The Supreme Court released Monday its opinion in CIC Services v. Internal Revenue Service clarifying two seemingly conflicting provisions of the Anti-Injunction Act (AIA) and the Administrative Procedure Act (APA).
The Court held in favor of CIC Services, holding that the suit is not under the scope of the AIA:
“CIC’s suit aims to enjoin a standalone reporting requirement, whose violation may result in both tax penalties and criminal punishment. That is not a suit ‘for the purpose of restraining the [IRS’s] assessment or collection’ of a tax, and so does not trigger the Anti-Injunction Act. We reverse the judgment below and remand the case for further proceedings consistent with this opinion.”
The AIA at its most general level serves to prevent lawsuits that are aimed at preventing an assessment or collection of a tax. CIC Services was seeking to sue to block the enforcement of a notice issued by the IRS that required the company to report certain types of transactions. It questioned whether it could sue to block the enforcement or if it had to wait for the IRS to issue tax penalties for non-compliance with the reporting notice.
The Notice requiring the report of certain transactions is Notice 2016-66. The IRS requires certain captive insurance transactions to be reported, and CIC Services is obligated to report these transactions because it served as an advisor to parties of the transaction. CIC Services suggested during the oral arguments in December that the notice violates the APA because the IRS did not hold a formal public-comment period before issuing it. The company thus sued the IRS under the APA to prevent the notice from being enforced against them.
Part of the confusion came from the fact that the notice was included under a section of the IRS Code that leaves it presented as a tax, and, as previously stated, the AIA prohibits lawsuits that seek to prevent the assessment of a collection of a tax.
The Court held in this case that the IRS specifically chose to address the fact that these particular transactions are potentially abusive by requiring a reporting requirement rather than a tax. As such, the suits seeking to prevent the enforcement of the notice should not be considered under the AIA.