Paul L. Caron

Monday, June 22, 2015

The IRS Scandal, Day 774: The D.C. Circuit Continues To Chip Away At The Anti-Injunction Act

Hickman 2014 2TaxProf Blog op-ed:  Z Street v. Koskinen: The D.C. Circuit Continues To Chip Away At The Anti-Injunction Act, by Kristin E. Hickman (Minnesota):

In Z Street v Koskinen, the D.C. Circuit considered the justiciability of a claim raised by Z Street, a nonprofit organization, that the IRS delayed considering Z Street’s application for tax exempt status under IRC § 501(c)(3) based solely upon the fact that Z Street’s activities contradicted government policy vis a vis Israel, and that the IRS thus violated Z Street’s First Amendment rights. IRC § 7428 allows an organization to seek declaratory judgment if the IRS fails to act upon its exemption application within 270 days. Z Street brought its challenge 32 days short of that date, prompting the IRS to claim that the Anti-Injunction Act, § 7421 precluded Z Street’s suit until the 270-day period for relief under IRC § 7428 had elapsed. 

In reaching its decision, the D.C. Circuit relied principally on the Supreme Court’s decision in South Carolina v. Regan, 465 U.S. 367 (1984), which exempted from the Anti-Injunction Act cases where the plaintiff lacks an alternative means to challenge the IRS’s actions. The court noted that the point of Z Street’s suit was not to seek a final determination of its exempt status, but rather that Z Street was challenging the IRS’s unconstitutional delay in processing Z Street’s 501(c)(3) application. Consequently, according to the court, “although section 7428 provides a remedy, that remedy cannot address Z Street’s alleged injury.” By comparison, the court declined to decide whether Z Street’s claim sufficiently implicated “assessment and collection” as otherwise required to trigger application of the Anti-Injunction Act. But relying heavily on its own decision in Cohen v. United States, 650 F.3d 717 (D.C. Cir. 2011) (en banc), and to a lesser extent on the Supreme Court’s more recent decision in Direct Market Association v. Brohl, 135 S. Ct. 1124 (2015), the D.C. Circuit unequivocally rejected the IRS’s claim that the Anti-Injunction Act barred judicial consideration of all tax cases. Indeed, the court quoted Cohen twice for the same proposition, that it had rejected the IRS’s “view of ‘a world in which no challenge to [the IRS’s] actions is ever outside the closed loop of its taxing authority.’”

So what should we make of all of this? The D.C. Circuit continues -- very carefully, and almost gingerly -- to chip away at the Anti-Injunction Act as a limitation on judicial review in tax litigation. Pat Smith recently argued that the courts are headed toward allowing taxpayers wider latitude in bringing Administrative Procedure Act challenges notwithstanding the Anti-Injunction Act, and I think in general that he is right. But although the court's opinion in Z Street is certainly another step in that direction, I would say that the court deliberately avoided any truly game-changing statements to that effect. Instead, the court relied principally on South Carolina v. Regan, and otherwise emphasized a particular line from Cohen that the Anti-Injunction Act "requires a careful inquiry into the remedy sought, the statutory basis for that remedy, and any implication the remedy may have on assessment and collection,” suggesting a substantially more incremental, case-by-case approach that could allow some APA challenges while denying others. Nevertheless, whereas the Cohen court seemed to regard the circumstances of that case as uniquely aberrational, the court in Z Street seems to recognize that more Anti-Injunction Act cases will come and, consequently, to be trying to lay some groundwork to systematize the analysis of those cases.

Prior TaxProf Blog coverage:

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