Tuesday, September 27, 2022

11th Circuit Holds that a Taxpayer Motion for Injunctive-Type Relief in a Closed Case Is Not Subject to § 7421(a), the AIA (9/27/22)

In United States v. Meyer, ___ F.4th ___, 2022 U.S. App. LEXIS 26829 (11th Cir. 9/26/22), CA11 here and GS here, the Court outlines the issue in its opening paragraph:

    The Anti-Injunction Act, 26 U.S.C. § 7421(a), provides in relevant part that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person[.]” The question before us is whether the Act bars a defendant from moving—in an action initiated by the government—for a protective order to restrain the government from using his responses to requests for admission when assessing a tax penalty in a separate administrative proceeding. Because moving for a protective order in an action filed by the government does not amount to maintenance of a “suit,” we hold that the Act does not apply.

The Court then offers some more factual detail (Slip Op. 2-4):

             In 2018, the government filed a complaint against Michael L. Meyer, alleging that he promoted a tax evasion scheme in which he advised his clients to claim unwarranted federal income tax deductions for bogus charitable donations. The government sought to enjoin him from operating his business, as well as disgorgement of all of the proceeds from his scheme. Over the course of the next year, the parties engaged in extensive discovery. As relevant here, the government served over 1,500 requests for admissions upon Mr. Meyer under Federal Rule of Civil Procedure 36. Mr. Meyer answered the requests with the assistance of counsel.

            Mr. Meyer eventually settled with the government and agreed to a permanent injunction prohibiting him from, among other things, representing anyone other than himself before the IRS; preparing federal tax returns for others; or furnishing tax advice regarding charitable contributions. On April 26, 2019, the district court entered a final permanent injunction against Mr. Meyer and closed the case. The order did not include any language regarding the confidentiality or future use of discovery-related materials.

            On July 24, 2020, Mr. Meyer received a notice from the IRS informing him that he owed millions of dollars in penalties in connection with his promotion of an abusive tax shelter. See 26 U.S.C. § 6700. The notice included an attached Form 866-A, Explanation of Items, which detailed the basis of the IRS’ decision. The Explanation of Items specifically relied on Mr. Meyer’s Rule 36 admissions, obtained in the 2018 tax case that had been filed by the government. Those admissions were also attached as a composite exhibit.

            Mr. Meyer responded to the notice with a letter protesting the IRS’ use of his admissions under Rule 36(b) (“An admission . . . is not an admission for any other purpose and cannot be used against the party in any other proceeding.”). The IRS rejected Mr. Meyer’s objection to the use of his admissions, asserting that the Federal Rules of Civil Procedure do not apply to its administrative determinations.

            On November 20, 2020, after efforts to resolve the matter directly with the IRS failed, Mr. Meyer filed a motion for a protective order in the closed 2018 tax case. In his motion, Mr. Meyer asked the district court to issue an order prohibiting the government from using his Rule 36 admissions “as the factual basis for penalties in a separate IRS penalty examination.” D.E. 98 at 1.

The question was whether ¶ 7421(a) prohibited the motion in the closed case, which apparently was re-opened to consider the post-closing motion.

Of course, Meyer could not directly sue for any type of injunctive or analogous relief because § 7421(a), commonly referred to as the Anti-Injunction Act ("AIA"), would foreclose relief in a suit by Meyer. So, Meyer (or his counsel) cleverly launched the request for relief in the form of a motion in the since-closed suit by the Government.

Bottom-line, after reviewing the text and history of § 7421(a), the Court held that § 7421(a) applied only to suits brought by taxpayers (or other nongovernmental persons) seeking injunctive-type relief and not to motions brought by a taxpayer in a suit brought by the Government. The closed 2018 case was such a suit. End of that analysis.

The Government sought to posit the motion as the equivalent of the prohibited taxpayer-initiated suit. After doing the textualist judge statutory analysis with some obeisance to dictionary definitions at the relevant times, the Court said that § 7421(a) does not apply to suits initiated by the Government, so that motions by other parties that may be the functional equivalent of injunctive-type relief may be permitted. Again deploying the dictionary and even Alice's Adventures in Wonderland, the Court said (Slip Op. 9-10):

            Based on these uniform sources, a “suit” is a judicial proceeding or action initiated for the purpose of enforcing a right or ensuring compliance with the law. That is how the term was understood when the Anti-Injunction Act first became law and how it is understood today. The government, and not Mr. Meyer, is the only party that filed a “suit” here—i.e., the 2018 tax case—and that action was not “for the purpose of restraining the assessment or collection of a tax.” Because we must “presume Congress ‘says in a statute what it means and means in a statute what it says[,]’” Wiersum v. U.S. Bank, N.A., 785 F.3d 483, 487 (11th Cir. 2015) (citation omitted), Mr. Meyer’s motion for a protective order is not a “suit” and is not barred by the Act. The government is not the master of the term “motion” and cannot make it do the work of a “suit.” n2
   n2 “‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean – neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master – that’s all.’ [ . . . ] ‘That’s a great deal to make one word mean,’ Alice said in a thoughtful tone. ‘When I make a word do a lot of work like that,’ said Humpty Dumpty, ‘I always pay it extra.’” Lewis Carroll, Alice’s Adventures in Wonderland & Through the Looking Glass 124–25 (New York: The MacMillan Company 1897).

After some case analysis, the Court said (Slip Op. 15):

            Second, even if the general purpose of the Act were furthered by the government’s position, that cannot override the established understanding of the term “suit.” See Bd. of Governors of Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361, 373–74 (1986) (“Application of ‘broad purposes’ of legislation at the expense of specific provisions ignores the complexity of the problems Congress is called upon to address and the dynamics of legislative action.”). In any event, not all “suits” that impair the government’s administration of the Tax Code are barred by the Anti-Injunction Act. See CIC Servs., 141 S. Ct. at 1588–89 (“A reporting requirement is not a tax; and a suit brought to set aside such a rule is not one to enjoin a tax’s assessment or collection.”).

            Third, Congress could have drafted the Act to include any motion, defense, intervention, or other legal maneuver that would or could impede or prevent the IRS from achieving its tax administration, assessment, and collection aims. Instead, it chose the term “suit,” whose meaning has not evolved in more than 150 years of use. And when “the terms of a statute [are] unambiguous, judicial inquiry is complete except in ‘rare and exceptional circumstances.’” Rubin v. United States, 449 U.S. 424, 430 (1981) (citation omitted). n3
   n3 We note that the Tax Injunction Act, 28 U.S.C § 1341 [applicable to state and local entities], seems to be written more broadly in this respect than the Anti-Injunction Act, as it provides that “district courts shall not enjoin, suspend, or restrain the assessment, levy or collection of any tax under State law where a plain, speedy, and efficient remedy may be had in the courts of such State.”

Of course, using CIC Servs. is a stretch, but it is becoming an all-purpose tool when there is no other fit for the claimed relief.

The Court remanded to the district court for further proceedings consistent with the opinion, including considering the Government's argument that the motion was not permitted in a closed case.

JAT Note:

1. I am not sure that textualists' -- at least some textualists' -- fixation on dictionaries to trump good judgment is a good thing.  Just as bad is the need to be cute by citing the familiar quote from Alice’s Adventures in Wonderland & Through the Looking Glass.

2. Of course, that still leaves open as to whether it is appropriate for the IRS to rely upon requests for admission in an administrative proceeding independent of the lawsuit in which the requests for admission were propounded and admitted. Presumably, if the district court does not give the relief upon remand, Meyer may have an opportunity to pursue in some other proceeding dealing with the merits of the liability.

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