Anti-Injunction Act After CIC Services

Pre-Enforcement Challenges to IRS Reporting Requirements Under the Anti-Injunction Act After CIC Services

The Anti-Injunction Act, 26 U.S.C. § 7421, 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." CIC Servs., LLC v. IRS, 593 U.S. 209 (2021) held that "[a] suit to enjoin Notice 2016–66 does not trigger the Anti-Injunction Act even though a violation of the Notice may result in a tax penalty." In identifying a suit’s purpose, the Court explained, "we inquire not into a taxpayer’s subjective motive, but into the action’s objective aim—essentially, the relief the suit requests." The Court identified "[t]hree aspects of the regulatory scheme" that, "taken in combination, refute the idea that this is a tax action in disguise": the notice imposed affirmative reporting obligations that inflicted compliance costs separate from any statutory tax penalty; the penalty stood several steps removed from the reporting duty, arriving only if the advisor refused to comply and the Service chose to assess; and noncompliance also carried criminal punishment, so the challenger could not safely disobey the notice and litigate in a refund posture. Justice Sotomayor, concurring, cautioned that "the analysis may be different when it comes to taxpayers," as distinct from material advisors, because a penalty on a taxpayer’s own nondisclosure may function as a substitute for the underlying tax.

Lower courts applying CIC Services on the merits have set aside the IRS’s listed-transaction notices as legislative rules issued without the notice-and-comment procedures the Administrative Procedure Act requires. Mann Constr., Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022) held that Notice 2007-83, which designated certain employee-benefit trust arrangements as listed transactions, "amounts to a legislative rule" because "[t]he Notice has the force and effect of law. It defines a set of transactions that taxpayers must report, and that duty did not arise from a statute or a notice-and-comment rule." The court found no statutory exemption: "Congress did not change the background procedural requirements of the APA or otherwise indicate an exemption from those requirements in a ‘clear’ or ‘plain’ way that would make the APA’s procedures inapplicable to the IRS." The Tax Court adopted the same analysis for Notice 2017-10, which listed syndicated conservation-easement transactions. Green Valley Investors, LLC v. Commissioner, 159 T.C. 80 (2022) reasoned that "[t]he act of identifying a transaction as a listed transaction by the IRS, by its very nature, is the creation of a substantive (i.e., legislative) rule and not merely an interpretative rule," concluded that "[n]either section 6011 nor 6707A says anything that would lead us to conclude that the IRS is exempt from the baseline procedures for rulemaking under the APA," and set aside Notice 2017-10, "prohibiting the imposition of I.R.C. § 6662A penalties in these consolidated cases."

Agreement on the merits has not produced agreement on remedy. Green Rock LLC v. IRS, 104 F.4th 220 (11th Cir. 2024) held that "[b]ecause the notice was a legislative rule and Congress did not expressly exempt the Service from notice-and-comment rulemaking, Notice 2017-10 is not binding on Green Rock," observing, in line with Supreme Court precedent, that "[e]xemptions from the terms of the Administrative Procedure Act are not lightly to be presumed," while noting that "[o]ur decision is specific to Notice 2017-10." A district court in the Sixth Circuit reached the same merits conclusion but confined the relief: GBX Associates LLC v. United States, No. 1:22-cv-00401 (N.D. Ohio Nov. 14, 2022) explained that "[v]acatur is an equitable remedy and the decision whether to grant vacatur is entrusted to the district court’s discretion," and set aside Notice 2017-10 as to the plaintiff alone rather than universally, reasoning that nationwide vacatur would prevent other federal courts from reaching the question in litigation the government intended to continue defending elsewhere.

The Act retains full force where the requested relief runs against assessment or collection itself, while activity antecedent to any tax remains open to pre-enforcement challenge. Harper v. Rettig, 46 F.4th 1 (1st Cir. 2022) held that a suit seeking expungement of cryptocurrency-exchange account records the IRS obtained through a John Doe summons could proceed, because examinations under the summons authority "clearly fall within the category of information gathering, which the Supreme Court has distinguished from acts of assessment and collection," and "the target of the requested injunction is the IRS’s continued retention of appellant’s personal financial information." By contrast, Hancock County Land Acquisitions, LLC v. United States, No. 21-12508 (11th Cir. Aug. 17, 2022) held that a partnership’s suit to block a final partnership administrative adjustment was barred: "Because the relief Hancock’s lawsuit seeks would restrain the IRS from assessing and collecting those taxes, it is barred by the AIA." Unlike the advisor in CIC Services, the partnership stood on "the cusp of tax liability" because the adjustment is the statutory prerequisite to assessment, would bear no "costs separate and apart" from the tax penalty, and faced no criminal exposure from proceeding in a refund posture. Govig & Associates, Inc. v. United States, No. 2:22-cv-00579 (D. Ariz. Mar. 23, 2023) drew the line claim by claim: substantive challenges to Notice 2007-83 could proceed under CIC Services, but the count seeking rescission of penalties already assessed was dismissed because it "specifically seeks to prevent the IRS from assessing and collecting tax penalties," and the procedural notice-and-comment counts "are barred by § 2401(a) because they were not brought within six years of the Notice’s issuance in 2007."

Under these decisions, the availability of pre-enforcement review turns on the relief requested on the face of the complaint. A suit directed at a reporting mandate, a recordkeeping duty, or the retention of summonsed records proceeds, because the injunction runs against an obligation antecedent to any tax; on the merits, listed-transaction notices issued without notice and comment have been set aside in the Sixth Circuit, the Tax Court, and the Eleventh Circuit. The scope of the resulting relief varies with the forum: the Tax Court’s set-aside barred penalties in the cases before it, and at least one district court has confined vacatur to the plaintiff alone, so a notice invalidated as to one advisor may remain formally operative as to others. Timing operates as an independent constraint, because procedural notice-and-comment claims may accrue at a notice’s issuance and lapse under the six-year limitations period even where the Anti-Injunction Act poses no bar, while substantive claims that the notice exceeded statutory authority accrue when the notice is applied to the challenger. And once the Service has issued the statutory predicate to assessment or has already assessed a penalty, the objective aim of the requested relief is the tax itself, and the Act channels the dispute into deficiency or refund procedures.