The Living Anti-Injunction Act

Abstract

For decades, individuals and entities wishing to contest their federal tax liabilities have had a choice among three paths. First, they could file a prepayment petition in the U.S. Tax Court. Second, they could pay the tax and then sue for a refund in their local federal district court. Third, they could pay the tax and then file for a refund in the U.S. Court of Federal Claims. What they could not do is seek an injunction preventing the Internal Revenue Service from assessing or collecting the tax in question. Standing in their way would be the Anti-Injunction Act (AIA), which 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.” But all that is now in doubt. In 2017, a federal district court in Texas held that the AIA did not bar the U.S. Chamber of Commerce from bringing a pre-enforcement challenge to an Obama administration regulation that specified the circumstances under which domestic companies that seek to move their legal domicile overseas will be subject to a targeted tax on inversion gain. As far as judicial decisions on matters of tax procedure go, this one was a bombshell, with commentators noting that the holding breaks from decades of judicial precedent and opens the door to more challenges to IRS rules. The IRS is now contesting the district court’s ruling in a closely watched appeal to the Fifth Circuit.

In a though-provoking and comprehensive article, Kristin Hickman and Gerald Kerska argue that the district court’s holding in the Chamber of Commerce case is largely consistent with the “lost” history of the AIA. According to Hickman and Kerska, the AIA historically applied only after a taxpayer filed a return and federal tax officials began their assessment and collection efforts; pre-enforcement judicial review of a tax regulation would, on this reading, fall outside the statute’s scope. This essay responds to Hickman and Kerska’s claims. Specifically, I argue (1) that the history of the AIA is at best inconclusive as to whether the statute should be construed broadly or narrowly; (2) that developments in federal tax and administrative law since 1867 do not weigh decisively in favor of a narrow interpretation of the statute; and (3) that the AIA has come to play an important role in protecting an under-resourced IRS from an onslaught of administrative law challenges across a wide range of litigation forums. I end by arguing that any further narrowing of the AIA should be done by Congress — not by the courts — and should be accompanied by an increase in IRS resources and additional limits on taxpayer forum shopping.

Keywords: Anti-Injunction Act, Tax Anti-Injunction Act, tax procedure, administrative law

JEL Classification: K34