SSRN Paper: Loper Bright Is the Law But Poor Statutory Interpretation (10/28/24; 1/20/25)

I have posted to SSRN the following paper: Loper Bright Is the Law But Poor Statutory Interpretation, available at SSRN here. The Abstract is:

While teaching law, I sometimes claimed that tax cases are too important to have the Supreme Court decide them. I had a list of tax cases to back up that claim. I have now expanded my list beyond tax cases to one administrative law case.

In Loper Bright Ent. v. Raimondo, 603 U.S. ___, 144 S. Ct. 2244 (2024), the Court pronounced that APA § 706, properly interpreted, requires that court review agency statutory interpretations de novo without deference. The claim rests on the opening words of § 706 coupled with a claim that, at the time of enactment of the APA, the courts did not defer to agency interpretations. Both claims are false, resting on poor scholarship of the history and law relevant to Congress’ meaning of § 706 at its enactment in 1946. One key is the Court’s perceived need to address the state of deference upon enactment of the APA. If the words of § 706 command de novo review, then what difference does it make what the state of deference was upon enactment of the APA?

In this article, I show that § 706, properly interpreted requires deference, because as enacted in 1946:

(i) the words of the APA, including the requirement in § 706(2)(A) that agency action be “held unlawful and set aside” only if “not in accordance with law,” a standard the Supreme Court held required deference in Dobson v. Commissioner, 320 U.S. 489 (1943) , and

(ii) the unquestioned understanding that § 706, upon enactment, applied the then-current state of review, which included deference.

Loper Bright failed to correctly assess the meaning of § 706. Loper Bright is the law, but, at a minimum, poor scholarship.

Added 1/18/25 2:30pm: I am experimenting with various AI tools. Today, I "asked" MS Co-Pilot to summarize the article linked in this blog.  I found Co-Pilot did only a fair summary, but missed subtle points. I have thus refined the Co-Pilot summary and offer here that summary as I have edited it to clarify key points in the article:

First Circuit Holds that JDS for Crypto Records Is Not Entitled to Pre-Enforcement Review (10/1/24)

In Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024), CA1 here and GS here, the Court rejected Harper’s claim that the documents gathered by the IRS John Doe summons (“JDS”) to Coinbase should be eliminated from its files because of alleged deficiencies in the JDS process.

I blogged on a prior appeal where the First Circuit held that the Anti-Injunction Act (“AIA”), § 7421(a), did not apply to prevent the pre-enforcement suit under the Administrative Procedure Act (“APA”) because the activity in question was “information gathering” rather than tax collecting and assessing. First Circuit Holds that Target of JDS May Bring Challenge to JDS Prior to Tax Enforcement Against Target (Federal Tax Procedure Blog 11/9/22), here. The prior appeal was styled Harper v. Rettig, 46 F.4th 1 (1st Cir. 2022), CA1 here and GS here. (Rettig was the former IRS Commissioner; Werfel is the current IRS Commissioner.) The Solicitor General did not authorize petition for certiorari in Harper v. Rettig, so the case was remanded to the district court for further consideration consistent with Harper v. Rettig. Harper v. Rettig thus appeared to be a big win in the line of cases allowing pre-enforcement review beginning with CIC Services, LLC v. IRS, 593 U.S. 209 (2021).

On remand, the district court reached the same result—dismissal—on different grounds as follows:

• The Court rejected Harper’s Fourth and Fifth Amendment claims on the basis that, by becoming a Coinbase customer, Harper (i) had no reasonable expectation of privacy or protectable interest with respect to Coinbase’s records (not his records) (the third party doctrine) and (ii) the JDS did not deprive Harper of due process. (Slip Op. 11-35  In the latter holding, the Court cited prominently S.E.C. v. Jerry T. O'Brien, Inc., 467 U.S. 735 (1984) which held “the Due Process Clause of the Fifth Amendment . . . is [not] offended when a federal administrative agency, without notifying a person under investigation, uses its subpoena power to gather evidence adverse to him.” (Slip Op. 29-30.) Readers should recall that the JDS is required in the first instance because the IRS does not know the identity of the account holder, so any requirement of due process of advance notice would judicially eliminate the JDS.

Does Corner Post Permit § 2401(a)’s 6-year Statute of Limitation to Apply from Date of Regulation for Procedural Challenges? (7/10/24; 8/17/24)

Added 7/11/24 4:00 pm: Caveat: My blog post below was an attempt to hammer Corner Post into the interpretive system as I understood it. Within that parameter, I think I got it right. But, since posting the blog below (after this update in red), I went back to basics to try to understand what this all means in the real world. So, here is another way to think about the interpretive regime we now have as a result of the confluence of Loper Bright (deference gone) and Corner Post. Here are the key bullet points:

• Loper Bright teaches that the best interpretation of the statute controls. The best interpretation gains or loses nothing (i) by being adopted in an agency regulation or (ii) whether the regulation is procedurally valid. 
•  The best interpretation issue is substantive and can be raised at any time (i.e., upon application or enforcement to the particular person).
• Ergo, Corner Post is the proverbial tempest in a teapot.

To extend the analysis:

• The best interpretation (whether or not in a regulation) is the interpretation applicable from the effective date of the interpreted statute. That means that the § 7805(b) constraints on retroactivity are meaningless if the IRS includes the best interpretation in a regulation.
• The adoption of the best interpretation in a regulation adds nothing of interpretive value to the regulation. However, perhaps at the theoretical margins, a procedurally regular notice and comment regulation interpretation might add some Skidmore oomph (whatever that is) to the persuasive value of the agency interpretation in the regulation.

If that makes sense and—dare I say—is persuasive to readers, there is no need to read the older portion of this blog below (but I think if one were to wallow around in the concepts presented below (as have I), one might get to the same point).

___________________________________

In Corner Post, Inc. v. Board of Governors, FRS, 603 U. S. ____ (2024), SC here and GS here, the Court (Justice Barrett) held that cause of action “accrues” for purposes of the fallback 6-year statute of limitations in 28 U. S. C. § 2401(a), here, when the particular plaintiff first suffered injury from an agency action. The agency action was a regulation promulgated well before the 6-year period prescribed by § 2401(a). Corner Post, a new entity, suffered injury once it was created, thus its judicial challenge to the Regulation was timely under § 2401(a).

The gravamen of the Court’s holding is its focus on § 2401(a)’s text starting the statute of limitations when “the right of action first accrues.” That requires that the Court determine “the right of action” in the context.

The majority held that Corner Post’s claim was that the agency acted without statutory authority, an ultra vires claim. A party is injured and can challenge an invalid interpretation when the agency action applies to that party. This permitted the challenge by Corner Post, an entity created within the 6-year period before filing the challenge.

But, there is another type of APA challenge, a procedural challenge, that can be asserted to invalidate a regulation. The procedural challenges arise upon promulgation regardless of whether the regulation is otherwise substantively valid. Procedural challenges include the claim that notice and comment regulations have been promulgated without the agency having engaged in the APA procedural requirements of considering and responding to material comments. In such a procedural foot-fault case, the regulation can be within the authority conferred (e.g., offer the best interpretation of the statute) but might be invalid qua regulation solely for an alleged procedural defect. In such a case, of course, the interpretation (as opposed to the regulation) can still be valid and still be applied in a judicial proceeding despite the procedural invalidity of the regulation.

An aside: Prior to Chevron’s demise, the only effect of a procedurally invalid regulation was that the interpretation did not qualify for Chevron deference, so the court could still apply the best interpretation. See Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), CA6 here and GS here (rejecting Hewitt’s procedural invalidity holding but in any event holding that the agency interpretation was the best interpretation thus valid even without Chevron deference); see also Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (Federal Tax Procedure Blog 3/15/22), here.

District Court Rejects State End-Run of Federal Tax SALT Limitations with State Creditable "Charitable" Contribution (4/8/24)

In New Jersey v. Mnuchin, ___ F.Supp. 3d ___,  2024 WL 1386080, 2024 U.S. Dist. LEXIS 59122  (S.D. N.Y. 3/30/24), CL here and GS here, the Court rejected now familiar attacks, including APA and Chevron. This time the attacks come from the states rather than those who fear the administrative fear (either in reality or to stir the base). The complaint of the states (including New York and Connecticut components as named plaintiffs) is that Treasury failed both substantively (improper interpretation a la Chevron) and procedurally in promulgating the Final Rule interpreting § 170 (the charitable deduction provision). The Final Rule denies a charitable contribution deduction where the state gives a quid pro quo in the form of a state and local tax credit. The state tax credit was simply a state end-run around the 2017 Tax Act “SALT” (state and local tax) deduction limitation. 

The Court described the Treasury response to the state legislation (Slip Op. 2-3, footnotes omitted and cleaned up):

On June 13, 2019, the Treasury Department and the Internal Revenue Service ("IRS") promulgated a new regulation (the "2019 Final Rule") governing the availability of charitable contribution deductions for payments made to state and local governmental units where the taxpayer receives or expects to receive a state or local tax credit in return. The new regulation involves an interpretation § 170, which in part governs the deduction of charitable contributions on federal income tax returns.

The 2019 Final Rule provides that "the amount of the taxpayer's charitable contribution deduction under [S]ection 170(a) is reduced by the amount of any state or local tax credit that the taxpayer receives or expects to receive in consideration for the taxpayer's payment or transfer." 26 C.F.R. § 1.170A-1(h)(3)(i).

In this action, Plaintiffs seek a declaration that the 2019 Final Rule is invalid under the Administrative Procedure Act, 5 U.S.C. § 706. Plaintiffs contend that Defendants — Treasury, the IRS, and their officers (the "Government") — exceeded their statutory authority in promulgating the 2019 Final Rule, and that the issuance of the Rule was arbitrary and capricious.

The Court dispensed with threshold issues such as 

• Standing (Slip Op. 16-29), 
• Anti-Injunction Act (Slip Op. 29-32) , and 
• Violation of the Regulatory Flexibility Act (Slip Op. 32-36).

Moving to the Merits of the Claim under the APA (Slip Op. 35-59), The Court first holds that the Regulation easily passes Chevron’s two-step analysis.  Key points:

Article on The Tax Contribution to Deference and APA § 706 Posted on SSRN (12/14/23)

I have just posted this article to SSRN here.

The recommended SSRN cite is: Townsend, John A. and Townsend, John A., The Tax Contribution to Deference and APA § 706 (December 14, 2023). I don’t know why SSRN doubles up on my name, but have just not tracked it down. (If anyone knows how to fix that, please send me an email.)

 The abstract is at the link and then links to the pdf version. Here is my abstract of the SSRN abstract.

The tax authorities supporting APA to include deference are compelling. These tax authorities have been marginalized in the discussion. The law at the time of the APA in 1946 was settled to include deference when (i) the statute was ambiguous and (ii) the agency interpretation within the scope of the ambiguity was reasonable. That was Chevron deference before Chevron. That alone would support interpreting APA § 706 to include deference. But, there is more, § 706 states the standard of review for interpretations “not in accordance with law” which the Supreme Court interpreted in Dobson, a 1943 tax case, to mean review with deference rather than review de novo.

There is a lot of tax history in this rather short article. One key matter of interest is the roles in the tax system occupied by Justice Robert H. Jackson, Wikipedia here. He served successively in the following positions: Chief Counsel of the IRS, Assistant Attorney General Tax Division, Solicitor General, Attorney General, and Supreme Court Justice. He moved into all of those positions in a period of less than 10 years. Later, he also took a leave of absence from the Supreme Court to be the chief prosecutor at the Nuremburg war crimes trial. Jackson features prominently in the article as author of the Dobson decision, a unanimous decision, which authoritatively interpreted the Tax Court standard of review "not in accordance with law" to mean deference--hence Dobson deference--much like Chevron deference. The standard "not in accordance with law was incorporated in APA § 706.

I would appreciate any comments anyone would care to make to me.  My email address is jack@tjtaxlaw.com.

Fun Fact: The original draft of this article was over 140 pages long. I then bumped it down to 47 pages. It now is 32 (including appendix with the versions as it moved from the AG Final Report in 1941 to enactment in 1946).

Fun Word Distractions While Researching the APA (7/24/23)

In the course of writing an article exploring the as yet unexplored tax angle to the question of whether APA § 706’s de novo review requirement includes or does not include deference (now Chevron deference) to agency interpretations. I was reading two separate old law review articles and comment here on the wording in the articles without addressing the issue that led me to the articles.

Experts Who Are Particularly Experts.

The first answered an important question in a footnote. When do experts really need to be experts?  Louis Eisenstein, Some Iconoclastic Reflections on Tax Administration, 53 Harv. L. Rev. 477, 478 (1945).

I. PRESENT DISCONTENTS

          IF we may borrow from one who wrote wisely of more important things, these are the days that try the souls of tax men. There was a time, it seems, when a tax provision was naively expected "to be without perplexities and readily solvable by the off-hand conceptions of those to whom it was addressed." Matters have not, however, exactly worked out in accordance with such expectations and it is now fashionable to resign oneself to "innumerable complexities." Taxation" can never be made simple" is the [*478] lament, even if "we can try to avoid making it needlessly complex." Tax language normally has an enclosed meaning or has legitimately acquired such by the authority of those especially skilled in its application. The expert has come into his own as a necessary evil although the courts have not entirely reconciled themselves to his indispensability.

          A brief examination of our statute law discloses how sadly hopes of an earlier day have been frustrated. The remarkably ingenuous income tax of 1913, containing but fourteen subsections, has gradually grown to the Herculean proportions of almost two hundred sections. Nor do numbers relate the entire story. Sections and subsections seem to be interminable - a strain upon the eye and a puzzle to the brain. The statutes are chockfull of elusive refinements and concentrated complexities.7 Some of the provisions are perhaps not too bad if one can push through the verbal underbrush.8 Others, like the 1942 amendment following the Enright decision, are baffling both before and after study. Or a provision, such as § 23(a) (2), inserted to overcome the Higgins decision," may induce a deceptive impression of simplicity by using a few words to say a great deal. Still others dispose of their problems [*479] by directing the Commissioner to produce order out of chaos. A few, such as § 22(a), which enables the courts to scale with ease the wall supposedly standing between legislation and interpretation, fall within the "sleeper " category.

 I offer only part of one footnote from the above quote – footnote 7.

   n7 Some parts of the Code, such as §§ 201-207, dealing with the taxation of insurance companies, require experts who are particularly expert. * * * *

 Back with DOJ Tax in both Appellate and Trial Sections, I handled life insurance company cases and they are indeed complex, at least some of them. But once you learn the concepts of life insurance, you can then work through the tax provisions. And, following through on the quote, I guess I became some kind of expert who was particularly expert.

Interesting Turns of Phrases

Here is the better article, both in substantive content and the author’s ability to turn a phrase. Alfred Long Scanlan, Judicial Review Under the Administrative Procedure Act - In Which Judicial Offspring Receive a Congressional Confirmation, 23 Notre Dame L. Rev. 501 (1948). here. The gravamen of the article is APA § 706 (the positive law codified section in 5 U.S.C. of original APA § 10(e)) permits deference to agency interpretations. A growing number of judges and scholars, still a minority (and mostly very conservative or libertarian in political persuasion) do not agree. The Supreme Court has taken a case, Loper Bright Enterprises v. Raimondo (SEC) (Dkt 22-451), here, where, in the October 2023 term, the Court will consider the following question:

  2. Whether the Court should overrule Chevron or, at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

 Just a few examples of this Professor Scanlan's ability to write.

 1. One of favorites in the article discusses one of the § 10(b), titled Form of Action and Venue as follows: “Again one is encountered by a farrago of opaque statutory gibberish which merely tells us what we knew all the time.”

Farrago means a confused mixture : HODGEPODGE, per Merriam Webster’s online dictionary.

2. Another example: “Indeed, Section 10(c) reads like a product of a semantic Alice-in-Wonderland world populated by legislative draftsmen and German philosophers. What does this unintelligible hodgepodge mean?”

3. The author also cited another article using the word “Hotchpotch.” Shine, Administrative Procedure Act: Judicial Review "Hotchpotch"? 36 GEO. L. J. 16 (1947). That was a new word for me but I inferred it is related to hodgepodge. Merriam Webster defines it thusly with some etymology:

Hodgepodge is an alteration of hotchpotch, which once referred to a thick soup of barley, peas, and other vegetables, and sometimes includes meat. Hotchpotch is itself an alteration of another word, hotchpot, derived from Old French words meaning "to shake" (hochier) and "soup" (potage).

4.  The author then offers this

The purpose of this article will be to demonstrate through a provision by provision analysis of Section 10, that the Act did not change the existing law of judicial review, either by increasing the availability of judicial remedy, or by widening the scope of judicial review. The Act undoubtedly * * * * will not upset the rubric of judicial review which the federal judiciary has fashioned piecemeal, and from which it has no intention of deviating, even though its homemade precepts also now have been expressed; however opaquely, in statutory flapdoodle.*

I got the sense of flapdoodle from reading the sentence, but thought it best to nail the meaning with a dictionary search. Flapdoodle means “nonsense,” per Merriam Webster.

See what fun one can have when researching the APA?

On Remand from 6th Circuit, District Court Orders Vacatur of Listed Transaction Notice (1/19/23)

I have previously written on the Sixth Circuit’s invalidation of an IRS listed transaction Notice (as opposed to regulation).  Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (Federal Tax Procedure Blog 3/3/22), here, discussing  Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 3/3/22) CA6 here and GS here.

On remand, on 1/18/23, the district court held that the 6^th Circuit’s holding required vacatur of the Notice, thus applying nationwide rather than just vacatur as to the plaintiff or some other subset of taxpayers more limited than nationwide (e.g., in the Sixth Circuit).  Mann Construction, Inc. v. United States, 651 F.Supp.3d 871 (E.D. Mich. 1/18/23), CL here and GS here.

The only thing worth commenting on is the vacatur holding applying like a nationwide injunction.  I can’t add anything beyond what I have already written.  On vacatur generally see Law Prof Article on the APA Tax Revolution and My Extended Comments (12/1/22; 12/3/22), here.  On alternative judicial approaches, see District Court Holds IRS Tax Shelter Notice Imposing Obligations Invalid as a Legislative Rule Without Notice-and-Comment But Limits Holding to Parties (Federal Tax Procedure Blog 11/20/22), here; Fifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (Federal Tax Procedure Blog 1/8/23), here (discussing vacatur in paragraph 12); and Law Prof Article on the APA Tax Revolution and My Extended Comments (Federal Tax Procedure Blog 12/1/22; 12/3/22), here (discussing original meaning of the APA and vacatur at portion of blog after the section captioned Original Meaning of the APA and Other Post-APA Spinning).

Fifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (1/8/23)

In Cargill v. Garland, 57 F.4th 447 (5th Cir. 2023) (en banc), CA5 here and GS here, the Fifth Circuit reversed the prior panel opinion and held that the ATF bump stock regulation interpreting the term "machinegun" to include a so-called bump stock. The holding, one of statutory construction, may be stated as follows: 

• "A plain reading of the statutory language, paired with close consideration of the mechanics of a semi-automatic firearm, reveals that a bump stock is excluded from the technical definition of "machinegun" set forth in the Gun Control Act and National Firearms Act." (Slip Op. 3)
• But, even if the statutory term machinegun were not unambiguous, the statutory term "machinegun" is not ambiguous enough to include bump stocks as a permissible interpretation because of the rule of lenity when criminal consequences might attend, requiring ambiguities to be resolved in favor of the citizen potentially subject to those criminal consequences.

In the course of these core holdings, the en banc majority, concurring and dissenting opinions delve into many topics that I have discussed in connection with the bump stock cases related to Chevron and Chevron-related issues (in a broad sense). I collect at the end of this blog in paragraph 16 some of my earlier Federal Tax Procedure blogs on these issues arising in prior cases involving the bump stock regulations.

I address several key points in the various opinions (the en banc majority, the concurring, and the dissenting opinions).

1. I state at the outset that I believe this commotion about bump stocks is inherently political. Those judges fearing the administrative state (at least in their rhetoric landing them a place on a court) are more likely to reach the decision the en banc majority reached. Those judges whose rhetoric does not include fear of the administrative state and believe that administrative agencies can enrich our society and make it work better are less likely to reach the decision the en banc majority did. Both sides can pull up soundbites masquerading as reasoned decisionmaking to justify the result they prefer. At the end of the day, I think the real issue is whether there can be a symbiotic relationship between Congress, the Executive, and the Courts which together act reasonably to make our system work.

2. The en banc majority main holding is that the meaning of the statutory term "machinegun" is plain and unambiguous. In the Chevron framework, that would be a Step One determination that stops the Chevron analysis. There have been many words spent in addressing precisely what is meant by plain meaning and unambiguous to avoid the Chevron framework (or, equivalently, stopping the Chevron analysis at Step One), but I think the en banc majority's claim is that the other courts finding ambiguity means that those other just missed the meaning of the term that is so plain to this en banc majority. Everyone can agree that, when enacted in the 1930s, the statutory term machinegun did not include a bump stock which did not then even exist. But once they began to exist around 2000, I don't think it is so plain that the statutory term machinegun should not include bump stocks. This seems to be an eye of the beholder thingy, with political implications (which is what originalism is about).

3. At least in less political analysis, determining whether the statute is plain requires the use of the normal tools of statutory construction. Rhetoric aside, the normal tools of statutory construction include Skidmore respect for an agency interpretation. Skidmore v. Swift & Co., 323 U.S. 134 (1944). None of the en banc opinions cite Skidmore. (Note in this regard that Skidmore is not deference as many so-called smart judges and scholars mislabel it.  See Really, Skidmore "Deference?" (Federal Tax Crimes Blog 5/31/20; 2/14/21), here.

Law Prof Article on the APA Tax Revolution and My Extended Comments (12/1/22; 12/3/22)

Readers of this blog may be interested in a recent article by Professor Reuven S. Avi-Yonah (Michigan Law bio here), The APA Tax Revolution, 177 Tax Notes Fed. 981 (Nov. 14, 2022), here. He says there is an APA Tax Revolution, I think principally started by Professor Kristin Hickman (bio here). Professor Avi-Yonah pronounces: "Hickman has won the debate, and the APA revolution in tax law is here to stay." The debate is grounded in her claim that there are no interpretive Treasury regulations and extensions of that claim (including that Treasury's Temporary Regulations have historically violated the APA, hence Treasury has routinely in the past violated the APA). Professor Hickman and I disagree on that point. See The Report of the Death of the Interpretive Regulation Is an Exaggeration  117-118 (SSRN December 14, 2021), here. Professor Hickman's claim is bottomed on various developments post-Chevron that, she claims, eliminate the interpretive regulation category. (I find Professor Hickman somewhat elusive about those developments; I deal in my article with those rabbit trails I could identify.)

To be sure, there is a lot of commotion on the point, with many scholars and courts accepting Professor Hickman's premises. For the reasons noted in my article, I think they do so without fully thinking through the point from historical perspective as to the meaning of the APA. (See my concluding points about APA original meaning below.)

Most importantly, the Supreme Court has not spoken in a precedential holding on the key issue of whether there are interpretive regulations, so we don't know what the Supreme Court would say on that issue. (See also my concluding points about APA original meaning below.)

There have been contrary Supreme Court voices on that issue. I go into detail in my article. I won't repeat that detail here but ask readers to consider the background and two examples:

Background: As I note in my article, Professor Hickman claims that there are no longer any interpretive Treasury regulations which, if true, would mean there are no other agency interpretive regulations. (Remember her drumbeat claim that tax is not exceptional.) At our ABA Tax panel presentation in October, I asked Professor Hickman whether the regulation considered in Chevron was a legislative regulation. She said yes, an answer I knew she would have to give because she has said too often that there are no longer interpretive regulations. (To be fair, in most of our discussions, Professor Hickman claims that post-Chevron developments are the bases for her claim, but she did say on the panel that Chevron was a legislative regulation under her claim.)  Consider her answer against the following:

Illustrative examples of important voices claiming Interpretive regulations exist:

District Court Holds IRS Tax Shelter Notice Imposing Obligations Invalid as a Legislative Rule Without Notice-and-Comment But Limits Holding to Parties (11/20/22)

In GBX Associates, LLC v. United States (N.D. Ohio Case No. 1:22cv401 Dkt. # 21 Memo. Opinion & Order 11/14/22), CL here and GS here, the Court held consistent with Sixth Circuit (including lower court) opinions that IRS Notice 2017-10, entitled “Listing Notice- Syndicated Conservation Easement Transactions,” was invalid because it was a legislative rule adopted without notice-and-comment.  After reaching that conclusion, the court focused on the APA language in 5 USC § 706(2) that the court “hold unlawful and set aside agency action” found to be “not in accordance with law” or ” without observance of procedure required by law “ The question was whether the scope of the remedy could include not only the plaintiff a material (investment advisor) before the court but universal applying throughout the country to all similarly situated parties.  The relief could either be granted by a universal injunction commanding the IRS not to apply the Notice or by “vacatur” declaring the rule null and void which would cover IRS action against all parties similarly situated not before the court.  The latter is sometimes call universal or nationwide vacatur.

I think the opinion is quite good in discussing the issues.  In a nutshell, the issue is whether an invalid rule (here the Notice requirements) adopted without the notice-and-comment required for legislative rules, making it void ab initio, should allow or require piecemealing the remedy, requiring it to be litigated by various aggrieved persons throughout the country.  The Court said (Slip Op. p. 18, cleaned up):

As noted above, GBX asserts that the Notice 2017-10 should be in vacated in whole (and not just as to GBX itself) because, by its very nature, the “set aside” remedy of vacatur set forth in APA § 706(2) acts against the agency action itself—not the government actor. GBX asserts that, under established case law from the Third, Ninth, and D.C Circuit Courts of Appeals, the “ordinary result” upon a finding of unlawful agency action is that the [agency action] itself is vacated—not that its application to the individual petitioners is proscribed. Defendants strongly disagree, arguing the law on this issue is, in fact, unsettled and “hotly contested.” Defendants emphasize, in particular, that the Sixth Circuit has not expressly ruled on this issue and that at least one district court in this Circuit has rejected GBX’s argument and declined to order universal relief under § 706(2).

The Court in GBX exercised her discretion in concluding (Slip Op. p. 32): "The Court declares that Notice 2017-10 is unlawful and hereby sets that Notice aside as to Plaintiff GBX Associates, LLC only."

This litigant-only or universal application issue is presented in Texas v. United States, 40 F. 4th 205 (5^th Cir. 2022) (per curiam), GS here, a nontax case.  The Fifth Circuit opinion summarized its holding (at 212, emphasis supplied by JAT):

Tax Court in Reviewed Opinion Invalidates Notice Identifying Reportable Transactions (11/10/22)

In Green Valley Investors, LLC v. Commissioner, 159 T.C. 80 (2022) (reviewed opinion), TCPamphlet here,, TN here and GS here, the Court held that Notice 2017-10, 2017-4 I.R.B. 544 was invalid because the Notice is a legislative rule improperly issued by the IRS without notice and comment. As a result, the Court “set aside” the Notice and prohibited the imposition of § 6662A (here) accuracy-related penalties for understatements for reportable transactions identified in the Notice. The case turns upon the application of the APA requirement that legislative rules be promulgated as notice-and-comment regulations except for contemporaneous “good cause” statement or congressional exception to the notice-and-comment, neither of which the Court found to apply.

In high level overview, the question was whether the IRS must identify transactions subject to the penalty in a regulation (either Final or Temporary (interim final)) or could identify transactions in a Notice which is subregulatory guidance. The statute referred to transactions identified in regulations under § 6011. The regulations under 6011 defined reportable transaction as a transaction that is the same or substantially similar to one of the types of transactions that the IRS has determined to be tax avoidance transactions and identified by notice, regulation, or other form of published guidance. Reg. § 1.6011-4(b)(2).

The Court reasoned that the Notice which clearly was not a regulation did not meet the statutory command that the transaction be identified in a regulation. Although it included a lot more words and reasons, that is the guts of the holding. As a result, the Court invalidated the application of the penalty in the case and stated (p. 24 n. 22): “Although this decision and subsequent order are applicable only to petitioner, the Court intends to apply this decision setting aside Notice 2017-10 to the benefit of all similarly situated taxpayers who come before us.” 

This holding is a big deal. Syndicated conservation easements as they have been reported in many cases are clearly the type of abusive transactions that Congress intended the penalty to apply once the IRS identified them. The Court held that the IRS improperly identified these transactions by subregulatory guidance rather than by regulation, a procedural footfault. A lot of people clearly abusing the system will escape penalties clearly meant to apply to them and that would have applied except that the Court held that  the IRS promulgated the rule in a procedurally incorrect way.

First Circuit Holds that Target of JDS May Bring Challenge to JDS Prior to Tax Enforcement Against Target (11/9/22)

I am late posting on Harper v. Rettig, 46 F.4th 1 (1st Cir. 2022), 1^st Cir. here and GS here. So the principal point of this blog is to point to the excellent writings of others, which I provide below.

The basic holding of the case (as I understand it) is that, based on CIC and Direct Marketing, the Anti-Injunction Act, § 7421(a) (“AIA”)) does not apply to IRS actions to gather information as opposed to actions to assess and collect tax. As a result, under CIC, a taxpayer can have pre-enforcement review challenging the validity of the JDS and the resultant unlawful acquisition and retention of his financial information, on the notions that; (i) the APA § 702 contemplates pre-enforcement review of IRS information gathering activity (as opposed to assessing or collecting activity) and (ii) the ex parte John Doe Summons (“JDS”) is an information gathering function rather than a tax assessing or collecting function.

My only comment is that the underlying issue as to whether a taxpayer can get pre-enforcement review of the validity of a JDS is an important one.  The holding seems to portend a wide swath of pre-enforcement challenges in various other IRS information-gathering activities.  In a comment posted to a  PT Blog, I asked (cleaned up for typos):

Reply to Professor Hickman's Response to My PT Article (6/17/22; 6/24/22)

Note that changes may be made. I will state when the change is made. The date of the latest update is indicated in the date parenthesis in the blog's title; the last date in the parenthesis is the date of the last change.

UPDATE as of 6/24/22 1:00 pm:  Readers interested in this issue should read Professor Bryan Camp's thoughtful trilogy of Procedurally Taxing Blogs joining of the issue:  

• Bryan Camp, It's Time To Get Real: Treasury Regulations Can Certainly Be Interpretive Rules (Procedurally Taxing Blog 6/23/22), here.
• Bryan Camp, The APA Is Not A Hammer (Procedurally Taxing Blog 6/24/22), here.
• Bryan Camp, The More Things Change The More They Remain The Same (Procedurally Taxing Blog 6/27/22), here.

I have blogged here on the Administrative Procedure Act (APA) distinction between legislative and interpretive regulations. Recently, I posted a guest blog on the Procedurally Taxing Blog. Jack Townsend (Guest Blogger), More On The Confusion Surrounding The Difference Between Legislative And Interpretive Rules (Procedurally Taxing Blog 6/14/22), here. Professor Kristin Hickman posted an opposition response, strongly worded. Kristin E. Hickman, It's Time To Let Go:  Treasury Regulations Are Not Interpretative Rules (Procedurally Taxing Blog 6/16/22), here. The competing positions are academic differences of opinion between Professor Hickman and me as to the proper interpretation and application of the Administrative Procedure Act ("APA") distinction between legislative and interpretive rules. Further discussion of that difference of opinion will not be particularly enlightening to PT readers and perhaps not even to my Federal Tax Procedure Blog readers. Still, the FTPB blog is mine, and I have spent considerable blogs discussing the issue, so I decided to post my response to Professor Hickman's PT Blog on the FTP Blog rather than seeking to post on the PT Blog. I will be pleased to post verbatim as a guest blog any further comments or responses she or anyone else wishes to make that engage the discussion.

So, here is my response to Professor Hickman's PT Blog:

First, I respect Professor Hickman's scholarship and passion for the views she holds deeply. I just disagree with her.

Now to the merits of our disagreements.

I have already stated in detail in my article why I disagree with Professor Hickman's previously stated positions on this issue. The article is:  John A. Townsend. The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN December 14, 2021), https://ssrn.com/abstract=3400489. I respond in this blog to her claims in the PT Blog entry without getting too much into the weeds. The weeds in the article required over 100 pages with copious footnotes. (A summary in 7 pages with no footnotes: is John A. Townsend, A Key Point Summary of The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN May 11, 2022), https://ssrn.com/abstract=4089906.)

I start my article quoting Professor Hickman's claim that there are no interpretive Treasury regulations, despite the APA continuing to have that category. Her PT Blog makes the same claim. Since, as Professor Hickman has persuasively and correctly championed, there is no basis for tax exceptionalism, the same arguments she makes for Treasury Regulations have to apply to all agency regulations. That means that her argument is that the interpretive rule category for regulations has been eliminated from the APA without any legislative amendment of the APA. Thus, for example, the APA exempts interpretive rules from the requirement of notice and comment and application only prospectively, thus meaning that the interpretive regulation category still in the APA means nothing. I thought that an odd claim, particularly since the APA does not allow exceptions except by legislation expressly stating the exception.   That is the Hickman claim that I address in the article. (Clarification added 6/24/22 8:22 am:  The APA refers to "rules" rather than "regulations;" legislative rules must be notice and comment regulations; interpretive rules may be notice and comment regulations or subregulatory guidance; conventionally, discourse in this context uses the terms legislative regulations and interpretive regulations, with both categories authorized by the APA although not in those specific terms.)

I noted in the article (p. 5), in contrast to Professor Hickman's claim of the evaporation of the APA category of interpretive regulation, that, in oral argument in Kisor in 2019, Justice Breyer (an administrative law expert) said that "there are hundreds of thousands, possibly millions of interpretive regulations." That statement can be true only if interpretive regulations remain a viable APA category.

Does Professor Hickman know something that Justice Breyer does not know? Or vice-versa? At a minimum, there is confusion. I side with Justice Breyer.

I engage Professor Hickman and others on the details in my article. I therefore only address some points she specifically raised by her short PT post. Unfortunately, as we all know, responding to claims cryptically stated often requires more words than cryptic claims.

1. The original understanding of the APA's distinction between legislative and interpretive rules may be briefly stated:  

• Legislative rules are the law rather than an interpretation of an ambiguous statute. Legislative rules require an explicit grant of authority to make the law rather than interpret the law. Hence, legislative regulations were (and are) said to have the force of law as statute substitutes. Legislative rules have to be promulgated with notice and comment regulations. And, as with legislation, legislative rules generally have to be prospective. The classic tax example is the consolidated return regulations authorized by § 1502.
• Interpretive rules do not state the law but are interpretations of ambiguous statutory text; the ambiguous statutory text is the law; interpretative regulations may but are not required to undergo notice and comment rulemaking; and agency interpretations, like judicial interpretations, can generally be retroactive to the date of enactment of the interpreted statute (because the statute and not the interpretation is the law).

Guest Post on Procedurally Taxing Blog and Jack Cummings' on the APA Legislative-Interpretive Distinction (6/15/22; 6/16/22)

I posted a guest blog on the Procedurally Taxing blog site:  More On The Confusion Surrounding The Difference Between Legislative And Interpretive Rules (Procedurally Taxing Blog 6/14/22), here. The posting arose from a comment I made on the prior day’s PT blog entry by Les Book, Update on CIC Services And More On The Legislative vs Interpretive Rule Difference (Procedurally Taxing Blog 6/13/22) here. Rather than approve my comment to that earlier blog, Les suggested I offer it as a guest blog rather than a comment. So, that was the genesis of my guest blog. I thought Tax Procedure Blog readers might like to review the PT Blog entry.

I recommend Les Book’s predicate blog as context for my guest blog. In referring PT readers to my article, Les commends Jasper L. (Jack) Cummings' Letter of 4/7/22 to Editor, Tax Notes (4/18/22), here (Copyright 2022, reprinted with permission of the author and Tax Analysts).  (See Jack's bio here.)  Jack is a prolific commentator in this area of the law; over the years, Jack has substantially contributed to my education and I have cited him both in my Federal Tax Procedure Book and in articles.  I too commend Jack’s letter succinctly refuting the claim by many that penalty implications from interpretations make the interpretations legislative rather than interpretive.  One of the key points in Jack’s argument succinctly states the distinction between the APA categories of legislative rules (requiring notice and comment regulations) and interpretive rules (not requiring notice and comment regulations but often promulgated with notice and comment regulations). Here is the key discussion:

             The straightforward way to determine whether Congress has granted an agency the power to make the law is to look at the statute. If the statute says, in effect, “We’re unsure what the rule should be, so you write it,” then the rule is legislative. If the statute says, for example, that a taxpayer can deduct ordinary and necessary business expenses, and then the agency wrote a regulation stating its views on those words, those views would normally be considered to be interpretive. Many courts have shown that they’re perfectly capable of accepting or rejecting the IRS view on the meaning of those words. Put another way, if a statute states a standard that a court can interpret, then the agency’s view on that meaning is interpretive and a rule stating that view need not be issued with notice and comment.

Exactly!  Jack's statement is a variation of the distinction made before and after the enactment of the APA and still carried forward by those who are not confused by the false claims that rules interpreting ambiguous statutory text can be legislative in character rather than interpretive in character for APA purposes.  I cover all of this in my article in a lot more words.

Added 6/16/22 2:15pm:

Professor Kristin E. Hickman, bio here, has written a vigorous response in opposition to my guest post on the Procedurally Taxing Blog and my predicate writings leading to that blog.  Kristin E. Hickman, It’s Time To Let Go:  Treasury Regulations Are Not Interpretative Rules (Procedurally Taxing Blog 6/16/22), here.  Professor Hickman and I disagree.  I address all of her claims points in the article.

On The Further Weaponization of the APA and Chevron Deference (4/19/22)

In Health Freedom Defense Fund, Inc. v. Biden, 2022 U.S. Dist. LEXIS 71206 (M.D. Fla. 4/18/22), CL here, the Court (Judge Kathryn Kimball Mizelle, Wikipedia here) invalidated a Centers for Disease Control regulation requiring travelers to wear masks in transportation hubs.  The opinion refers to this as the “Mask Mandate,” an apt description, so I will use it.  The Court applied a straightforward APA analysis (whether it did so correctly is another question).  That analysis proceeds as follows: 

First, the Court determines that the rigorous interpretation of the relevant statutory text, now in vogue at Chevron’s Step One, indicates that the “best interpretation” of the governing statute is that CDC does not have the power it purported to exercise. 

Second, the Court (pp. 25-26) rejects the argument that the agency interpretation could trump the court's best interpretation of the statute.  The Court explains:  “Chevron deference requires that courts defer to an agency interpretation of a statute that the agency administers when the statute is ambiguous and the interpretation is reasonable.”  But, based on its textual interpretation, the Court found no ambiguity necessary for agency interpretive space, thus rejecting the application of Chevron.   

As an alternative, the Court invokes (pp. 26-31) the major questions doctrine, which requires that Congress speak clearly as to the agency’s authority on systemically important issues, and it had not done so.  

Court Invalidates Regulation for Invalidity of Good Cause Statement (4/6/22)

In Liberty Global, Inc. v. United States (D. Colo. Dkt. 1:20-cv-03501-RBJ #46 Order dtd. 4/4/22), CL here and GS here, the Court granted summary judgment to Liberty Global holding IRS temporary regulations on § 245A invalid for not undertaking notice and comment before the effective date.  (The docket entries and pleadings on the motion are available on Courtlistener here.)  I am not so much concerned about the substantive issue of whether Liberty Global owes the tax in question.  I am concerned about what I perceive as lack of sound analysis on the APA issues by parties and, as a result, by the Court.

Basically, the Court held that:

1.  The regulation in issue was a legislative regulation, apparently without analysis of the issue because “the parties do not dispute that the temporary regulations are legislative rules.”  (Slip Op. 9.)

2. As a legislative regulation issued with a statement of good cause for immediate effect, the good cause statement was not persuasive; therefore the temporary regulation did not have immediate effect.

3. Implicit in #2 was that, if the good cause statement were valid, the temporary regulation could have not only been effective immediately upon promulgation but there was still the issue of whether good cause immediate effect would permit retroactivity under § 7805(b)(2) (although that may be implicit).

I think the Court’s holdings are consistent with mainstream judicial and scholarly current thinking.  As readers of this blog know, I part company with mainstream current thinking on key premises relevant to this discussion.  I provide key relevant points of departure, but those wanting detailed analysis can find it in John A. Townsend, The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN last revised 12/15/21), here.

IRS Enjoined from Enforcing Tax Shelter Notice Requirement for Material Advisor for Microcaptive Transactions (9/22/21)

In CIC Services, LLC v. IRS, 583 U.S. ___ (2021), here, the Court held that the Anti-Injunction Act (§ 7421(a)) did not preclude a contest by a “material advisor” of IRS  Notice 2016–66 requirement to report micro-captive transactions.  See Supreme Court Holds in CIC Services that IRS Micro-Captive Notice May Be Contested Pre-Enforcement (5/17/21; 5/18/21), here.  Accordingly, the Supreme Court remanded the case to the Court of Appeals which remanded it to the district court. 

In CIC Services, LLC v. IRS (E.D. Tenn. No. 3:17-cv-110 9/21/21), CL here, the district court held that the Notice was a legislative rule that required promulgation by notice and comment regulation.  Based on that holding, the court found the requirements for an injunction were met and that the injunction should be applied with respect to CIC.  I suppose that means, practically, that the IRS cannot impose penalties for any failure by CIC to comply with the requirements of the Notice  (Note, however, that the opinion says that “CIC also notes that, to date, it has complied with the Notice’s requirements, expending hundreds of hours of employee labor and thousands of dollars in costs per year.”).

This is a major win for the tax shelter industry but probably not the last word in this saga.

Without getting into the nitty-gritty on the application of the APA’s legislative/interpretive distinction (upon which turns the notice and comment regulation requirement), I suppose that the going forward solution for the IRS would be to use the immediate effect Temporary Regulation, with "good cause statement," process with contemporaneous Proposed Regulations for the notice and comment process.  The APA requirement for good cause is “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. § 553(b)(B).  Potentially abusive tax shelters should be sufficient for immediate effect under this provision. 

I am not sure that the court correctly determined that the Notice was a legislative rule requiring notice and comment (or good cause statement).  Because the court made the legislative determination with sound bites rather than detailed analysis, I won’t address that here.  I suppose the Government will appeal to the Sixth Circuit on an expedited basis because of the injunction.

The CourtListener (CL) docket entries for the case are here.

JAT Comments (added 9/22/21 2:30pm:

Draft Article on Interpretive Regulations and Chevron Deference (8/31/21)

About two years ago, I posted on SSRN here an article titled The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I posted one revision in August 2020.  I am now on my second and last revision.  I have substantially revised the content, for, I think, the better.  Before posting that new revision, however, I solicit and would welcome comments on the article from those willing to undertake the adventure.  Any reader willing to do so should please email me at jack@tjtaxlaw.com for a pdf version of the draft article.  (The pdf version has links to help get around the pdf document (cross-references, etc.) and even to certain key documents on the web (such as the Attorney General’s Manual on the APA in 1947)).

The subject matter generally is Professor Kristin Hickman’s claim that APA category of interpretive tax regulations no longer exists.  The relevant APA categories are legislative or interpretive.  Professor Hickman's claim is that all tax notice and comment regulations are legislative rather than interpretive.  Since tax is not exceptional, that claim means that interpretive regulations no longer exist in the APA universe outside tax.  The article contests Professor Hickman’s claim.  The article deals with general administrative law and APA concepts but focuses on the tax setting for regulations that have traditionally been considered interpretive.  The article deals also with Chevron deference.

The article is 113 pages (excluding opening pages and table of contents) with 457 footnotes.  (The devil is in the footnotes, so to speak.)  I attach a copy of the cover page and table of contents here to offer an idea of the scope of the article.

Of course, any help that is offered will be acknowledged with the permission of the commenter.

Finally, for what it is worth, I did the MS Word reading ease check to test my draft article against some others (arbitrarily chosen).  Here are the results I got:

Does Treasury Comply with Administrative Law, Including the APA? I Say Yes. Others Say No. (7/17/21)

In United States v. Kahn, 5 F.4th 167 (2d Cir. 7/13/21), here, the Court held that the FBAR willful penalty in 31 USC § 5321(a)(5), as amended in 2004 to increase the maximum amount of the penalty to 50% in the account(s), is not limited by the FINCen’s failure to update the underlying regulations (adopted in 1987) which, consistent with pre-2004 law, capped the willful penalty at $100,000.  This holding is currently the strong consensus.  I doubt there will be further aberrations on that issue. 

I generally discuss FBAR willful civil penalty issues principally on my Federal Tax Crimes Blog and did so in this case.  See Second Circuit Continues the Strong Consensus Rejecting the Argument that FINCen Regulations Under Pre-2004 Law Limit the Maximum Willful Penalty Prescribed under the 2004 Statutory Amendment (Federal Tax Crimes Blog 7/14/21), here.

I said in the Tax Crimes Blog posting that I might address Judge Menashi’s dissenting opinion which, in my view, is ideologically tinged repeating mantras in legal jargon that serve as proxies against the evils of the administrative state that play so well to the right.  Chevron is a chief bogeyman that Judge Menashi and other judges of similar bent use for the purpose.  Judge Menashi’s Wikipedia entry is here.

Judge Menashi’s analysis, in summary, is that an administrative agency, here FINCen with administration authority delegated to the IRS, should abide by its own regulations regardless of intervening changes in the statute.  Judge Menashi cites a rule called the Accardi principle (sometimes called a doctrine) after United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954).  FINCen is part of Treasury, but a different part than the IRS.  That issue then permits Judge Menashi to launch into administrative law.

What set me off particularly about Judge Menashi’s dissent is that, although not relevant to his analysis, he repeats Professor Hickman’s claims about the IRS not following administrative law, including the APA.   Judge Menashi thus asserts (p. 3) “The Treasury Department has sometimes evaded standard administrative law principles when enforcing the tax laws” citing in footnote 3 Kristin E. Hickman, Administering the Tax System We Have, 63 Duke L.J. 1717, 1718 (2014) (describing “tax departures from general administrative-law norms”).  Readers of this Federal Tax Procedure blog will recognize that type of claim by Professor Hickman.  The Court of Appeals in CIC Servs., LLC v. IRS, 925 F.3d 247. 258 (6th Cir. 2019), reh. en banc den. 936 F.3d 501 (6th Cir. 2019), rev’d and remanded 583 U.S. ___, 141 S.Ct. 1582 (2021) quoted Professor Hickman and a colleague as claiming that Treasury and the IRS “do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements.”  The quote is from Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017)).  Fortunately, in the Supreme Court in CIC Servs. the parties submitting briefs (including Professor Hickman as amicus curiae) did not repeat that claim, and the Supreme Court did not make the claim.  Perhaps they steered away from the claim prominently made by the Court of Appeals because the claim is irrelevant to the issue presented (just as it was in the Court of Appeals) and, in my view, the claim is not true.  (I synthesize my conclusions on this at the end of this blog.)  And the claim is not relevant to the issue resolved in Kahn, but despite the claim's irrelevance, Judge Menashi makes the claim.

Supreme Court Holds in CIC Services that IRS Micro-Captive Notice May Be Contested Pre-Enforcement (5/17/21; 5/18/21)

This morning, the Supreme Court released its opinions in CIC Services, LLC v. IRS, 583 U.S. ___ (2021), here.  The main opinion is a unanimous opinion authored by Justice Kagan.  Justices Sotomayor and Kavanaugh joined the main opinion but also filed concurrences.

I have not studied the opinion, so offer at this time only the syllabus and a couple of quick comments:

Internal Revenue Service (IRS) Notice 2016–66 requires taxpayers and “material advisors” like petitioner CIC to report information about certain insurance agreements called micro-captive transactions. The consequences for noncompliance include both civil tax penalties and criminal prosecution. Prior to the Notice’s first reporting deadline, CIC filed a complaint challenging the Notice as invalid under the Administrative Procedure Act and asking the District Court to grant injunctive relief setting the Notice aside. The District Court dismissed the action as barred by the Anti-Injunction Act, which generally requires those contesting a tax’s validity to pay the tax prior to filing a legal challenge. A divided panel of the Sixth Circuit affirmed.

Held: 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. Pp. 5–16.

(a) The Anti-Injunction Act, 26 U. S. C. §7421(a), 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.” Absent the tax penalty, this case would be easy: the Anti-Injunction Act would pose no barrier. A suit to enjoin a requirement to report information is not an action to restrain the “assessment or collection” of a tax, even if the information will help the IRS collect future tax revenue. See Direct Marketing Assn. v. Brohl, 575 U. S. 1, 9–10. The addition of a tax penalty complicates matters, but it does not ultimately change the answer. Under the Anti-Injunction Act, a “suit[’s] purpose” depends on the action’s objective purpose, i.e., the relief the suit requests. Alexander v. “Americans United” Inc., 416 U. S. 752, 761. And CIC’s complaint seeks to set aside the Notice itself, not the tax penalty that may follow  [*2] the Notice’s breach. The Government insists that no real difference exists between a suit to invalidate the Notice and one to preclude the tax penalty. But three aspects of the regulatory scheme here refute the idea that this is a tax action in disguise. First, the Notice imposes affirmative reporting obligations, inflicting costs separate and apart from the statutory tax penalty. Second, it is hard to characterize CIC’s suit as one to enjoin a tax when CIC stands nowhere near the cusp of tax liability; to owe any tax, CIC would have to first violate the Notice, the IRS would then have to find noncompliance, and the IRS would then have to exercise its discretion to levy a tax penalty. Third, the presence of criminal penalties forces CIC to bring an action in just this form, with the requested relief framed in just this manner. The Government’s proposed alternative procedure—having a party like CIC disobey the Notice and pay the resulting tax penalty before bringing a suit for a refund—would risk criminal punishment. All of these facts, taken together, show that CIC’s suit targets the Notice, not the downstream tax penalty. Thus, the Anti-Injunction Act imposes no bar. Pp. 5–13.

(b) Allowing CIC’s suit to proceed will not open the floodgates to pre-enforcement tax litigation. When taxpayers challenge ordinary taxes, assessed on earning income, or selling stock, or entering into a business transaction, the underlying activity is legal, and the sole target for an injunction is the command to pay a tax. In that scenario, the Anti-Injunction Act will always bar pre-enforcement review. And the analysis is the same for a challenge to a so-called regulatory tax—that is, a tax designed mainly to influence private conduct, rather than to raise revenue. The Anti-Injunction Act draws no distinction between regulatory and revenue-raising tax laws, Bob Jones Univ. v. Simon, 416 U. S. 725, 743, and the Anti-Injunction Act kicks in even if a plaintiff’s true objection is to a regulatory tax’s regulatory effect. By contrast, CIC’s suit targets neither a regulatory tax nor a revenue-raising one; CIC’s action challenges a reporting mandate separate from any tax. Because the IRS chose to address its concern about micro-captive agreements by imposing a reporting requirement rather than a tax, suits to enjoin that requirement fall outside the Anti-Injunction Act’s domain. Pp. 13–15.

JAT Comments: