruled that the Anti-Injunction Act blocked a bank from bringing an early legal challenge against a penalty-backed reporting requirement (the 'Florida Bankers' case). …
… Will Kavanaugh & Gorsuch see this case as different from those earlier cases, or have different views from the SCOTUS vantage point they now have?
Justice Alito just asked CIC Services counsel Cameron T. Norris to finish this sentence: "A suit challenging an IRS regulation is barred by the Anti-Injunction Act when..."
Here’s my story with @JLeon_BT on why there’s confusion about Supreme Court precedent on the Anti-Injunction Act: https://news.bloombergtax.com/daily-tax-report/anti-injunction-act-confusion-set-for-resolution-by-high-court
Justice Sotomayor asking tough questions of CIC Services counsel. She says it would seem to her that if a lawsuit stops the IRS from collecting taxes from you, that's exactly what the Anti-Injunction Act was meant to prohibit.
J. Gorsuch just referenced the Tax Injunction Act, which deals with state taxation, in a way that could be good for CIC Services: The ship has sailed on the state side & the only question is whether federal taxpayers will get the same benefit, he asks of CIC Services counsel.
J. Kavanaugh asked tough question of CIC Services counsel Norris, saying this does seem like a regulatory tax. Norris responds that this reporting requirement is supported by potential criminal enforcement, which distinguishes it.
J. Barrett suggests a potential ruling that could be good for CIC Services. She asks about ruling that the AIA applies to this case BUT, because CIC Services would have to incur criminal penalties, even though the AIA applies, the act doesn't bar CIC Services's suit.
Justice Roberts asking Qs of IRS counsel: I think 'Direct Marketing' is a real problem for you except that case did not involve a tax penalty and this one does, he says. How much weight should that distinction hold, he asks. ...
Justice Roberts asks if counsel for the IRS thinks there is a presumption in favor of pre-enforcement review. He asks whether there's any significance to calling these penalties "tax." It's the same, isn't it?, he asks.
Justice Thomas: Normally when you think of taxes Mr. Bond you think of tax liability or tax based on business/income generating activity. Where's the income here and where is the tax liability?, he asks. How is this tax different from any ordinary fine or penalty?
Breyer asking tough question of counsel for IRS Jonathan C. Bond: Calling something a tax doesn't make it one, Breyer says. There are still differences, including if the IRS tells me I owe some money I pay it but I can get it back. Here if the IRS tells me spend money...
...to gather and give this information, I can't get that money back. That's a big difference. Normally there is judicial review of a government action requiring me to do something when that action is unlawful. I'm not saying it's not a tax, Breyer says. ...
... Breyer: I'm simply asking how do they get judicial review without paying the penalty, which I'll call a tax? How do they get judicial review of the lawfulness of the requirement that says give us the information?
Sotomayor: How many disclosure laws are there like this one where I wouldn't have to pay a tax, I only have to disclose certain information so somebody else pays a tax? The reason I'm asking this question, she says, is something Justice Breyer is getting at: ...
... [Sotomayor]: If they give you the information you need, they may have spent $50,000 but they don't need to pay the tax. We've never said someone has to spend money to not pay a tax they don't owe. Does that make any sense to you? ...
... [Sotomayor]: They can never get that money back if they give you the information or if they don't give you the information.
Justice Kagan asks a Q similar to Justice Barrett's from earlier--a Q that seems to question the IRS here: Isn't the tax penalty completely derivative, and what they [CIC Services] really have a problem with is the demand that they disclose information?, she asks. ...
... [Kagan]: That demand is backed up not only by the tax penalty but also by a potential criminal penalty. Why should we not find that that's independent, and not for the purpose of stopping a tax?
Gorsuch ponders the Supreme Court considering in its opinion that people aren't usually required to exercise their notice and comment rights from prison.
Kavanaugh spells out to IRS counsel where he's with the IRS and where he has a problem: I think you have a strong argument that this penalty is designated as a tax that fits inside the AIA, Kavanaugh says. He says he thinks 'Direct Marketing' was different because...
[Kavanaugh]: ...there wasn't a "tax" designation in that case. That all makes sense to me, Kavanaugh says. The criminal point, you just said the court could flat out say it's not a willful violation when you're challenging the reporting requirement being unlawful, ...
[Kavanaugh to IRS]: ...you're okay there. Here's where I have a concern: When the penalties are so high if you lose, in other words you have to bet, if the penalties are so high that it will deter you from challenging the regulatory reporting aspect in the first place. ...
[Kavanaugh to IRS]: Shouldn't we carve out an exception from certain precedent when the penalties from trying to challenge something are so high that it's going to be coercive and effectively deter you from bringing a challenge in the first place?
Args just wrapped after some tough Qs for IRS. New story coming. Here’s my April story on why an IRS loss would further curb a tradition—known as “tax exceptionalism”—in which Treasury/IRS have received special treatment when it comes to tax regulation: https://news.bloombergtax.com/daily-tax-report/special-treatment-for-tax-regulations-faces-latest-legal-test
