IRS urges Supreme Court to affirm rejection of CIC Services case

The Internal Revenue Service (IRS) has urged the US Supreme Court to affirm the Sixth Circuit's rejection of CIC Services challenge to agency reporting requirements, stating that the lower court correctly found the suit is barred by the Anti-Injunction Act.

Earlier this year, the Supreme Court of the US agreed to hear CIC Services lawsuit against the IRS regarding IRS Notice 2016-66.

The initial lawsuit started in 2016 when the Tennessee-based captive manager’s filed against the IRS and US Treasury in a bid to block Notice 2016-66.

Notice 2016-66 requires reporting by any taxpayer involved in micro captive transactions over a number of past years to which the open statute of limitations applies.

CIC Services, who lost a court case against the IRS in 2017, went on to appeal the decision at the US Sixth Circuit Court of Appeals but it was later denied.

In July, it was announced that nearly two dozen national and state organisations in the US have filed a joint amicus brief before the US Supreme Court in the case of CIC Services LLC v. IRS.

The IRS argues that the Anti-Injunction Act requires dismissal of petitioner’s suit to enjoin enforcement of IRS Notice 2016-66.

In a brief for the upcoming case, the IRS outlined that the “petitioner’s suit falls squarely within the Anti-Injunction Act’s bar”.

The service added: “That suit seeks to enjoin the enforcement of, and declare unlawful, Notice 2016-66, which extends certain reporting and record keeping requirements that are enforced by penalties the Code ‘deem[s]’ to be ‘tax[es]’.”

It also stated that the “petitioner prevails, the IRS will be prohibited from ‘assess[ing]’ or ‘collect[ing]’ those taxes” and added that “based on the petitioner's noncompliance with the Notice’s requirements. The suit, therefore, is one to restrain assessment or collection of a tax”.

The IRS outlined that the CIC Services contends that applying the Anti-Injunction Act to bar this suit would “likely violate ‘[d]ue process’ principles” and “that argument lacks merit”.

The service explained: ”This Court has long held that post-payment review in a refund suit satisfies due process. That remedy would be available to petitioner here.”

In the brief, the IRS stated that CIC Services also contends that its suit does not seek to restrain tax assessment or collection because petitioner has not yet violated the reporting and record keeping requirements and therefore has not incurred any tax liability.

However, the IRS suggested the “petitioner’s suit seeks an advance judicial determination that would forbid assessing and collecting the tax if the petitioner violates those requirements”.

It explained: “Petitioner’s situation is no different from that of any other taxpayer who is contemplating an activity with potential tax consequences, and who seeks a judicial ruling that would preemptively shield the activity from those consequences.”

“The Anti-Injunction Act and the Declaratory Judgment Act squarely foreclose such suits. Decisions of this Court and lower courts confirm that common sense conclusion,” the IRS added.