Do you not want to pay taxes? Does anyone? Not really. Maybe you can avoid paying taxes if you file suit against the IRS or an injunction against tax collection but if you do you’re going to need relief from the Anti-Injunction Act. Have you ever heard of the Anti-Injunction Act (AJA)? I haven’t and I worked for IRS for more than 8 years! Moreover, do CPA’s or other tax professionals know what the Anti-Injunction Act is? Doubtful but for good reason.
The Anti-Injunction Act was passed around the Civil War but is now becoming relevant with a current lawsuit moving forward through the lower 6th Circuit courts. The AJA was passed to help Congress via the Treasury Department to collect income taxes. The AJA basically shields the Treasury – aka the IRS – from lawsuits being filed against it prior to assessing federal taxes.
The AJA disallows taxpayers from hampering Treasury actions from collecting taxes but not regulations before those regulations and/or deficiencies before they’ve been assessed. The AJA was passed after the initial federal income tax law was passed to prohibit individuals to bring suit against Treasury prior to any tax or penalty assessment by the IRS. But recently, the US Supreme Court has allowed a lawsuit to move forward with more briefs expected before the new session begins in the fall so that the Court will issue an expected final decision as to what taxpayers can bring suit against the Department of Treasury.
In summary, Treasury issued notices requiring certain insurance transactions to be reported to the Service based on believed abuse by taxpayers and insurance agencies utilized. So the parties involved have brought suit against the Treasury prior to any tax being assessed. This case brought forth recently sparks a lot of debate at the lower courts and could possibly have sweeping changes to treasury regulations and the collection of tax actions utilized today.
Critics say the “modern administrative state” did not exist when this law was passed and all the accumulated laws, treasury regulations, etc. do not have anything to do with collecting taxes such as the earned income tax credit and more and more regulations passed on nontaxable entities.
Contrastingly, proponents argue Congress can always pass a law if they do not want Treasury to have this type of protection. However, Congress has not moved to pass such a law yet. If the Court sides with this lawsuit a larger bag of worms (and lawsuits) will be more and more as to require Treasury to defend itself in Court prior to tax assessment actions.
However, if the Court sides against the lawsuit more and more clarity would be brought forth with protections granted Treasury with this Act being solidified and pressure placed on Congress to pass a law or law(s) further regulating or limiting Treasury tax collection actions.
So… what’s next? It depends. It depends how far is SCOTUS willing to go if at all to side with the critics of this lawsuit. But it appears the case will be heard by SCOTUS per case allowed to move forward currently with more briefs to be filed with the Court as well as more arguments to be heard in the fall by the US Supreme Court justices. All for an act no one even knew about!
Reference SCOTUS May Curb Treasury Civil War-Era Lawsuit Shield. Bloomberg Tax – Talk Tax (5-28-20)