Fla. Bankers Ass'n v. U.S. Dep't of the Treasury

• Decision Date: 14 August 2015
• Docket Number: No. 14–5036.,14–5036.
• Citation: 799 F.3d 1065
• Parties: FLORIDA BANKERS ASSOCIATION and Texas Bankers Association, Appellants. v. UNITED STATES DEPARTMENT OF THE TREASURY, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

799 F.3d 1065

FLORIDA BANKERS ASSOCIATION and Texas Bankers Association, Appellants.

v.UNITED STATES DEPARTMENT OF THE TREASURY, et al., Appellees.

No. 14–5036.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 13, 2015.

Decided Aug. 14, 2015.

Rehearing En Banc Denied Nov. 5, 2015.

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.

Opinion

Opinion for the Court filed by Circuit Judge KAVANAUGH, with whom Senior Circuit Judge RANDOLPH joins.

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, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). The Act thereby “protects the Government's ability to collect a consistent stream of revenue.” National Federation of Independent Business v. Sebelius, –––U.S. ––––, 132 S.Ct. 2566, 2582, 183 L.Ed.2d 450 (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 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. 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. 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

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 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, ––– U.S. ––––, 132 S.Ct. 2566, 2583, 183 L.Ed.2d 450 (2012). Had the penalty at issue in 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. 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.

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, ––– U.S. ––––, 135 S.Ct. 1124, 1129, 191 L.Ed.2d 97 (2015). The Tax Injunction Act, in essence, bars as premature those suits targeting state tax schemes. See id. at 1129. 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. The Court held that the Tax Injunction Act did not bar a challenge to that requirement. Id. at 1127.

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–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...