Florida Bankers Ass'n v. United States Department of Treasury ( 2015 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 13, 2015 Decided August 14, 2015
No. 14-5036
FLORIDA BANKERS ASSOCIATION AND TEXAS BANKERS
ASSOCIATION,
APPELLANTS
v.
UNITED STATES DEPARTMENT OF THE TREASURY, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:13-cv-00529)
Stephen C. Leckar argued the cause for appellants. With
him on the briefs were James J. Butera and Ryan D. Israel.
Andrew M. Weiner, Attorney, U.S. Department of Justice,
argued the cause for appellees. With him on the brief were
Gilbert S. Rothenberg and Teresa E. McLaughlin, Attorneys.
Before: HENDERSON and KAVANAUGH, Circuit Judges,
and RANDOLPH, Senior Circuit Judge.
Opinionfor the Court filed by Circuit Judge
KAVANAUGH, with whom Senior Circuit Judge RANDOLPH
joins.
2
Concurring opinion filed by Senior Circuit Judge
RANDOLPH.
Dissenting opinion filed by Circuit Judge HENDERSON.
KAVANAUGH, Circuit Judge: We again confront the
Anti-Injunction Act. The Act says that “no suit for the
purpose of restraining the assessment or collection of any tax
shall be maintained in any court by any person.” 26 U.S.C.
§ 7421(a). Among other things, the Act generally bars pre-
enforcement challenges to certain tax statutes and regulations.
The Act requires plaintiffs to instead raise such challenges in
refund suits after the tax has been paid, or in deficiency
proceedings. The Act thus creates a narrow exception to the
general administrative law principle that pre-enforcement
review of agency regulations is available in federal court. See
Abbott Laboratories v. Gardner, 387 U.S. 136, 152-53
(1967). The Act thereby “protects the Government’s ability
to collect a consistent stream of revenue.” National
Federation of Independent Business v. Sebelius, 132 S. Ct.
2566, 2582, slip op. at 11 (2012).
This case concerns an IRS regulation that imposes a
“penalty” on U.S. banks that fail to report interest paid to
certain foreign account-holders. See 26 C.F.R. §§ 1.6049-4,
1.6049-8 (reporting requirement); 26 U.S.C. § 6721(a)
(penalty). Two Bankers Associations – the Florida Bankers
Association and the Texas Bankers Association – challenge
the legality of the regulation. The Government argues that
their suit is premature at this time because of the Anti-
Injunction Act.
The question before us is straightforward: Is a challenge
to a tax-related statutory or regulatory requirement that is
3
enforced by a “penalty” – as opposed to a challenge to a
statute or regulation that imposes a tax – covered by the Anti-
Injunction Act? The answer to that question is often no. But
the Tax Code defines some penalties as taxes for purposes of
the Anti-Injunction Act. In those cases, the Anti-Injunction
Act ordinarily applies because the suit, if successful, would
invalidate the regulation and thereby directly prevent
collection of the tax.
This is just such a case. The penalty at issue here is
located in Chapter 68, Subchapter B of the Tax Code. See 26
U.S.C. § 6721. The Tax Code provides that penalties in
Chapter 68, Subchapter B are treated as taxes under the Anti-
Injunction Act. See id. § 6671(a); NFIB, 132 S. Ct. at 2583,
slip op. at 13. The Supreme Court explicitly confirmed as
much in NFIB, stating: “Penalties in subchapter 68B” are
“treated as taxes under Title 26, which includes the Anti-
Injunction Act.” NFIB, 132 S. Ct. at 2583, slip op. at 13.
Plaintiffs’ suit, if successful, would invalidate the reporting
requirement and restrain (indeed eliminate) the assessment
and collection of the tax paid for not complying with the
reporting requirement. For that reason, the Anti-Injunction
Act bars this suit as premature. We vacate the judgment of
the District Court and remand with directions to dismiss the
case on those grounds. 1
1
Under the law of this Court, the Anti-Injunction Act is
jurisdictional. See Gardner v. United States, 211 F.3d 1305, 1311
(D.C. Cir. 2000). Of course, that label has practical significance
only when the Government waives or forfeits its argument that the
Anti-Injunction Act bars a claim. Here, the Government asserted
that the Anti-Injunction Act bars plaintiffs’ claim, so the
jurisdictional or non-jurisdictional label carries no practical
significance for this case.
4
To be clear, our ruling does not prevent a bank from
obtaining judicial review of the challenged regulation. A
bank may decline to submit a required report, pay the penalty,
and then sue for a refund. At that time, a court may consider
the legality of the regulation. The issue here is when – not if –
the bank may challenge the regulation. Indeed, a bank that
had followed that path from the time this litigation began
several years ago would likely have already obtained judicial
review of the challenged regulation.
I
The Anti-Injunction Act 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.” 26 U.S.C.
§ 7421(a). The Declaratory Judgment Act likewise prohibits
most declaratory suits “with respect to Federal taxes.” 28
U.S.C. § 2201(a). This Court has interpreted the two Acts to
be “coterminous.” Cohen v. United States, 650 F.3d 717,
730-31 (D.C. Cir. 2011) (en banc). For simplicity, we will
refer only to the Anti-Injunction Act.
The IRS regulation at issue here requires banks to report
interest paid “to a nonresident alien individual who is a
resident of a country . . . with which the United States has in
effect an income tax or other convention or bilateral
agreement relating to the exchange of tax information.” 26
C.F.R. § 1.6049-8; see also id. § 1.6049-4 (requiring the
reporting of interest, as defined in Section 1.6049-8). Banks
file those reports using Forms 1096 and 1099-INT.
If a bank fails to file the required report, that bank is
subject to a “penalty” under 26 U.S.C. § 6721(a). Because of
its location in the U.S. Code, that penalty is treated as a tax
for purposes of the Anti-Injunction Act. We know that for
5
two good reasons: The text of the Tax Code says so, and the
Supreme Court says so.
The Tax Code is located in Title 26 of the U.S. Code.
Title 26 is subdivided into chapters numbered 1 through 100.
Chapter 68, Subchapter B provides that the penalties in that
Subchapter are considered taxes: “Except as otherwise
provided, any reference in this title to ‘tax’ imposed by this
title shall be deemed also to refer to the penalties and
liabilities provided by this subchapter.” 26 U.S.C. § 6671(a)
(emphasis added). In other words, under Section 6671(a), any
provision in Title 26 that refers to a “tax” imposed by that title
applies to penalties imposed under Chapter 68, Subchapter B.
The Anti-Injunction Act, which bars suits to restrain the
assessment or collection of taxes, is part of Title 26.
Therefore, the Anti-Injunction Act also bars suits to restrain
the assessment or collection of penalties imposed under
Chapter 68, Subchapter B.
The penalty provision at issue in this case – Section
6721(a) – is located in Chapter 68, Subchapter B. Under
Section 6671(a), the penalty is therefore treated as a tax for
purposes of Title 26 – including the Anti-Injunction Act.
Because this suit would have the effect of restraining (indeed
eliminating) the assessment and collection of that tax, the
Anti-Injunction Act bars this suit.
The key Supreme Court precedent confirms as much. In
NFIB, the Supreme Court stated that penalties in Chapter 68,
Subchapter B are taxes for purposes of the Anti-Injunction
Act. The Court’s words were clear and unequivocal:
“Penalties in subchapter 68B are thus treated as taxes under
Title 26, which includes the Anti-Injunction Act.” National
Federation of Independent Business v. Sebelius, 132 S. Ct.
2566, 2583, slip op. at 13 (2012). Had the penalty at issue in
6
NFIB been located in Chapter 68, Subchapter B, the Anti-
Injunction Act would have applied, according to the Court.
See id. But the penalty at issue in NFIB was located in
another portion of the Code (Chapter 48); for that reason, the
Anti-Injunction Act did not apply in that case, the Court said.
Id. at 2583-84, slip op. at 13-15. The Court concluded as
follows: “The Affordable Care Act does not require that the
penalty for failing to comply with the individual mandate be
treated as a tax for purposes of the Anti-Injunction Act. The
Anti-Injunction Act therefore does not apply to this suit, and
we may proceed to the merits.” Id. at 2584, slip op. at 15.
In this case, unlike in NFIB, the penalty is located in
Chapter 68, Subchapter B. Therefore, under the Court’s
analysis in NFIB, the penalty for failing to comply with the
reporting requirement at issue here is a “tax” under the Anti-
Injunction Act. So the Anti-Injunction Act bars this suit.
II
In response, plaintiffs point to a recent Supreme Court
decision involving the Tax Injunction Act, which is often
interpreted to be similar in scope to the Anti-Injunction Act.
See Direct Marketing Association v. Brohl, 135 S. Ct. 1124,
1129, slip op. at 5 (2015). The Tax Injunction Act, in
essence, bars as premature those suits targeting state tax
schemes. See id. at 1129, slip op. at 4-5. In that case, the
Court confronted a Colorado tax notice requirement, the
violation of which was subject to a $5 penalty provided by
Colorado law. Id. at 1128, slip op. at 2-3. The Court held
that the Tax Injunction Act did not bar a challenge to that
requirement. Id. at 1127, slip op. at 1.
In this case, we likewise confront a reporting requirement
that is enforced by a penalty. But in this case, Section
6671(a) treats the penalty as a tax for purposes of the Anti-
7
Injunction Act. The penalty in Direct Marketing Association
was not itself a tax, or at least it was never argued or
suggested that the penalty in that case was itself a tax. The
Anti-Injunction Act therefore applies here, unlike in Direct
Marketing Association.
To put it another way: If the penalty here were not itself
a tax, the Anti-Injunction Act would not bar this suit. But
because this penalty is deemed a tax by Section 6671(a), the
Anti-Injunction Act bars this suit as premature.
On page 27 of their reply brief, plaintiffs briefly cite this
Court’s decision in Foodservice & Lodging Institute, Inc. v.
Regan, 809 F.2d 842 (D.C. Cir. 1987). One regulation at
issue in Foodservice required food and beverage
establishments to report certain amounts that their employees
earned in tips. See id. at 846; see also 26 U.S.C. § 6053(c)(1)
(1982). We concluded that on “its face, the regulation does
not relate to the assessment or collection of taxes, but to IRS
efforts to determine the extent of tip compliance in the food
and beverage industry.” Foodservice, 809 F.2d at 846.
Therefore, the Anti-Injunction Act did not bar petitioner’s
challenge to that reporting requirement.
The penalty for non-compliance with the reporting
requirement in Foodservice was a penalty, not a tax. See 26
U.S.C. § 6652(a)(1)(B)(iv) (1982). The Foodservice Court
proceeded as if failure to comply with the regulation would
not itself require the payment of a tax (or of a penalty deemed
to be a tax by the Tax Code). See Foodservice, 809 F.2d at
846. The Court therefore analyzed the case along the same
lines that the Supreme Court later analyzed Direct Marketing
Association. As relevant here, all that Foodservice stands for
is this settled proposition: The Anti-Injunction Act ordinarily
does not bar a challenge to a reporting requirement when the
8
penalty that enforces the reporting requirement is not itself
treated as a tax under the Code.
Here, by contrast, we know that the penalty is a tax for
purposes of the Anti-Injunction Act. The Tax Code itself
provides as much. And in NFIB, the Supreme Court
unequivocally confirmed that these penalties in Chapter 68,
Subchapter B are “treated as taxes under Title 26, which
includes the Anti-Injunction Act.” National Federation of
Independent Business v. Sebelius, 132 S. Ct. 2566, 2583, slip
op. at 13 (2012) (emphasis added).
In sum, Direct Marketing Association and Foodservice
do not control this case because the penalty at issue here is
itself a tax for purposes of the Anti-Injunction Act. Unlike in
those two cases, the tax here is not two or three steps removed
from the regulation in question. Here, because the Code
defines the penalty as a tax, a tax is imposed as a direct
consequence of violating the regulation. Invalidating the
regulation would directly bar collection of that tax. This case
is therefore at the heartland of the Anti-Injunction Act.
III
Plaintiffs raise an alternative argument. In their view,
even if the penalty here is deemed a tax for purposes of the
Anti-Injunction Act, the Act still does not apply because
plaintiffs do not seek to restrain the assessment or collection
of the penalty. They contend instead that they are seeking
“relief from a regulatory mandate that exists separate and
apart from the assessment or collection of taxes.” Plaintiffs’
Reply Br. 26. The Anti-Injunction Act cannot be sidestepped
by such nifty wordplay. The Supreme Court has consistently
ruled – and most recently indicated as well in NFIB – that
plaintiffs cannot evade the Anti-Injunction Act by purporting
to challenge only the regulatory aspect of a regulatory tax.
9
In Alexander v. “Americans United” Inc., 416 U.S. 752
(1974), the IRS had revoked the tax exempt status of
Americans United, which affected the organization’s tax
liability and the ability of the organization’s donors to deduct
contributions from their taxes. In an effort to avoid the Anti-
Injunction Act’s bar, Americans United styled its suit as an
objection to the laws under which its tax-exempt status was
revoked rather than to its increased tax burden. Id. at 755-58.
Americans United argued that its suit would have “at best a
collateral effect” on the assessment or collection of taxes. Id.
at 760. It therefore contended that the suit was not barred by
the Anti-Injunction Act.
The Supreme Court disagreed. The Court explained that
if Americans United prevailed, its tax exempt status would be
reinstated and the United States would necessarily collect
fewer taxes from the organization and its charitable
contributors. A “suit to enjoin the assessment or collection of
anyone’s taxes triggers the literal terms” of the Act. Id. The
Supreme Court said it would be “circular” to conclude that a
regulatory challenge that would preclude the collection of
taxes was not a suit for the purpose of restraining the
collection of those taxes. Id. at 761.
In another case that same year, the Court similarly found
that a challenge to the IRS’s revocation of tax exempt status
was barred by the Anti-Injunction Act. As the Court
explained there, if the relief plaintiffs seek “would necessarily
preclude the collection” of “taxes” within the meaning of the
Act, “a suit seeking such relief falls squarely within the literal
scope of the Act.” Bob Jones University v. Simon, 416 U.S.
725, 732 (1974); see id. at 738-39.
Those two cases built on Bailey v. George, 259 U.S. 16
(1922). There, the Supreme Court held that the Anti-
10
Injunction Act blocked a pre-enforcement suit to enjoin
collection of the federal Child Labor Tax. Id. at 19-20. The
suit targeted the regulatory aspect of the tax, but the Court
still held that the Anti-Injunction Act applied and barred the
suit. Id.
As the Supreme Court’s case law reveals, the Court has
“abandoned” any distinction between “regulatory and
revenue-raising taxes” for purposes of the Anti-Injunction
Act. Bob Jones, 416 U.S. at 741 n.12; see United States v.
Sanchez, 340 U.S. 42, 44-45 (1950); Sonzinsky v. United
States, 300 U.S. 506, 513 (1937). A challenge to a regulatory
tax comes within the scope of the Anti-Injunction Act, even if
the plaintiff claims to be targeting the regulatory aspect of the
regulatory tax. That is because invalidating the regulation
would directly prevent collection of the tax, in violation of the
Anti-Injunction Act. See also Z Street v. Koskinen, No. 15-
5010, 2015 WL 3797974, at *3 (D.C. Cir. June 19, 2015)
(describing “Americans United” and Bob Jones as saying that
notwithstanding the plaintiffs’ claims in those cases, the
“obvious purpose” of their suits was to reduce payment of
taxes). 2
Consistent with that line of cases, NFIB itself further
refutes plaintiffs’ argument. In that case, in an alternative
argument, the plaintiffs contended that the Anti-Injunction
Act did not apply because they were challenging not the
penalty but rather the underlying regulatory mandate that they
purchase health insurance. The Government, while agreeing
with the plaintiffs that the Anti-Injunction Act did not apply
2
In Z Street, we held that the challenge there fell into an
exception that the Supreme Court has made to the Anti-Injunction
Act for cases “where the plaintiff has no other remedy for its
alleged injury.” Z Street, 2015 WL 3797974, at *6; see generally
South Carolina v. Regan, 465 U.S. 367 (1984).
11
for other reasons, vigorously disputed that particular
argument. Citing decades of Supreme Court case law, the
Government explained: “Private respondents err in
suggesting that they can avoid the AIA, if otherwise
applicable, by characterizing their suit as a challenge to the
statutory predicate for imposition of the minimum coverage
penalty rather than the penalty itself.” NFIB Government’s
Br. at 38.
In concluding that the Anti-Injunction Act did not bar the
suit, the Supreme Court hewed to the line advanced by the
Government. The Supreme Court concluded that the penalty
at issue there was not a tax under the Anti-Injunction Act.
Had the Court ended there, NFIB perhaps would not tell us
much one way or the other about the regulatory tax issue. But
NFIB also made clear that the Anti-Injunction Act would have
applied if the penalty were a tax under the Act. The Court
unequivocally stated: “Penalties in subchapter 68B are . . .
treated as taxes under Title 26, which includes the Anti-
Injunction Act.” National Federation of Independent
Business v. Sebelius, 132 S. Ct. 2566, 2583, slip op. at 13
(2012). And the Court concluded that section of its opinion
by saying: “The Affordable Care Act does not require that
the penalty for failing to comply with the individual mandate
be treated as a tax for purposes of the Anti-Injunction Act.
The Anti-Injunction Act therefore does not apply to this suit,
and we may proceed to the merits.” Id. at 2584, slip op. at 15
(emphasis added).
In saying as much, the Supreme Court did not recognize
or carve out a new exception to the Anti-Injunction Act for
cases targeting taxes used to enforce regulatory mandates.
Nor did the Court even suggest that was an open question.
And it is all but impossible to deem the Court’s words
12
inadvertent, given the extensive briefing and argument
focused on that precise question.
The repercussions of plaintiffs’ argument on this point
show, moreover, why the Supreme Court has consistently
rejected it. A taxpayer could almost always characterize a
challenge to a regulatory tax as a challenge to the regulatory
component of the tax. That would reduce the Anti-Injunction
Act to dust in the context of challenges to regulatory taxes.
But the Anti-Injunction Act is more than a pleading exercise,
as the Supreme Court has explained time and again in
concluding that it bars premature challenges to regulatory
taxes.
Under Bailey, Alexander, Bob Jones, and NFIB,
plaintiffs’ challenge to the reporting requirement is
necessarily also a challenge to the tax imposed for failure to
comply with that reporting requirement. If plaintiffs’
challenge were successful, the IRS would be unable to assess
or collect that tax for failure to comply with the reporting
requirement. Invalidating the reporting requirement would
necessarily “restrain” the assessment and collection of the tax.
This we cannot do. 3
3
In Seven-Sky v. Holder, 661 F.3d 1, 14 (D.C. Cir. 2011), we
concluded that the Anti-Injunction Act did not bar a suit that
challenged the individual mandate provision of the Affordable Care
Act. We held that the penalty there was not a “tax” under the Act
because it was located outside Chapter 68. See id. at 10-12. The
Supreme Court agreed with our Anti-Injunction Act decision in
Seven-Sky on precisely that ground. NFIB, 132 S. Ct. at 2583-84,
slip op. at 13-15. Seven-Sky also cited Foodservice and noted that
the Anti-Injunction Act has “never been applied to bar suits brought
to enjoin regulatory requirements that bear no relation to tax
revenues or enforcement.” Seven-Sky, 661 F.3d at 9. That is true
13
***
In sum, the Banking Associations’ challenge to the
reporting requirements in Sections 1.6049-4 and 1.6049-8 is
barred by the Anti-Injunction Act and the tax exception to the
Declaratory Judgment Act. We vacate the judgment of the
District Court and remand with directions to dismiss the case
on those grounds.
So ordered.
and corresponds to our holding in this case. The difference here, of
course, is that the penalty in this case is itself treated as a tax under
the Code, which is the point the Supreme Court emphasized in
NFIB. Moreover, Seven-Sky never stated that, even assuming the
penalty at issue there was itself a tax, the Anti-Injunction Act would
still not apply. In all events, as we have explained, NFIB (which
post-dated Seven-Sky) indicated that a party may not avoid the Anti-
Injunction Act by purporting to challenge only the regulatory aspect
of a regulatory tax. In NFIB, the Supreme Court stated
unequivocally that the Anti-Injunction Act applies to penalties
treated as taxes under the Tax Code.
RANDOLPH, Senior Circuit Judge, concurring: I join the
court’s opinion, in part because I do not agree that Seven-Sky v.
Holder, 661 F.3d 1 (D.C. Cir. 2011), stands for the “alternative
holding” the dissent describes. See Dissent at 10-12, 14-17, 17
n.7. The majority opinion in Seven-Sky never said, much less
held, that the Anti-Injunction Act would not apply even if the
penalty in that case were a tax within the meaning of the Act,
which it was not.
KAREN LECRAFT HENDERSON, Circuit Judge, dissenting:
The Florida and Texas Bankers Associations (Associations)
challenge a 2012 IRS regulation (2012 Rule) that requires
banks to report the interest they pay to non-resident aliens—a
regulation with major economic consequences for their
member banks. Although their challenge raises several
difficult questions, the Anti-Injunction Act (AIA) is not one
of them. Supreme Court and Circuit precedent makes plain
that the AIA does not apply here: the 2012 Rule is a tax-
reporting requirement with a tax penalty attached and the AIA
does not bar a challenge to a tax-reporting requirement, see
Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124, 1131, 1133
(2015), to a regulation with a tax penalty attached, see Seven-
Sky v. Holder, 661 F.3d 1, 8–10 (D.C. Cir. 2011), abrogated
on other grounds by Nat’l Fed’n of Indep. Bus. (NFIB) v.
Sebelius, 132 S. Ct. 2566 (2012), or to a tax-reporting
requirement with a tax penalty attached, see Foodservice and
Lodging Inst., Inc. v. Regan, 809 F.2d 842, 846 & n.10 (D.C.
Cir. 1987). My colleagues conclude that a few sentences
from NFIB somehow overrule our decisions in Seven-Sky and
Foodservice—a conclusion that drastically overreads NFIB
and ignores the Supreme Court’s more recent pronouncement
in Direct Marketing. Because the aforementioned decisions
are neither distinguishable nor have they been overruled, we
should follow them. See LaShawn A. v. Barry, 87 F.3d 1389,
1395 (D.C. Cir. 1996) (en banc) (“One three-judge panel . . .
does not have the authority to overrule another three-judge
panel of the court.”); Winslow v. FERC, 587 F.3d 1133, 1135
(D.C. Cir. 2009) (“Vertical stare decisis—both in letter and in
spirit—is a critical aspect of our hierarchical Judiciary headed
by ‘one supreme Court.’ ” (quoting U.S. CONST., art. III,
§ 1)). Even if they did not bind us, I believe our precedent
charts the right course here. According to my colleagues, no
party can obtain pre-enforcement review of a regulation that
is enforced by a tax penalty; instead, he must violate the
regulation (i.e., break the law) and be assessed a tax penalty
before he can have his day in court. I shudder at the
2
government-empowering consequences of their decision. I
therefore dissent from my colleagues’ dismissal under the
AIA. Given the significance and closeness of the merits,
however, I withhold judgment on the Associations’
underlying challenge to the 2012 Rule.
I.
A.
The IRS enacted the 2012 Rule to narrow the “tax gap”—
the difference between the taxes the IRS is owed and the taxes
it actually collects. See generally Tax Gap for Tax Year
2006, IRS (Jan. 6, 2012), http://www.irs.gov/pub/newsroom/
overview_tax_gap_2006.pdf (estimating net tax gap of $385
billion per year, or 14% of total taxes owed). The 2012 Rule
requires U.S. banks to report the interest they pay to non-
resident aliens. See 26 C.F.R. §§ 1.6049-4(b)(5); 1.6049-8.
Banks must report this information on Form 1042-S,
id. § 1.6049-4(b)(5), and, if they fail to do so, they are subject
to a tax penalty, see 26 U.S.C. § 6721. The IRS does not tax
the interest earned by non-resident aliens. See id.
§§ 871(i)(2)(A); 6049(b)(2)(B)(ii), (iv). Instead, it gives this
information to other countries in exchange for information
about the interest U.S. citizens earn in foreign banks. See 77
Fed. Reg. 23,391, 23,391 (Apr. 19, 2012). The IRS does tax
that interest. See Form 1099-INT. The problem, however, is
that the U.S. tax system is “based on a system of self-
reporting” whereby “the Government depends upon the good
faith and integrity of each potential taxpayer to disclose
honestly all information relevant to tax liability.” United
States v. Bisceglia, 420 U.S. 141, 145 (1975). Unfortunately,
some Americans try to hide income by depositing it in foreign
banks—the infamous “Swiss bank account.” See generally
Sen. Carl Levin, Letter to Cmm’r Douglas H. Shulman at 2
3
(Apr. 12, 2011), reprinted in Supplemental Appendix 107
(estimating that offshore tax abuse causes annual loss of $100
billion in tax revenue). The idea behind the 2012 Rule is that,
if U.S. citizens know foreign banks report the interest they
earn abroad, they are more likely to self-report that income to
the IRS. See FactCoalition, Comments and Request to Speak
at Hearing (no date), reprinted in Appendix 403 (comparing
98.8% self-reporting rate for income subject to third-party
reporting with 46% self-reporting rate for income that is not).
Increased self-reporting, in turn, helps to narrow the tax gap.
U.S. banks do not like the 2012 Rule. They fear it will
cause “capital flight” because non-resident aliens will no
longer view the United States as a safe place to keep their
money. See Compl. ¶ 37. The Associations filed suit on
behalf of their members, challenging the 2012 Rule under the
Administrative Procedure Act and the Regulatory Flexibility
Act. Their challenge is pre-enforcement: none of their
members has violated the 2012 Rule or been assessed a tax
penalty. Instead, the Associations seek a judgment declaring
the 2012 Rule invalid and an injunction preventing its
enforcement.
The district court, after rejecting the Government’s
standing and AIA objections, concluded that the 2012 Rule
was validly promulgated and entered summary judgment
accordingly. See Fla. Bankers Ass’n v. U.S. Dep’t of
Treasury, 19 F. Supp. 3d 111, 119–26 (D.D.C. 2014). The
Associations timely appealed. On appeal, the Government
has renewed its standing 1 and AIA arguments.
1
Specifically, the Government contends that the Associations
lack standing to raise a Regulatory Flexibility Act challenge. In my
view, the Government is plainly incorrect. For Article III standing,
the Associations have standing if one of their members would have
4
B.
The AIA, with exceptions not relevant here, provides:
[N]o 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.
26 U.S.C. § 7421(a). 2 The statute is intended to “permit the
United States to assess and collect taxes alleged to be due
standing. See Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S.
333, 343 (1977). Standing here is self-evident: banks are the
“object” of the 2012 Rule and their injuries would be redressed if
we granted the Associations’ requested relief (i.e., vacatur of the
2012 Rule). Lujan v. Defenders of Wildlife, 504 U.S. 555, 561–62
(1992). The Government objects that the Associations never
identified a member that qualifies as a “small” business under the
judicial-review provision of the Regulatory Flexibility Act. See 5
U.S.C. § 611(a)(1). I read the Government’s objection as one
aimed at statutory standing, not Article III standing. See Lexmark
Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1387
& n.4 (2014). In any event, the requirement is satisfied. The
Associations have submitted sealed affidavits identifying specific
member banks that are “small” businesses as that term was defined
when this suit was filed. See 13 C.F.R. § 121.201 (2013) (“small”
business includes commercial banks with $175 million of assets or
less), amended by, 78 Fed. Reg. 37,409 (June 20, 2013). The
Associations therefore have standing to raise a Regulatory
Flexibility Act challenge to the 2012 Rule.
2
The AIA governs suits for injunctive relief only. The
Declaratory Judgment Act, however, also bars litigants from
obtaining declaratory relief “with respect to Federal taxes.” 28
U.S.C. § 2201(a). We have interpreted the two statutes as
5
without judicial intervention, and to require that the legal right
to the disputed sums be determined in a suit for refund.”
Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 7 (1962).
If taxpayers could challenge the validity of a tax and forego
payment during the pendency of the lawsuit, it “would so
interrupt the free flow of revenues as to jeopardize the
Nation’s fiscal stability.” Cohen, 650 F.3d at 724; see also
California v. Grace Brethren Church, 457 U.S. 393, 410
(1982). Our cases assume the AIA is a “jurisdictional” bar.
See Seven-Sky, 661 F.3d at 5 (citing Gardner v. United States,
211 F.3d 1305, 1311 (D.C. Cir. 2000)). 3
By its terms, the AIA applies if a suit (1) seeks to
“restrain[] the assessment or collection” of (2) a “tax.” See
“coterminous,” Cohen v. United States, 650 F.3d 717, 730 (D.C.
Cir. 2011) (en banc), so I will refer to the AIA only.
Likewise, some of the cases cited herein interpret the Tax
Injunction Act (TIA), 28 U.S.C. § 1341—the state-tax analog of the
AIA. Nevertheless, the TIA cases are directly applicable because
we “assume[] that words used in both [the AIA and TIA] are
generally used in the same way.” Z St. v. Koskinen, No. 15-5010,
2015 WL 3797974, at *5 (D.C. Cir. June 19, 2015) (quoting Direct
Mktg., 135 S. Ct. at 1129 (alteration omitted)).
3
It may be high time to revisit this assumption. None of our
cases has thoroughly analyzed whether the AIA is jurisdictional,
particularly in light of the Supreme Court’s recent attempts to
“bring some discipline to the use of the term ‘jurisdiction.’ ”
Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2013)
(some quotation marks omitted); see also, e.g., United States v.
Kwai Fun Wong, 135 S. Ct. 1625, 1631–38 (2015); Gonzalez v.
Thaler, 132 S. Ct. 641, 648–52 (2012); Henderson ex rel.
Henderson v. Shinseki, 562 U.S. 428, 434 (2011) (collecting cases).
And there are good reasons to doubt the AIA’s jurisdictional status.
See Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1158–59
(10th Cir. 2013) (en banc) (Gorsuch, J., concurring).
6
Seven-Sky, 661 F.3d at 5, 8. The key, in most cases, is the
first requirement. The word “restrain” modifies “assessment
or collection,” not “tax.” See Direct Mktg., 135 S. Ct. at
1132. Accordingly, the AIA does not bar every suit that “will
ultimately affect the money Treasury retains,” Cohen, 650
F.3d at 726, or that “w[ill] have a negative impact on
[government] revenues,” Direct Mktg., 135 S. Ct. at 1133.
Nor does it bar “any court action related to any phase of
taxation.” Id. at 1132. Instead, “[t]he AIA has almost literal
effect: It prohibits only those suits seeking to restrain the
assessment or collection of taxes.” Cohen, 650 F.3d at 724
(quotation marks omitted). The Supreme Court gives the
words “assessment” and “collection” technical definitions.
“Assessment” is “the official recording of a taxpayer’s
liability,” Direct Mktg., 135 S. Ct. at 1130—“the trigger for
levy and collection efforts,” Hibbs v. Winn, 542 U.S. 88, 90
(2004). “Collection” refers to “the act of obtaining payment
of taxes due.” Direct Mktg., 135 S. Ct. at 1130. The Court
also defines “restrain” in a “narrow[]” sense. Id. at 1132.
The word “captures only those orders that stop . . . acts of
‘assessment [or] collection,’ ” not orders that “merely inhibit”
them. Id. (first emphasis added). Taken together, the AIA
does not apply unless a plaintiff seeks to stop the technical
processes of assessment or collection.
II.
The question here is whether the Associations’ pre-
enforcement challenge to the 2012 Rule seeks to “restrain[]
the assessment or collection” of taxes under the AIA. The
2012 Rule is a tax-reporting requirement: it requires U.S.
banks to report information about nontaxable income (interest
they pay to non-resident aliens) that the United States then
exchanges for information about taxable income (interest
foreign banks pay to U.S. citizens). As always, there is a
7
penalty attached to non-compliance with a regulation: for the
2012 Rule, the penalty is denominated a tax. It is located in
subchapter 68B of the Tax Code, see 26 U.S.C. § 6721, and
all subchapter 68B penalties are “treated as taxes under . . .
the Anti–Injunction Act,” NFIB, 132 S. Ct. at 2583; see also
26 U.S.C. § 6671(a) (“any reference in [Title 26] to ‘tax’ . . .
shall be deemed also to refer to [subchapter 68B] penalties”).
Thus, the precise sub-questions on appeal are whether the
AIA bars a pre-enforcement challenge to a regulation that
imposes (A) a tax-reporting requirement, (B) a tax penalty for
non-compliance or (C) both. In my view, precedent answers
all three questions in the negative.
A.
After oral argument in this case, the Supreme Court
decided Direct Marketing Ass’n v. Brohl, which held that a
challenge to a tax-reporting requirement was not barred by the
TIA (and, by analogy, the AIA). See 135 S. Ct. at 1129,
1131, 1133. Direct Marketing involved a Colorado law that
requires out-of-state retailers to, inter alia, report the names,
addresses and purchases of their Colorado customers. See
Colo. Rev. Stat. § 39–21–112(3.5)(d)(II)(A); 1 Colo. Code
Regs. § 201–1:39–21–112.3.5(4). Non-compliant retailers are
subject to a penalty. See Colo. Rev. Stat. § 39–21–
112(3.5)(d)(III)(A); 1 Colo. Code Regs. § 201–1:39–21–
112.3.5(3)(d). Like the 2012 Rule, the Colorado law is
intended to encourage self-reporting: by requiring third-party
reporting by retailers, Colorado sought to encourage its
citizens to pay sales taxes on the goods they purchase from
the Internet. See Direct Mktg., 135 S. Ct. at 1127–28. A
retailers’ association brought a pre-enforcement challenge to
the Colorado reporting requirement, seeking declaratory and
injunctive relief. See Direct Mktg. Ass’n v. Huber, No. 10-cv-
01546, 2012 WL 1079175, at *2 (D. Colo. Mar. 30, 2012).
8
The Supreme Court unanimously rejected the TIA
defense. See Direct Mktg., 135 S. Ct. at 1131; id. at 1134
(Kennedy, J., concurring); id. at 1136 (Ginsburg, J.,
concurring). A challenge to a tax-reporting requirement, the
Court explained, does not “restrain” the “assessment . . . or
collection” of taxes. Id. at 1131, 1133 (majority op.). The act
of reporting occurs before the technical processes of
“assessment” and “collection.” Id. at 1129–30 (“[T]he
Federal Tax Code has long treated information gathering as a
phase of tax administration procedure that occurs before
assessment . . . or collection. This step includes private
reporting of information used to determine tax liability,
including reports by third parties who do not owe the tax.”
(citations omitted)). After a retailer files the required report,
“the State still needs to take further action to assess the
taxpayer’s use-tax liability and to collect payment from him.”
Id. at 1131. Of course, an injunction invalidating Colorado’s
law would “inhibit” the assessment or collection of taxes
because “reporting requirements are intended to facilitate
collection of taxes.” Id. at 1132; see also id. at 1131. “[B]ut
the TIA is not keyed to all activities that may improve a
State’s ability to assess and collect taxes.” Id. at 1131.
According to the High Court, “[s]uch a rule would be
inconsistent not only with the text of the statute, but also with
our rule favoring clear boundaries in the interpretation of
jurisdictional statutes.” Id.
Under Direct Marketing, the Associations’ challenge to
the 2012 Rule is not barred by the AIA. If successful, their
challenge would at most “inhibit” the IRS’s ability to assess
and collect taxes. Id. at 1132. If banks no longer need to
report the interest they pay to non-resident aliens, then the
United States can no longer exchange that information with
other countries and will be less successful in taxing the
interest earned by U.S. citizens abroad. But “private reporting
9
of information” by banks is at least one step removed from
the “assessment or collection” of taxes. Id. at 1129. In fact,
this case is even further removed from assessment or
collection than Direct Marketing: the information required to
be reported here (interest paid to non-resident aliens) is not
even taxable, unlike the information required to be reported in
that case (purchases made by Colorado citizens). The IRS
must take yet another step under the 2012 Rule—namely,
exchanging the reported information with other countries and
then auditing Americans keeping money abroad—before it
can formally assess or collect any taxes. Thus, the
Associations’ challenge to the 2012 Rule is not barred by the
AIA.
B.
Both the Government and my colleagues distinguish
Direct Marketing on the basis that the reporting requirement
there is enforced by an ordinary penalty 4 whereas the 2012
Rule is enforced by a tax penalty. See Government’s 28(j)
Letter at 2 (Mar. 9, 2015); Maj. Op. at 6–7. But, according to
4
Both also simply assume that the penalty in Direct
Marketing is not a tax. I would note, however, that the Supreme
Court made no such determination nor relied on a tax-versus-
penalty distinction. And whether a penalty is a tax under the TIA is
not an entirely straightforward question. See Seven-Sky, 661 F.3d
at 8 n.15 (“Courts do not defer to the labels states—as opposed to
Congress—bestow on [penalties], because the meaning of a ‘tax’
under the Tax Injunction Act is a question of federal, not state,
law.”); Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 713 (2d Cir.
1993) (“there is no bright line between [penalties] that are taxes and
those that are not” under the TIA), rev’d on other grounds, 514
U.S. 645 (1995). Nevertheless, because the distinction should not
matter in this case, I too will assume that the penalty in Direct
Marketing is not a tax.
10
our decision in Seven-Sky, the provision of a tax penalty does
not bar a pre-enforcement challenge that would otherwise
satisfy the AIA. See Seven-Sky, 661 F.3d at 8–10.
The “primary” issue in Seven-Sky was the
constitutionality of the Affordable Care Act’s individual
mandate, 26 U.S.C. § 5000A(a). Seven-Sky, 661 F.3d at 14.
On that issue, we held that the mandate is a constitutional
exercise of the Congress’s Commerce Clause power, id. at
14–20. Before so ruling, however, the Seven-Sky Court
considered whether the challenge to the individual mandate is
barred by the AIA. See id. at 5–14. We concluded it is not
barred for two independent reasons. First, the challenge did
not implicate a “tax” at all: the enforcement mechanism for
the individual mandate, 26 U.S.C. § 5000A(b)–(c), is an
ordinary penalty, not a tax. See Seven-Sky, 661 F.3d at 5–8,
10–12. Second, even assuming the penalty is a tax, the AIA
would not apply because the plaintiffs challenged the
mandate, not the tax. See id. at 8–10; see also id. at 41
(Kavanaugh, J., dissenting) (“[T]he majority opinion
separately contends that the Anti–Injunction Act does not
apply to plaintiffs’ suit even if the Affordable Care Act
penalties are taxes for purposes of the Anti–Injunction Act.”
(emphases in original)). The Seven-Sky plaintiffs did not seek
to “restrain[] the assessment or collection” of the penalty;
rather, they “brought suit for the purpose of enjoining a
regulatory command, the individual mandate, that . . .
imposes obligations independent of the [penalty].” Id. at 8
(majority op.) (emphasis added). Specifically:
The[ plaintiffs] seek injunctive and declaratory relief
to prevent anyone from being subject to the mandate,
irrespective of whether they intend to comply with it,
and irrespective of the means Congress chooses to
implement it. The harms appellants allege . . . exist
11
as a result of the mandate, not the penalty. . . . True,
. . . the penalty would be a serious financial burden.
But that harm affects only the limited class of
individuals who fail to comply when the mandate
goes into effect.
Id. at 8–9. Our second holding in Seven-Sky is an alternative
holding but it nonetheless binds us. See Ass’n of Battery
Recyclers, Inc. v. EPA, 716 F.3d 667, 673 (D.C. Cir. 2013)
(“Where . . . there are two grounds, upon either of which an
appellate court may rest its decision, and it adopts both, the
ruling on neither is obiter dictum, but each is the judgment of
the court, and of equal validity with the other.” (quotation
marks and brackets omitted)).
Under Seven-Sky’s alternative holding, the Associations’
challenge is not barred by the AIA, notwithstanding the 2012
Rule is enforced with a tax penalty. As in Seven-Sky, we must
assess the Associations’ challenge by making “a careful
inquiry into the remedy sought, the statutory basis for that
remedy, and any implication the remedy may have on
assessment and collection.” Z St., 2015 WL 3797974, at *5
(citing Seven–Sky, 661 F.3d at 10). Here, the Associations
seek declaratory and injunctive relief from the regulatory
requirement that their members report the interest earned by
non-resident aliens, 26 C.F.R. §§ 1.6049-4(b)(5); 1.6049-8,
not the tax penalty for failing to comply with that
requirement, 26 U.S.C. § 6721. The “harms [they] allege”—
mainly, capital flight—“exist as a result of the [reporting
requirement], not the penalty.” Seven-Sky, 661 F.3d at 9. The
Associations challenge the 2012 Rule “irrespective of whether
they intend to comply with it, and irrespective of the means
Congress chooses to implement it.” Id. at 8–9. Moreover,
their challenge comes before enforcement: none of their
members has been assessed a tax penalty and, thus, they do
12
not seek to “restrain[]” the “assessment”—much less
“collection”—of a tax. See Direct Mktg., 135 S. Ct. at 1131,
1133; Seven-Sky, 661 F.3d at 10.
Granted, if the Associations succeed, the IRS will never
collect any tax penalties under the 2012 Rule because there
will be no Rule for the banks to violate. This argument,
however, applies with equal force to the challenge in Seven-
Sky but we allowed that challenge to proceed. Indeed, like the
Seven-Sky suit, the Associations’ challenge hardly implicates
the purpose of the AIA: “protect[ing] the Government’s
ability to collect a consistent stream of revenue.” NFIB, 132
S. Ct. at 2582. A tax penalty is meant to deter violations of
the underlying regulatory requirement: if the penalty is
avoided—and presumably this is the Government’s intent—
then individuals will have complied with the regulation and
the IRS will collect zero revenue. See Seven-Sky, 661 F.3d at
6 (“[T]he aim of the shared responsibility payment is to
encourage everyone to purchase insurance; the goal is
universal coverage, not revenues from penalties.”). A tax
penalty like the one attached to the 2012 Rule is “unrelated to
the protection of the revenues,” a point that further
demonstrates why this suit is not barred by the AIA. Id. at
13–14 (quoting Bob Jones Univ. v. Simon, 416 U.S. 725, 740
(1974)).
My colleagues—relying primarily on Alexander v.
“Americans United” Inc., 416 U.S. 752 (1974), and Bob
Jones, 416 U.S. 725—contend that “plaintiffs cannot evade
the Anti-Injunction Act by purporting to challenge only the
regulatory aspect of a regulatory tax.” Maj. Op. 8. But this
same argument was made, see Seven-Sky, 661 F.3d at 42–43
(Kavanaugh, J., dissenting) (“Bob Jones and Americans
United . . . mean . . . [t]he Anti–Injunction Act cannot be
evaded by characterizing the suit as a challenge only to the
13
regulatory aspect of a tax.”), and rejected, see id. at 9–10
(majority op.), in Seven-Sky. See also Z St., 2015 WL
3797974, at *5 (rejecting argument “that Bob Jones and
Americans United require a broad approach to what
constitutes prohibited tax litigation” (quotation marks
omitted)). According to the Seven-Sky majority, Americans
United and Bob Jones are only “superficially similar” to a
case like this one. 661 F.3d at 9. Those cases involved
challenges to the revocation of the respective organizations’
tax-exempt status—challenges that “are inextricably linked to
the assessment and collection of taxes.” Id. at 10 (emphasis
in original). The organizations’ suits were “defeated by
[their] own pleadings, since the only injuries plaintiffs
identified involved tax liability.” Id. (emphasis in original);
see also Z St., 2015 WL 3797974, at *3. This distinction is
“crucial.” Seven-Sky, 661 F.3d at 10. Here, the Associations
do not challenge anyone’s tax-exempt status and their
pleadings identify injuries other than tax liability (e.g., capital
flight). According to Seven-Sky, “[i]t does not follow from
[“Americans United” and Bob Jones] that plaintiffs can never
bring a pre-enforcement challenge to a discrete regulatory
requirement” that has a tax penalty attached to it. Id. 5
5
My colleagues also rely on Bailey v. George, 259 U.S. 16
(1922), for the proposition that the AIA blocks a suit that “target[s]
the regulatory aspect of [a] tax.” Maj. Op. 9. This argument was
made in Seven-Sky, see 661 F.3d at 43–44 (Kavanaugh, J.,
dissenting), but failed. In any event, Bailey is plainly
distinguishable. The plaintiffs there challenged the constitutionality
of a tax—indeed, the tax had already been assessed and the
plaintiffs sought an injunction barring its collection, see 259 U.S. at
19—whereas the plaintiffs here challenge a reporting requirement
(not a tax) and bring their challenge pre-enforcement (no tax has
been assessed).
14
The majority also contends that the Supreme Court’s
decision in NFIB overruled our alternative holding in Seven-
Sky. See Maj. Op. 13 n.3. NFIB did overrule Seven-Sky’s
Commerce Clause holding. See NFIB, 132 S. Ct. at 2585–93
(opinion of Roberts, C.J.); id. at 2644–50 (Scalia, Kennedy,
Thomas, Alito, JJ., dissenting). But the Supreme Court did
not overrule our AIA analysis. On the contrary, it agreed with
our first holding that the enforcement mechanism for the
individual mandate is a penalty, not a tax. See id. at 2582–84
(majority op.). And it did not reach our alternative holding.
Because the NFIB Court concluded that the penalty is not a
“tax” in the first place, it had no occasion to decide whether,
even assuming the penalty is a “tax,” the plaintiffs’ suit did
not seek to “restrain[] the assessment or collection” thereof.
Thus, we must continue to follow Seven-Sky. See Battery
Recyclers, 716 F.3d at 673. A subsequent Supreme Court
decision does not overrule Circuit precedent unless it
“eviscerates” it, Nat’l Inst. of Military Justice v. DOD, 512
F.3d 677, 684 n.7 (D.C. Cir. 2008) (brackets omitted)—
something that does not occur if the High Court is silent or
“never ultimately resolve[s]” the issue. United States v.
Williams, 194 F.3d 100, 107 (D.C. Cir. 1999), abrogated on
other grounds by Apprendi v. New Jersey, 530 U.S. 466
(2000); Bartlett v. Bowen, 816 F.2d 695, 719 (D.C. Cir. 1987)
(Bork, J., dissenting) (“Lower courts . . . do not usually infer
silent overruling when the Supreme Court gives no explicit
indication that it has addressed an issue and that such
overruling is intended.”); cf. Helmerich & Payne Int’l Drilling
Co. v. Bolivarian Republic of Venezuela, 784 F.3d 804, 815
(D.C. Cir. 2015) (even “[w]hen the Supreme Court vacates a
judgment of this court,” holdings not addressed “continue[] to
have precedential weight” (emphasis added)).
The majority points to two passages from NFIB that
purportedly overrule Seven-Sky’s alternative holding. In the
15
first passage, the Supreme Court observed that “[p]enalties in
subchapter 68B are thus treated as taxes under Title 26, which
includes the Anti-Injunction Act.” NFIB, 132 S. Ct. at 2583.
But the fact that a subchapter 68B penalty—like the one
attached to the 2012 Rule—is a “tax” under the AIA does not
resolve this case. Even if a “tax” is involved, the AIA does
not apply unless the suit seeks to “restrain[] the assessment or
collection” thereof. 26 U.S.C. § 7421(a); see Direct Mktg.,
135 S. Ct. at 1132 (TIA does not bar “any court action related
to any phase of taxation”); Z St., 2015 WL 3797974, at *4
(“[W]e [have] rejected the IRS’s view of ‘a world in which no
challenge to its actions is ever outside the closed loop of its
taxing authority.’ ” (quoting Cohen, 650 F.3d at 726)).
Indeed, the entire point of Seven-Sky’s alternative holding was
to make clear that, even assuming the penalty is a tax, the
AIA still would not apply. In the second NFIB passage, the
Supreme Court concluded that “[t]he Affordable Care Act
does not require that the penalty for failing to comply with the
individual mandate be treated as a tax for purposes of the
Anti-Injunction Act. The Anti-Injunction Act therefore does
not apply to this suit, and we may proceed to the merits.”
NFIB, 132 S. Ct. at 2584. The majority reads the Court’s
statement (“If a penalty is not a tax, then the AIA does not
apply”) to mean its inverse (“If a penalty is a tax, then the
AIA applies”). This reasoning does not work as a matter of
logic. See New England Power Generators Ass’n, Inc. v.
FERC, 707 F.3d 364, 370 & n.3 (D.C. Cir. 2013) (explaining
“the logical fallacy [of] ‘denying the antecedent,’ ” where one
assumes wrongly that ¬P  ¬Q means P  Q). Nor does it
work as a matter of the AIA’s text. Again, although a suit
that does not implicate any “tax” is not barred by the AIA, it
does not follow that a suit implicating a tax is necessarily
barred: the suit may nonetheless not seek to “restrain[] the
assessment or collection” of said tax. 26 U.S.C. § 7421(a);
16
see Direct Mktg., 135 S. Ct. at 1132; Z St., 2015 WL
3797974, at *4.
Further, our alternative holding in Seven-Sky was the
subject of at least eighty pages of briefing in NFIB. 6 If the
Supreme Court meant to overrule it, the two passages the
majority identifies would be an awfully cryptic way to do so.
Indeed, even after NFIB, our sister circuits have continued to
rely on reasoning similar to Seven-Sky’s alternative holding.
See, e.g., Korte v. Sebelius, 735 F.3d 654, 669 (7th Cir. 2013)
(“The Anti–Injunction Act does not apply [to] . . . suits [that]
seek relief from a regulatory mandate that exists separate and
apart from the assessment or collection of taxes.”), cert.
6
See Court-Appointed Amicus Curiae Br. at 44–48; Court-
Appointed Amicus Curiae Reply Br. at 20–22; Pet’r’s Br. (AIA) at
38–41; Pet’r’s Reply Br. (AIA) at 10–15; State Resp’ts’ Br. (AIA)
at 43–48; State Resp’ts’ Reply Br. (AIA) at 17–21; Private Resp’ts’
Br (AIA) at 9–25; Private Resp’ts’ Reply Br (AIA) at 10–24; Am.
Center for Law & Justice Amicus Curiae Br. at 11–17; Center for
Fair Admin. of Taxes Amicus Curiae Br. at 26–27; State Chambers
of Commerce and Related Orgs. Amicus Curiae Br. at 4–5, 8–12.
[Briefs available at http://www.scotusblog.com/case-files/cases/u-s-
department-of-health-and-human-services-v-florida/]
Indeed, the Government in NFIB conceded that Seven-Sky’s
first holding—that the AIA does not bar the plaintiffs’ challenge
because the penalty is not a “tax”—is correct. See Pet’r’s Br. (AIA)
at 20–38. By contrast, the Government actively argued against
Seven-Sky’s alternative holding. See id. at 38–41; Pet’r’s Reply Br.
(AIA) at 10–15. If the NFIB Court meant to address both of our
holdings (as opposed to the first holding only), it undoubtedly
would have spoken more precisely, given the Government’s
differing positions. See Barenblatt v. United States, 252 F.2d 129,
131 (D.C. Cir. 1958) (en banc) (Supreme Court does not leave
issues “so vital” to the Government “to inference or
interpretation”), aff’d, 360 U.S. 109 (1959).
17
denied, 134 S. Ct. 2903 (2014); Hobby Lobby Stores, Inc. v.
Sebelius, 723 F.3d 1114, 1127 (10th Cir. 2013) (en banc)
(“[T]he AIA does not apply to every lawsuit ‘tangentially
related to taxes,’ and the corporations’ suit is not challenging
the IRS’s ability to collect taxes. Rather, they seek to enjoin
the enforcement of one HHS regulation. . . .” (citation
omitted)), aff’d, 134 S. Ct. 2751 (2014). And, just this term,
we treated Seven-Sky as good law. See Z St., 2015 WL
3797974, at *5. 7
C.
To recap, precedent makes plain that neither a pre-
enforcement challenge to a tax-reporting requirement nor a
pre-enforcement challenge to a regulation enforced by a tax
penalty is barred by the AIA. See Direct Mktg., 135 S. Ct. at
1131, 1133; Seven-Sky, 661 F.3d at 8–10. Granted, this case
7
Remarkably, my colleagues contend that Seven-Sky had no
such alternative holding. See Maj. Op. 13 n.3; Concur. Op. 1. I am
frankly unsure how they read pages 8–10 of that opinion. That
portion of Seven-Sky comes after the Court’s discussion of why the
penalty is not a “tax” and is set off on both sides by asterisks. See
Seven-Sky, 661 F.3d at 8–10. At the time, the author of the
majority opinion here recognized that the Court’s analysis was an
alternative holding. See id. at 41 (Kavanaugh, J., dissenting)
(“[T]he majority opinion separately contends that the Anti–
Injunction Act does not apply to plaintiffs’ suit even if the
Affordable Care Act penalties are taxes for purposes of the Anti–
Injunction Act.” (first emphasis added)). If any doubt remained,
the cited portion of Seven-Sky considers and rejects all of the
arguments that my colleagues make here—a surefire sign that it is
relevant to our decision today. And, even absent Seven-Sky, my
colleagues’ decision is refuted by the Supreme Court’s narrow
definitions of “restrain,” “assessment” and “collection” in Direct
Marketing and our decision in Foodservice. See infra Part II.C.
18
combines the two: the 2012 Rule is a tax-reporting
requirement enforced by a tax penalty. Yet, for the AIA bar,
the combination of two insufficient conditions does not equal
a sufficient one. Our task is to interpret and apply the text of
the AIA. The text does not impose a balancing test, whereby
a suit becomes barred once it is sufficiently “related to” taxes
or sufficiently important to the IRS. See Direct Mktg., 135
S. Ct. at 1133 (rejecting “a vague and obscure boundary”
because it “would result in both needless litigation and
uncalled-for dismissal, all in the name of a jurisdictional
statute meant to protect [government] resources” (quotation
marks and citation omitted)). Instead, the AIA articulates a
bright-line rule: the statute bars only those suits that
“restrain[]” (defined narrowly) the “assessment or collection”
(defined narrowly) of taxes. See id. at 1130–33. We know
that tax-reporting requirements do not implicate “assessment
or collection,” see id. at 1131, and that attaching a tax penalty
to a regulation that does not implicate “assessment or
collection” does not trigger the AIA, see Seven-Sky, 661 F.3d
at 8–10. That is all we need to know to decide this case.
In any event, this case is not one of first impression. As
the district court recognized, see 19 F. Supp. 3d at 121, we
held in Foodservice that a tax-reporting requirement enforced
by a tax penalty is not barred by the AIA. See Foodservice,
809 F.2d at 846 & n.10. That case involved a tip-reporting
requirement the IRS imposes on restaurants. See 26 C.F.R.
§ 31.6053-3(a)(1)(v); see also 26 U.S.C. § 6053(c)(1)(C).
Wait staff is legally required to pay taxes on its tips. See 26
U.S.C. §§ 3121(q); 3401(f); 3231(e)(3). A waiter must report
his tips to the restaurant, id. § 6053(a), and the restaurant
withholds the appropriate amount of taxes from his paycheck,
id. § 3402(k). Underreporting of tip income, however, is all
too common. See S. REP. NO. 97-494 at 251 (1982) (“84
percent of the taxes on tip income is not paid. The only type
19
of income with a lower compliance rate is illegal income
. . . .”); United States v. Fior D’Italia, Inc., 536 U.S. 238, 253
(Souter, J., dissenting) (2002) (“many employees report less
tip income than they receive”). To combat this problem, the
Congress enacted section 314 of the Tax Equity and Fiscal
Responsibility Act of 1982, see Pub. L. No. 97-248, § 314, 96
Stat. 324, 603–05, which statute the IRS implemented with
regulations, see 48 Fed. Reg. 36,807 (Aug. 15, 1983). A
waiter must accurately report his tips or the restaurant deducts
an additional sum (a percentage of the restaurant’s gross
receipts) from his paycheck. See 26 U.S.C. § 6053(c)(3); 26
C.F.R. § 31.6053-3(d)–(f). Section 314 also imposes a
reporting requirement: the restaurant must file an annual
return documenting the total amount of tips its employees
earned. See 26 U.S.C. § 6053(c)(1)(C); 26 C.F.R. § 31.6053-
3(a)(1)(v). The tip-reporting requirement is enforced with a
tax penalty. See 26 U.S.C. § 6721. In Foodservice, a trade
association of restaurants mounted a pre-enforcement
challenge to the reporting requirement, alleging that it
violated the Administrative Procedure Act and requesting
declaratory and injunctive relief. See Foodservice, 809 F.2d
at 843.
We held that the trade association’s challenge to the
reporting requirement was not barred by the AIA. See id. at
846. 8 Our reasoning was quite perfunctory: “On its face, the
8
The Foodservice Court did hold, however, that two of the
trade association’s challenges were barred by the AIA. See
Foodservice, 809 F.2d at 844. We held that, unlike the reporting
requirement, the challenged regulations, 26 C.F.R. §§ 31.6053-
3(f)(1); 31.6053-3T(j)(9) (1986), “plainly concern the assessment
or collection of federal taxes” because they govern how restaurants
allocate tip income to employees in order to assess their tax
liability. See Foodservice, 809 F.2d at 843–44.
20
regulation does not relate to the assessment or collection of
taxes.” Id. Nevertheless, we are bound to apply Foodservice
if it is factually indistinguishable from this case:
Stare decisis compels adherence to a prior factually
indistinguishable decision of a controlling court.
This principle assumes increased importance when
the antecedent case involves construction of a
statute. In its intra-circuit application, stare decisis
demands that we abide by a recent decision of one
panel of this court unless the panel has withdrawn
the opinion or the court en banc has overruled it.
This principle encourages uniformity in the
application of legal standards, enhances
predictability in decisionmaking, promotes the
interests of judicial efficiency and economy, and
evinces respect for the efforts of earlier courts that
have struggled to educe the appropriate legal norms.
Brewster v. CIR, 607 F.2d 1369, 1373–74 (D.C. Cir. 1979)
(citations omitted). And it is factually indistinguishable: both
Foodservice and this case involve a tax-reporting requirement
enforced by a tax penalty.
The Government believes Foodservice is distinguishable
because the tip-reporting requirement was not intended to
produce “information . . . about individual U.S. taxpayers” the
IRS uses to collect more taxes. Appellee’s Br. 33–34. Not
so. As we recognized in Foodservice, “the avowed purpose
of [the tip-reporting requirement] was to assist the [IRS] in its
examination of returns filed by tipped employees and to
provide the Service with data from which it could target
underreporting.” 809 F.2d at 846 n.10 (citing H.R. REP. NO.
97-760 at 556 (1982) (Conf. Rep.)) (emphasis added)
(alterations omitted); see also id. (“The information is
21
necessary . . . for both compliance purposes and the
Congressionally mandated tip study provided for in section
314(c) . . . .” (emphasis added)). Like the 2012 Rule, the
impetus for the tip-reporting requirement was to increase self-
reporting: the IRS thought that waiters and waitresses would
be more likely to report their tip income if they knew their
employer reports the information in any event. See S. REP.
NO. 97-494 at 251–52 (“Expanded information reporting on
tip income will encourage better reporting of such income by
its recipients and facilitate Internal Revenue Service efforts to
increase compliance in this area.”).
The majority distinguishes Foodservice on the basis that
the tip-reporting requirement there was enforced by a penalty,
not a tax. See Maj. Op. 7–8. It is mistaken. The tip-reporting
requirement is enforced with the exact tax penalty as the 2012
Rule: section 6721 of the Tax Code. See 26 U.S.C. § 6721(a)
(imposing penalty for failure to file “information return”);
id. § 6724(d)(1)(B)(xvi) (defining “information return” to
include tip-reporting requirement at issue in Foodservice).
Granted, the Congress attached the tax penalty to the tip-
reporting requirement after oral argument in Foodservice (but
three months before our decision). See Pub. L. No. 99-514,
§ 1501, 100 Stat. 2085, 2732, 2735 (1986). Nevertheless, we
presume the Foodservice Court was aware of—and factored
in—the amendment. See United States v. Dixon, 650 F.3d
1080, 1084 (8th Cir. 2011) (“[Defendant] asserts that it is
unclear whether the district court was aware that [the law]
was amended shortly before the hearing, but absent any
indication to the contrary, we presume the district court knew
the law and considered the provision in effect at the time of
[its decision].”); Fed. Cement Tile Co. v. Comm’r, 338 F.2d
691, 694 (7th Cir. 1964) (“we assume the Court was aware of
th[e] legislative history”); see also Walton v. Arizona, 497
U.S. 639, 653 (1990) (“[J]udges are presumed to know the
22
law and to apply it in making their decisions.”), overruled on
other grounds by Ring v. Arizona, 536 U.S. 584, 609 (2002).
And the Foodservice Court’s silence is consistent with the
conclusion we later drew in Seven-Sky—i.e., the inclusion of a
tax penalty does not change the AIA analysis. See Seven-Sky,
661 F.3d at 8–10. Indeed, the Seven-Sky Court expressly
relied on Foodservice to support its conclusion. See id. at 9
(“The [AIA] . . . has never been applied to bar suits brought to
enjoin regulatory requirements that bear no relation to tax
revenues or enforcement. Indeed, we have held that the Act
does not apply to an IRS regulation that does not, by its terms,
pertain to the assessment or collection of taxes.” (citing
Foodservice, 809 F.2d at 846)).
In sum, Foodservice held that a tax-reporting requirement
enforced by a tax penalty is not barred by the AIA and we
should do the same here. See Brewster, 607 F.2d at 1373.
Although Foodservice is short on legal reasoning and its
holding broadly exempts regulations like the 2012 Rule from
the AIA, we should follow it even if we believe it was
wrongly decided, announced an overly broad rule or failed to
consider all aspects of the problem. See LaShawn A., 87 F.3d
at 1395 (“law-of-the-circuit doctrine . . . precludes
reconsideration of [a] decision . . . even if the second panel
believes the first was wrong”); Battery Recyclers, 716 F.3d at
673 (disposition of “identical claim” by earlier panel binds
subsequent panel even if claim is “far better developed” in
subsequent case). These principles ring especially true here
as Foodservice’s holding—that a tax-reporting requirement
enforced by a tax penalty “[o]n its face . . . does not relate to
the assessment or collection of taxes,” 809 F.2d at 846—has
been reaffirmed in subsequent decisions. The Supreme
Court’s recent decision in Direct Marketing explains why tax-
reporting requirements do not relate to the “assessment or
collection” of taxes. See 135 S. Ct. at 1131. And, as
23
mentioned above, Seven-Sky expressly relied on Foodservice
to support its holding that challenges to regulations enforced
by tax penalties are not barred by the AIA. See Seven-Sky,
661 F.3d at 9.
Departing from Foodservice would be particularly
problematic in this case. If the AIA bars the Associations’
challenge, then a bank cannot obtain judicial review of the
2012 Rule unless it refuses to submit a Form 1042-S, incurs a
tax penalty and initiates a refund suit. Yet, the “willful[]”
failure to file a Form 1042-S is a misdemeanor punishable by
a fine of $25,000 ($100,000 for corporations) or
imprisonment. 26 U.S.C. § 7203. To require a would-be
litigant to risk such consequences before obtaining judicial
review would present serious constitutional concerns. See Ex
parte Young, 209 U.S. 123, 148 (1908) (“[T]o impose upon a
party . . . the burden of obtaining a judicial decision . . . (no
prior hearing having ever been given) only upon the condition
that, if unsuccessful, he must suffer imprisonment and pay
fines . . . is, in effect, to close up all approaches to the courts”
and is “unconstitutional on [its] face”); Okla. Operating Co. v.
Love, 252 U.S. 331, 336–37 (1920) (forcing party to violate
regulation and trigger contempt proceeding in order to obtain
judicial review violates due process); Cotting v. Godard, 183
U.S. 79, 101–02 (1901) (“[W]hen the legislature, in an effort
to prevent any inquiry of the validity of a particular [law], so
burdens any challenge thereof in the courts that the party
affected is necessarily constrained to submit rather than take
the chances of the penalties imposed, then it becomes a
serious question whether the party is not deprived of [due
process].”). I do not believe we should interpret the AIA to
mandate such a result. See Olsen v. DEA, 878 F.2d 1458,
1461 (D.C. Cir. 1989) (“We resist an interpretation dissonant
with the cardinal principle that legislation should be
24
construed, if fairly possible, to avoid a constitutional
confrontation.” (quotation marks omitted)).
At the very least, such an approach makes for poor public
policy. See Mobil Oil Corp. v. Att’y Gen. of Com. of Va., 940
F.2d 73, 75 (4th Cir. 1991) (“Public policy should encourage
a person aggrieved by laws he considers [illegal] to seek a
declaratory judgment . . . , all the while complying with the
challenged law, rather than to deliberately break the law and
take his chances in the ensuing suit or prosecution.”); cf.
Babbitt v. United Farm Workers Nat’l Union, 442 U.S. 289,
298 (1979) (plaintiffs “should not be required to await and
undergo a criminal prosecution as the sole means of seeking
relief”); Gardner v. Toilet Goods Ass’n, 387 U.S. 167, 172
(1967) (requiring litigants to “refuse to comply . . . and test
the regulations by defending against government criminal,
seizure, or injunctive suits against them” is not “a satisfactory
alternative to [pre-enforcement review]”). I doubt that the
Congress intended the AIA to operate in this manner. Cf.
Nat’l Rest. Ass’n v. Simon, 411 F. Supp. 993, 996 (D.D.C.
1976) (Bryant, J.) (“[R]efusing to file the required
information, and contesting a possible government assessment
of a fine . . . puts the plaintiffs in the untenable position of
either complying, with no judicial review, or of defying the
government’s interpretation of their legal obligations under
the code, of being in essence a lawbreaker. The Court cannot
imagine that the Congress intended such an anomalous result
in a system which depends for its very existence on the
principle of voluntary compliance.”), cited approvingly in
Cohen, 650 F.3d at 723.
Accordingly, I would follow Direct Marketing, Seven-
Sky and Foodservice and conclude that the AIA does not bar
this litigation from going forward. I therefore respectfully
dissent.