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CAMPS COMPENDIUM

tax notes
Jesus and the Anti-Injunction Act
By Bryan T. Camp

(C) Tax Analysts 2012. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.

Bryan T. Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law. His articles explore the laws and policies of tax administration to help guide readers through the thickets of some procedural problems while also giving them Bryan T. Camp a sense of the larger tax administration forest. This article examines the scope and application of section 7421, commonly known as the Anti-Injunction Act, in National Federation of Independent Business v. Sebelius. Camp thanks professor Jordan Barry of the University of San Diego both for reviewing this article and dragging him into the topic to start with. Barry has no responsibility for any substantive or stylistic errors readers may find. Its all Camps fault, and he promises to do better next time. Camp dedicates this article to judges Brett Kavanaugh, Diana Motz, and James Wynn, who got it right. Copyright 2012 Bryan T. Camp. All rights reserved.

Or was the risen Jesus a more subtle body, perhaps even a metaphor asserting a truth about the ultimate relationship between humans and God, as a more purposeful reading suggests?2 The risen Jesus problem the tension between literalist and purposeful readings of text is pretty much the problem the Supreme Court faced in the Obamacare case, more formally known as National Federation of Independent Business v. Sebelius.3 There, the high priests of the law declared that section 7421 (the Anti-Injunction Act (AIA)) did not bar federal courts from hearing a challenge to what Congress called a penalty, codified in section 5000A. The penalty will be imposed on taxpayers who fail to obtain requisite health insurance starting in 2014. This decision followed the desire of all parties for the Court to reach the merits of the constitutional challenges to Obamacare, and fulfilled the prediction of the experts.4 What is striking to me is the Courts literalist approach. The nub of its reasoning is that the AIA only applies to suits involving a tax, and Congress called section 5000A a penalty. Although I understand the desire of all parties and apparently all the Supreme Court justices to get to the fun constitutional stuff, the myopic focus on the word tax obscures the law. Although the AIAs purpose cannot be untethered from its words, neither should those words be read in isolation from its purpose. Both text and purpose provide the limits of rational interpretation. The thesis of this article is that by ignoring the purpose of the AIA, the Courts literalist opinion

Easter is a confusing holiday for my son. Not because of the Easter Bunny, which he knows is really Mom and Dad. Rather, he is confused about the story of Jesus rising from the dead and making what amounts to a 40-day farewell tour before ascending into heaven. He asks me whether we worship a zombie. My son is not the only one confused by the Resurrection story. It has confounded theologians for centuries. The problem is one of interpreting the biblical texts. Was the risen Jesus a reanimated corpse, as a literal reading of the text might suggest?1

1 An early and still influential theologian who argued for this view was Quintus Septimius Florens Tertullianus (known generally as Tertullian). See generally http://www.tertullian.org/.

For a description of Tertullians views on the Resurrection, see Robert E. Roberts, The Theology of Tertullian, ch. 11 (1924). 2 See, e.g., G.R.S. Mead, The Subtle Body in Western Tradition: An Outline of What the Philosophers Thought and Christians Taught on the Subject, ch. 3 (1919). 3 132 S. Ct. 2566 (2012), Doc 2012-13784, 2012 TNT 126-12. The Court consolidated three petitions, all from the Eleventh Circuit. The other two involved multiple states, led by Florida, and private plaintiffs. Obamacare is more formally known as the Patient Protection and Affordable Care Act of 2010, P.L. 111-148. 4 See generally Bryan Camp and Jordan Barry, Explanation of the Anti-Injunction Act Issue in HHS v. Florida (Affordable Care Act Litigation), 39 American Bar Association Preview of United States Supreme Court Cases, Issue 6-SE, at 15-19 (2012), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2018285. That publication polled a panel of experts who all agreed that the Supreme Court would run right over the AIA. Oral arguments reinforced the foreshadowing.

(Footnote continued in next column.)

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becomes mischievous for future litigation. Moreover, there was a better way to avoid the AIA. Part A of this article gives the legal history of the AIA. Part B sketches out the two issues presented to the Court and how the Court resolved them, showing the tension between a literalist and purposeful interpretation of the statute. Part C considers the practical implications of the Courts holding for future AIA cases. It points out how some taxpayers can now avoid the AIA, not only regarding the section 5000A penalty but also other penalties in the code. It explains how a purposeful approach would have been a superior rationale. Although both a literalist and purposeful approach allow the Court to get to the constitutional merits in this case, their differences, though small, are both profound and perennial much like the risen Jesus problem. A. The Legal History of the AIA Now codified in section 7421, the AIA reads, in relevant part: (a) Except as provided in sections 6015 (e), 6212 (a) and (c), 6213 (a), 6225 (b), 6246 (b), 6330 (e)(1), 6331 (i), 6672 (c), 6694 (c), and 7426 (a) and (b)(1), 7429 (b), and 7436, no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed. Commentators claim the statutes history is shrouded in darkness.5 The Supreme Court says the statute has no discernible legislative history.6 Both are wrong. It is true that if legislative history means committee reports or floor speeches, there are none. But I submit that legislative history is much more than words; the best legislative history is action and the context of the action. The lack of committee reports or floor speeches does not mean the reasons for the act are difficult to understand, or that its purpose is obscure. The AIA was not created in a vacuum. Jay Starkman recently gave us some valuable insights into the author of the AIA, William Pitt Fessenden.7 But there is more to the story than one mans thoughts. Legislation is a process of action and

reaction by and among the various political institutions and those who populate them: courts, legislatures, and administrative agencies. Understanding the legal and administrative context in which the act was born gives shape and purpose to its life. Call it legislative history, call it legal history, call it a banana. The inquiry is still necessary if one wants to give a full and fair reading to the statutory text, and Chief Justice John Robertss opinion is notably silent in this regard. Nor is the need for this kind of inquiry just my own personal fantasy. It has long been part of Supreme Court jurisprudence, as Justice Peter Daniel pointed out in the 1840s, in a case interpreting a tax procedure statute similar to the AIA: In order to arrive at the answer which should be given to the question certified upon this record, the objects first to be sought for are the intention and meaning of Congress in the enactment of the 2d section of the act of March 3d, 1839, under which the question sent here has been raised. The positive language of the statute, it is true, must control every other rule of interpretation, yet even this may be better understood by recurrence to the known public practice as to matters in pari materia, and by the rules of law as previously expounded by the courts, and as applied to and as having influenced that practice.8 Recovering the legal history of the AIA involves understanding (1) how taxpayers in the 1800s obtained judicial review when disputing their tax obligations, and (2) how Congress reformed tax administration in the 1862, 1864, and 1866 tax acts to deal with problems created by the radical new tax regime. Once you put those puzzle pieces together, the picture of the AIAs scope and purpose is pretty clear. The main point of this section is to show how Congress wrote the AIA to deprive federal courts of the power to exercise their otherwise applicable equity jurisdiction when taxpayers wanted to avoid the statutory mechanisms for resolving disputes over a particular tax provision. Congress did this to suit the primary need of the government to collect first and settle disputes later. The AIA plugged a hole in the tax collection system that had developed in the mid-1860s. It was an integral part of the procedures to be used in tax collection. Like all histories of law, it is also the story of a slow-moving conversation between judiciary and legislature. Courts act, Congress reacts, and vice versa. The

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5 Note, Enjoining the Assessment and Collection of Federal Taxes Despite Statutory Prohibition, 49 Harv. L. Rev. 109 (1935). This influential note has caused both courts and commentators to throw up their hands on understanding the purpose of the AIA. 6 Bob Jones Univ. v. Simon, 416 U.S. 725, 736 (1974) (The Anti-Injunction Act apparently has no recorded legislative history) (citing the Harvard note). 7 Jay Starkman, The Origin of the Anti-Injunction Act, Tax Notes, Apr. 2, 2012, p. 121, Doc 2012-6456, 2012 TNT 63-15.

8 Cary v. Curtis, 44 U.S. 236, 239 (1845) (I discuss the 1839 act below).

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upshot of the history is that Congress here took a common law rule regarding jurisdiction and codified it, creating a statutory rule for courts to use rather than a common law rule. If you accept these claims about the AIAs purpose, just skip to the next section. Skeptics, or those who love the nerdy details, read on. 1. The story of tax disputes: 1789 to 1862. In the beginning, Congress filled the federal fisc mainly from tariffs (customs duties) imposed on imported goods.9 These taxes were assessed by one government employee (the assessor), who then gave a summary list of the assessments to another government employee (the collector), who then sent the bill and received payment. The tariff statutes provided that taxpayers could contest the collection of a tax if they gave a bond for payment to the collector. Then when the collector sued on the bond, the taxpayer could litigate the dispute.10 At some point in the early 1800s taxpayers got the idea they could pay the assessed tax and then file a common law action for assumpsit (money had and received) against the collector personally (no suits would lie against the sovereign United States). Because taxpayers tended to sue in state courts, Congress passed the Force Act in 1833, which not only gave federal courts jurisdiction over those actions regardless of diversity of citizenship but also allowed collectors to remove state-filed cases to federal court.11 In the 1836 case Elliott v. Swartwout, the Supreme Court officially blessed for customs duties the common law scheme of pay-and-sue-the-collector.12 But the Court said the scheme required taxpayers to pay under explicit protest so that the collector could hold back the money in anticipation of the personal suit.

Congress also imposed some modest excise taxes on those who produced certain tobacco and alcohol products (although the Whiskey Rebellion farmers did not think the taxes so modest). But it was tariffs that made up some 95 percent of federal revenue until the Civil War. See Historical Statistics of the United States, 1789-1945, Table Series P 89-98 (Federal Government Finances), at 295-298, available at http://www. census.gov/compendia/statab/past_years.html. 10 1 Stat. 677. See generally William T. Plumb, Refund Suits Against Collectors, 60 Harv. L. Rev. 685 (1947). Taxpayers could also find a friendly Congress member and get relief in a private bill, but lets just ignore that for now; I want to focus on judicial relief. 11 4 Stat. 632. Federal courts had no federal question jurisdiction at this time, and besides, these suits were common law actions against the collector personally, so it took the Force Act to give federal courts subject matter jurisdiction when the taxpayer and the collector were from the same state. I discuss jurisdiction more below. 12 35 U.S. 137 (1836).

After Elliott, collectors started holding back in earnest to protect themselves from suit. That was money not getting to the treasury. Not surprisingly, Congress revised tax procedure in 1839 to require collectors to pay all collections to the treasury, even those made under protest and threat of suit.13 In the same revision, Congress authorized the Treasury secretary to refund improperly collected money to taxpayers, but only when they could show actual overpayment. Congress did not provide for any administrative review of assessments or for any judicial review of the refund decision. There was simply no prepayment judicial forum for taxpayers. In the 1845 case Cary v. Curtis, the Supreme Court found that the 1839 statutory changes to tax procedure nuked the common law action of assumpsit for customs duties because the collector could no longer be said to have made an implicit promise to repay wrongfully collected monies.14 Further, the Court decided that the absence of judicial review of the administrative refund procedures for customs duties did not violate constitutional due process. Almost within a week, Congress responded to Cary with an explanatory act that basically said we didnt mean to nuke the assumpsit action. More formally, the act explicitly approved of assumpsit actions and declared that taxpayers could file suits to ascertain and try the legality and validity of such demand and payment but only after submitting a protest made in writing, and signed by the claimant, at or before the payment of said duties, setting forth distinctly and specifically the grounds of the objection to the payment thereof.15 Notably, however, Congress made no move to add judicial review to an administrative decision denying a refund. So taxpayers still had to pay and pray. When the matter came back before the Supreme Court, it decided that Congress had transformed the common law action into a statutory remedy.16 In 1855 Congress created the Court of Claims to hear claims against the United States founded upon any law of Congress, or upon any regulation of the executive branch, or upon any contract, express or implied, with the government of the

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5 Stat. 339, 348. As the Supreme Court noted in 1845, It is a matter of history that the alleged right to retain . . . had led to great abuses, and to much loss to the public; and it is to these two subjects, therefore, that the [1839] act of Congress particularly addresses itself. Cary v. Curtis, 44 U.S. 236, 243 (1845). 14 Cary v. Curtis, 44 U.S. 236, 239 (1845). 15 5 Stat. 727. Congress happened to be in session when Cary was decided. 16 Curtiss Admx v. Fiedler, 67 U.S. 461 (1862) (taxpayers protest, which would have been adequate under common law, was inadequate to meet statutory requirement). See generally Plumb, supra note 10, for full discussion of the transformation.

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United States.17 However, the legislation did not create any substantive rights; it only waived sovereign immunity for claims over which the federal courts would otherwise have subject matter jurisdiction.18 At the time it was of little help to taxpayers because Congress had not authorized suits against the government of the United States for refunds but only allowed for suits against collectors.19 Pause and breathe. Note that during this time taxpayers could not contest an assessment in court without either paying or posting a bond. Although Treasury could refund improperly collected monies, its word was final and immune from judicial review until full payment.20 Taxpayers just had to suck it up until they could pay to get into court. 2. Creating the machinery of collection: 1862-1866. As implied by its title, the focus of the 1862 Revenue Act to Provide Internal Revenues to support the Government was on internal revenues, not customs duties, which had been the subject of most of the pre-1862 litigation. These internal revenue taxes were paid not only by those who produced distilled spirits but also by those who needed licenses and those who produced myriad articles of commerce, everything from candles to cloth to pickles to glue to leather goods to pins.21 And, for the first time, Congress added an income duty to the considerable list of other objects of taxation. The basic scheme was the same the assessor assessed and the collector collected. The 1862 act was of unprecedented scope and ambition. Not only did it impose vast new taxes, it also created a brand-new agency to administer the tax laws, the Bureau of Internal Revenue.22 The

10 Stat. 612. For history, see United States v. Mitchell, 463 U.S. 206 (1983) (Tucker Act does not create any substantive right of recovery). 19 Eventually, in 1910, the Court decided that the common law suit against the collector was enough like a suit against the United States to justify the Court of Claims exercising jurisdiction. United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28 (Holmes, J.) (The objection to the jurisdiction pressed by the Government is that the only remedy is a suit against the Collector. . . . However gradually the result may have been approached in the earlier cases it now has become accepted law that claims like the present are founded upon the revenue law). 20 See Flora v. United States, 357 U.S. 63 (1958), for historical analysis of the full pay requirement. 21 See, e.g., 12 Stat. 462-466 (listing articles of manufacture subject to taxes to be paid by the producer or manufacturer thereof). There were also excise taxes on auction sales, carriages, railroads and other common carriers, banks, and also on the creation of various documents (bills of exchange, bonds, commercial paper, mortgages, deeds, ship manifests, telegraphs, etc.). There were also proto-VATs on furniture. 22 Actually, it was Congresss second try. But the Revenue Act of 1861, 12 Stat. 292, had so many problems that it was stillborn.
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redoubtable George S. Boutwell took the administrative bull by the horns as the first commissioner of Internal Revenue; starting with just three clerks in July 1862, he ramped up operations to almost 4,000 employees during the next six months.23 But the 1862 act was a hurry-up job, as was much government action in the early war years. And both the new agency and the myriad new taxes were quite unpopular.24 This combination of sloppy writing and strong resistance led to litigation as taxpayers went to court to defend their pocketbooks. Congress soon began modifying the 1862 administrative provisions, to provide for increased care in the construction of the machinery of collection.25 These amendments came in major revenue acts: March 1863, June 1864, and July 1866. Four modifications in particular help explain the nature and purpose of the AIAs passage in 1867. Note how these modifications were specific responses to concrete problems, similar to the 1845 Explanatory Act: They responded to both legal and practical problems that arose in administering the new 1862 law. Tax administration was entering legally uncharted territory and both Congress and the courts helped map it out. First, in 1864 Congress expanded Treasurys authority to issue refunds. The 1862 act allowed the commissioner to refund any duty or tax but only when it had been levied or collected, in whole or in part, wrongfully or unjustly.26 It said nothing about reversing wrongful assessments. Congress expanded the authority in 1864 to authorize the commissioner to remit, refund, and pay back all duties erroneously or illegally assessed or collected, and all duties that shall appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected.27 The effect of this first change was to give taxpayers their first-ever prepayment remedy. Courts interpreted this change in language as allowing taxpayers to obtain relief from a bad assessment before the collector could act.28 The relief, however,

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23 Joseph J. Thorndike, Reforming the Internal Revenue Service: A Comparative History, 53 Admin. L. Rev. 717 (2001). 24 IRS, Treasury, IRS Historical Fact Book: A Chronology 44-47 (1993) (citing a New York Times editorial from 1871 that claimed the income tax has been unpopular from the moment of its enactment). Thorndike also nicely recounts the story in his Reforming the Internal Revenue Service, id., at 726-730. 25 Cong. Globe, 38th Cong. (1864) (statement of Rep. Stebbins). 26 Revenue Act of 1862, section 33. 27 Revenue Act of 1864, section 44 (emphasis supplied). 28 See, e.g., United States v. Hodson, 26 F. Cas. 337, 338 (Cir. Ct. Wisc. 1871), in which the taxpayer received an assessment and appealed it to the commissioner but did not pay.

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was still administrative: an appeal to the commissioner. There was no judicial review from the commissioners decision unless and until the taxpayer followed the pay-and-sue-the-collector procedure.29 Second, in 1864 Congress authorized the commissioner to repay to collectors or deputy collectors the full amount of such sums of money as shall or may be recovered against them . . . in any court . . . by reason of anything that shall or may be done in the due performance of their official duties.30 Although the 1839 act had authorized reimbursement for collectors of customs, there was nothing in the 1862 act that authorized reimbursement of collectors of internal revenue when they lost an assumpsit suit. Oops. Actually it was worse than oops. The omission opened the door for taxpayers to invoke equity jurisdiction. For example, in early 1864, a Chicago railroad obtained an injunction against a collector, claiming that a tax imposed on its certificate of stocks was contrary to the statute. The taxpayer argued that there was no adequate legal remedy, thus equity jurisdiction would lie. The court agreed: The plaintiff insists that a suit at law would be unavailing in consequence of the pecuniary irresponsibility of the collector, and because his sureties would not be liable, and therefore if this bill is not maintainable the plaintiff is without remedy.31 This reasoning would not apply to customs collectors because Congress had long provided reimbursement to them. Thus, the 1864 action by Congress to explicitly provide reimbursements to collectors shut the door on this one type of injunction.32 Third, in 1866 Congress dealt with the assessors authority to reexamine a return and increase the assessment. Taxpayers had attacked the ability of

assessors to do this, arguing that assessors were functus officio once they assessed a tax. Because assessments functioned as judgments at law and taxpayers could not change them, neither could the government change the assessment. By April 1866 taxpayers were winning in court on this issue.33 The assessment was final, and once made, there was nothing more to be done but collect it. In July 1866 Congress responded by giving assessors the power to reexamine returns and reassess taxes, even after they had sent the summary list to the collector.34 Assessors rejoiced.35 Now they could have their cake (an assessment treated as a judgment) and eat it, too (alter the assessment if and when they thought it understated the taxpayers true tax liability). Congress had kept the assessment final regarding taxpayers; it made no changes to the pay-and-sue-the-collector procedure. Congress had only made the assessment changeable by the assessor. Fourth, until 1866, it was not clear that taxpayers could file refund suits of any kind. Recall that taxpayers had long sued collectors of customs in assumpsit and that the 1845 Explanatory Act had converted the common law action into a statutory remedy. There was no comparable language for internal revenue taxes in the 1862 or 1864 acts. Nonetheless, when the matter finally got before the Supreme Court in Philadelphia v. The Collector, the Court held that various provisions in the 1862 and 1864 acts the most important one being the reimbursement of collectors implicitly approved of the common law action in assumpsit being used against all collectors. Shortly before the Court decided Philadelphia, but too late to affect that case, Congress expressly recognized taxpayer suits against collectors of internal revenue. However, just as it had done in the

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29 Id. After the commissioner denied Hodsons appeal, the government sued to foreclose on the taxpayers property. The Court did not allow the taxpayer to attack the assessment in defense of the foreclosure suit. 30 Revenue Act of 1864, section 44. 31 Chicago, B. & Q. R. Co. v. Page, 5 F. Cas. 600 (Cir. Ct. N.D. Ill.) (1864). The court reserved the question of jurisdiction but granted the injunction to prevent collection. 32 I do not claim a direct causality between this case and the corrective legislation. The federal court rather confusingly granted the injunction but reserved the question of whether it had the power to do so. Further, Congress had already fixed the problem the month before the decision came out yet there is no reference to that in the opinion. Finally, a LEXIS search on the string assumpsit w/4 collector and date (aft 1861 and bef 1865) yielded no cases in addition to the ones I discuss in this article. That does not mean there were none; it just means I have not had time to dive into actual courthouse records, because there is no historical database equivalent to PACER. Still, it takes no great imagination to see how the 1864 amendments precluded any further claims of an inadequate remedy at law.

In re Brown, 4 F. Cas. 330, 332 (N.D.N.Y. 1866) (There should be some limit of time, beyond which this inquisitorial power of the assessor to examine into all the private business transactions of every person, should not be exercised. . . . The taxpayer cannot be heard after the list has gone to the collector; why then should the assessor be permitted on his own motion to review his own action, after the list has passed from him to the proper officer to whom it belongs? It appears to me that the assessor should be regarded as to such list functus officio his power is spent). This is one of the earliest known summons enforcement cases, but it could as easily have appeared as the taxpayer seeking an injunction against the assessor. 34 Revenue Act of 1866, section 9 (amending section 20 of the 1864 act). The new power was circumscribed: It could only be exercised if the assessor discovered a false or fraudulent return within 15 months after he delivered the summary list. For a more detailed description, see Bryan T. Camp, Theory and Practice in Tax Administration, 29 Va. Tax Rev. 227 (2009). 35 See Charles N. Emerson, Emersons Internal Revenue Guide, 24 (1867).

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1845 Explanatory Act, Congress attached conditions to the action. Section 19 of the Revenue Act of 1866 provided that no suit for the recovery of any tax alleged to have been erroneously or illegally assessed or collected could be filed until an appeal shall have been duly made to the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury.36 The Supreme Court eventually interpreted section 19 of the Revenue Act of 1866 as it had the Explanatory Act. It held that the refund provisions in section 19 converted the common law action into a statutory action that required taxpayers to first seek administrative relief before filing suit. So when taxpayer William Hubbard disagreed with the income tax assessment made against him, paid under protest, and sued the collector without first seeking an administrative refund, the Court held he was unable to maintain the action because he had not complied with the newly created statutory requirements.37 Although the procedure he followed was appropriate before 1866, the coversion of the common law rule into a statutory rule had changed the requirements. 3. Perfecting the machinery of collection: The AIA. We tend to forget that in the 1800s, law and equity were separate systems of legal rules and remedies in the federal courts. Recalling that distinction is crucial to understanding both the AIAs name and purpose. It was a statute aimed at preventing courts from exercising their equity jurisdiction. Injunctions were not legal remedies; they were equitable remedies, available only from a court sitting in equity. Courts had no problem exercising jurisdiction on the law side in suits against the collectors, once the taxpayer had fully paid and made the appropriate administrative protest. The equity side was different. The basic common law rule was that equity jurisdiction would not lie if there was an adequate remedy at law.38 As long as the courts found that the pay-and-sue-the-collector procedure gave taxpayers adequate legal remedy, taxpayers were barred from the equity side of

courts. That meant they were unable to seek injunctive relief, regardless of the legal merits of their positions. However, the complications of the new revenue acts put great pressure on the system. Although the 1862 act did allow taxpayers to protest proposed assessments, there was no administrative, much less judicial, appeal from the assessors decision. In 1867 one observer wrote that the assessors were effectively the law on the subject.39 So taxpayers started to invoke courts equity jurisdiction and sought injunctions to stop either an assessment from being made or from being collected.40 We saw one example above, the Chicago taxpayer obtaining an injunction against a collector, which perhaps goosed Congress into providing governmental reimbursement for judgments against collectors of internal revenue. Although Congress closed that particular door to injunctive relief, taxpayers were busy knocking at others, telling anyone who would listen that their remedies against both assessors and collectors were inadequate. Taxpayers found a receptive ear in Supreme Court Justice Samuel Nelson, riding circuit in New York. In the 1865 case Cutting v. Gilbert, a group of stockbrokers filed an equitable action seeking a bill of peace to settle a dispute between them and the assessor over an interpretation of the new income tax duty.41 Nelson denied the requested relief because the parties were improperly joined, but even as he did so, he provided guidance approving of future injunctions: But, as this error [improper joinder] may be corrected, and as there are other cases before me in which it does not exist, I shall proceed to express my views upon them. They are cases in which the bill is filed by the party or firm against whom the tax is threatened.

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Revenue Act of 1866, section 19. The Collector v. Hubbard, 79 U.S. 1 (1870) (the right of actions, though in the form of an action of assumpsit, is grounded upon the act of Congress providing for the assessment and collection of taxes). See also Hubbard v. Kelley, 8 W.Va. 46 (1874) (different Hubbard, different court, same fact pattern, same result). 38 Boyces Exrs v. Grundy, 28 U.S. 210 (1830). See the discussion in Thomas Main, Traditional Equity and Contemporary Procedure, 78 Wash. L. Rev. 429, 451 (2003) (The test of equitable jurisdiction long has been whether the law courts could provide plain, adequate and complete relief) (internal citations omitted).
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39 Emersons Internal Revenue Guide, supra note 35, at 130 (in the continuation of the footnote on incomes that started on p. 127). 40 See, e.g., Georgia v. Atkins, 10 F. Cas. 241 (D. Ga. 1866): This is a bill in equity filed in this court by the state of Georgia against James Atkins, the defendant, collector of the Fourth collection district of this state, under the internal revenue law of the United States; praying that a writ of injunction may be granted to restrain the defendant from further proceeding in the collection of the sum of six thousand and four dollars and fifty-six cents, claimed to be due to the United States, under section 103 of that law, from the Western & Atlantic Railroad. 41 6 F. Cas. 1079, 1081 (Cir. Ct. S.D.N.Y. 1865) (Nelson, J.) (The bill is filed to stay the assessment and collection, by those officers, of the tax claimed to be due, under the 99th section, for stocks, bonds, etc., sold by the plaintiffs for themselves, and on their own account).

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I do not doubt the jurisdiction or power of the courts to interfere, and prevent the threatened imposition of the tax, if it is illegal. The second section of the act of March 2, 1833 (4 Stat. 632), known as the Force Act, confers jurisdiction in express terms, and has been applied to the act of 1864, by its fiftieth section. And jurisdiction had previously, and has since, been upheld and exercised upon general principles of equity jurisprudence. The granting of the writ of injunction, generally speaking, rests in the exercise of the sound discretion of the court. Where the remedy at law is adequate, it is always refused. It will be granted to prevent a multiplicity of suits and vexatious litigation, where the right has been established at law; and, where the right is plain, and the remedy at law is not adequate, it will oftentimes be granted without even a trial at law. Although it was denied, on the argument, by the learned counsel, that the tax-payer, under the internal revenue laws, had a remedy at law, I am satisfied, on examination, that this is a mistake. The position may be true, as respects the collector, but I regard the liability of the assessor as settled, in a case of illegal assessment, by which I mean an assessment on property or business not liable to the tax. This is a naked trespass, where the property or business is disturbed by [pretense] of the authority. Even a court of special and limited jurisdiction is liable, in cases where its powers are carried beyond its jurisdiction. I agree, however, that the remedy at law in this case is not adequate, and that, for this reason, in ordinary cases, the party would be entitled to relief in equity. The main reason why this remedy at law is not adequate is the multiplicity of suits. The want of responsibility of the officers, I do not regard as material or controlling, for the reasons stated hereafter.42 True to his word, Nelson, when riding circuit later, did not hesitate to issue injunctions, even against collectors.43 Other courts followed Nelsons lead. U.S. District Judge John Erskine, riding circuit in Georgia in 1866, granted an injunction, declaring that Nelsons opinion is a direct authority on the

question . . . and as for myself, I entertain no doubt whatever of the jurisdiction or power of this court, if the tax sought to be collected is illegal . . . to interpose by writ of injunction, and arrest the threatened invasion of the property of the complainant.44 Some years later, U.S. Circuit Judge John Lowell, riding circuit in Massachusetts, summed up the early days this way: When the internal-revenue acts were passed, it was a serious question whether the taxpayer had a remedy in court, because those laws required the collector to make daily payments to the treasury without defalcation or deduction.45 Injunctions against assessors! Injunctions against collectors! It was against this background that in March 1867 Congress amended section 19 of the 1866 Revenue Act to add that no suit for the purpose of restraining the assessment or collection of tax shall be maintained in any court.46 Nobody really needed to say why; the reasons were too well known. Even some 30 years later, tax lawyers knew the history. In a tax treatise published in 1894, two of them said: When the income tax was first imposed during the civil war, a number of applications were made for injunctions against its assessment or collection. To prevent this practice, Congress inserted a section in the Act of March 2d, 1867.47 And now you know the history, too. As to what that history means for the Courts opinion in National Federation of Independent Business, read on. B. The Two AIA Issues in National Federation The parties gave the Supreme Court two ways to avoid the AIA. First, all parties argued that the suit was outside the scope of the AIAs prohibition. The federal government argued that the section 5000A penalty was not a tax within the meaning of the statutory term. That was the winning argument. Private and state plaintiffs (but not the government) also argued that even if the section 5000A penalty were a tax within the meaning of the AIA, their

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Id. (citations omitted). Mechanics & Farmers Bank v. Townsend, 16 F. Cas. 1306 (Cir. Ct. S.D.N.Y. 1866) (Nelson, J.). The Court granted the bank an injunction against the collector with no discussion of equity jurisdiction, even though the suit was against the collector and not the assessor.
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Georgia v. Atkins, 10 F. Cas. 241, 242 (D. Ga. 1866). United States v. Schlesinger, 14 F. 682 (Cir. Ct. Mass. 1882). 46 14 Stat. 475 (1867). Recall that section 19 was the section that first authorized refund suits conditioned on first making an administrative refund claim. The commission that codified the federal laws in 1874 (led by none other than the peripatetic George Boutwell) codified the AIA as a separate statute in R.S. section 3224 and in so doing added the word any before taxes in the statute. The Supreme Court noted this addition in passing but did not rely on it in analyzing the scope of the statute. Snyder v. Marks, 109 U.S. 189, 193 (1883). 47 Roger Foster and Everett V. Abbot, A Treatise on the Federal Income Tax Under the Act of 1894, at 231 (1895).
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lawsuit was not for the purpose prohibited by the act, the purpose of restraining the assessment or collection. The Court did not address that argument. Second, both private and state plaintiffs argued that the AIA was not a jurisdictional statute so that even if the section 5000A penalty was within its scope, the government had waived its application. The government disagreed, stoutly maintaining that the AIA was a statute that defined the jurisdiction of federal courts. The Court ignored the jurisdictional issue. Roberts started Part II of the opinion with this sentence: Before turning to the merits, we need to be sure we have the authority to do so. Although the word authority implies that the AIA is jurisdictional, it does no more. The opinion does not discuss the statutes jurisdictional nature, much less provide any conclusions. This is entirely appropriate because once the Court decided that the section 5000A penalty is not within the scope of the AIAs prohibition, any opinion on the statutes jurisdictional nature would create confusion about what was holding and what was dictum, just as will Robertss ill-advised excursion into commerce clause jurisprudence when upholding the Patient Protection and Affordable Care Act of 2010 under the taxing powers, as Jasper L. Cummings, Jr., pointed out recently.48 Nonetheless, I would ask you to consider the parties arguments on jurisdiction because they illustrate the tension between a literalist and purposeful approach to interpreting the statute. More importantly, they illustrate a basic confusion about what jurisdiction means, a confusion that might arise in future litigation over the AIA. 1. The jurisdictional issue. The command of the public force is intrusted to the judges in certain cases. Oliver Wendell Holmes Jr.49 Jurisdiction is just a fancy word for power.50 Holmes called it public force. The ability of federal courts to command the public force is limited. Just like the other branches of the federal government, they have only the power given to them by the Constitution and, through Article III,

Congress. Since 1789 Congress has given federal courts power to hear all suits of a civil nature at common law or in equity that meet both an amount in controversy requirement and a proper party requirement.51 We now call this diversity jurisdiction. Congress did not give federal courts what we now call federal question jurisdiction until 1875, although statutes such as the 1833 Force Act gave federal courts power to hear some suits arising under specific federal laws.52 The plaintiffs in National Federation offered three literalist arguments to support the idea that section 7421 is not jurisdictional. First, the word jurisdiction is nowhere to be found in it. Second, the statute is not addressed to the courts, but is instead addressed to litigants.53 So, the statute is a prohibition against any person maintaining a suit to restrain assessment, not against the court considering the merits of a suit to restrain assessment. Finally, the statute is not in the judicial code but is stuck into the tax code, so it cannot be a jurisdictional statute.54 Instead, it is a claims processing statute that bars one type of remedy. These literalist arguments swim against a strong judicial current that has interpreted the AIA according to purpose. No matter how you cut it, the purpose of the AIA was to prevent federal courts from exercising their equity powers in some described cases. Thats jurisdiction, folks. What is confusing here is that before 1938, law and equity were separate systems in federal courts, and the equity rule applied only when the court was asked to exercise its equity powers (that is, jurisdiction). So the question whether the court had the power to hear a case was coextensive with the question of the courts power to give a remedy. Early cases interpreted the acts purpose as declaring the common law jurisdiction rule. Recall that courts could exercise their equity jurisdiction to issue injunctions only when there was no adequate legal remedy. Early lower courts thought that the AIA was no more than a restatement of the equity jurisdiction rules. In the 1870 case of Pullan v. Kinsinger, a circuit court held that the AIA meant

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48 See Jasper L. Cummings, Jr., Health Insurance Tax Upheld, Tax Notes, July 30, 2012, p. 599, Doc 2012-14965, or 2012 TNT 146-8. 49 10 Harv. L. Rev. 457 (1894). 50 Jurisdiction is the power to decide a justiciable controversy. Binderup v. Pathe Exchange Inc., 263 U.S. 291, 305 (1923) (district courts dismissal of antitrust action for failure to state a claim was not the same as a dismissal for want of jurisdiction).

51 Judiciary Act of 1789. The specifics have changed over time but both requirements have always been there. 52 18 Stat. 470. In other words, federal question jurisdiction was unavailable to federal courts before that time. See generally James H. Chadbourn and A. Leo Levin, Original Jurisdiction of Federal Questions, 90 U. Pa. L. Rev. 639 (1942) (detailing history of what is now 28 U.S.C. section 1331 and calling 1875 enactment sneak legislation). 53 Brief for the State Respondents, at 14. 54 Amici Liberty University, Michele Waddell et al., make these three same literalist arguments on pp. 4-13 of their brief, calling them factors. The private plaintiffs made no jurisdiction argument.

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that neither this court nor the state tribunal from which these causes were removed, have any right to restrain the collection of federal tax assessed by an officer having jurisdiction of the subject, be it [ever] so irregular or erroneous.55 In responding to the taxpayers contention that the act denied due process of law, the court noted that it would not have been able to issue an injunction in the case at bar anyway, and the statute prohibiting an injunction in this case was wholly unnecessary, enacted only as a politic and kindly publication of an old and familiar rule.56 The earliest Supreme Court cases on the AIA took the same view, that the act simply prohibited one type of remedy, forcing the taxpayers to process their claims through the administrative agency: The inhibition of [the Anti-Injunction Act] applies to all assessments of taxes, made under color of their offices, by internal revenue officers charged with general jurisdiction of the subject of assessing taxes against tobacco manufacturers. The remedy of a suit to recover back the tax after it is paid is provided by statute, and a suit to restrain its collection is forbidden. The remedy so given is exclusive, and no other remedy can be substituted for it.57 As late as 1932, the Supreme Court took the view that the AIA was simply declaratory of the principle first mentioned [that is, the common law principle for equity jurisdiction] and is to be construed as near as may be in harmony with it and the reasons upon which it rests.58 Viewing the AIA as declaratory of the common law is not the same as viewing it as a nonjurisdictional statute. Even while seeing the act as declaratory, these early Supreme Court decisions recognized the jurisdictional nature of the rule now set out in statute. For example, in the 1916 case of Dodge v. Osborne the Court rejected the idea that merely an allegation that a tax was unconstitutional gave the Court jurisdiction in equity.59 The Court referred to prior cases invoking both the statute and the common law in holding that it is no longer open to question that a suit may not be brought to

20 F. Cas. 44, 45. Id. at 48. 57 Snyder v. Marks, 109 U.S. 189, 192 (1883). This was the earliest Supreme Court case I found on point. One earlier Supreme Court case mentioned the act, but just in passing as part of its description of the statutory structure of taxpayer remedies. 58 Miller v. Standard Nut Margarine Co., 284 U.S. 498, 509 (1932). 59 Dodge v. Osborn, 240 U.S. 118 (1916).
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enjoin the assessment or collection of a tax because of the alleged unconstitutionality of the statute.60 Thus, before 1938, it did not matter whether the statute was declaratory of the common law or was a new statutory rule. Because the question of remedy was part and parcel of the jurisdictional issue, to ask whether an injuction could be granted was the same as asking whether a court had the power to hear the case. However, when law and equity were merged by the 1938 Rules Enabling Act, the concept of subject matter jurisdiction became separated from the concept of remedy. Now, once a court had the power to hear a matter, it had no limits on the remedies it could give the winning litigant. Only after 1938 did it start to matter whether the AIAs purpose was to simply bar one type of remedy in a suit that the court could otherwise hear. If that were true if it were just a bar to a remedy the government could waive the statutes application. But if the acts purpose was to prevent courts from exercising their power to hear a case, to declare the law, then it could not be waived. By 1962 lower courts had come to read the AIA as a rule regarding a particular remedy and not a rule regarding the power of the court to hear the subject of a taxpayers dispute with the government.61 The Supreme Court straightened them out in Enochs v. Williams Packing, which was meant to be the capstone to judicial construction of the Act.62 In that case and 12 years later in the follow-up cases of Bob Jones University v. Commissioner and Commissioner v. Americans United Inc. the Court emphasized, in no uncertain terms, that the AIA was a jurisdictional rule.63 At the same time, the Court outlined when exceptional circumstances would allow courts to exercise jurisdiction. Both the private plaintiffs and the states tried to make the same arguments that the Court rejected before. They argued that the Court-created exceptions to the AIA meant it could not be a jurisdictional statute because, they claimed, it is hornbook law that, if a limit is truly jurisdictional, the prohibition is absolute. Courts have no authority to create equitable exceptions to jurisdictional requirements.64 This argument misinterprets the nature of equitable jurisdiction. The whole point of an equitable jurisdiction analysis was to weigh and balance the need for the Court to exercise its power to provide the equitable remedy, as Nelsons various

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Id. at 121. Enochs v. Williams Packing, 370 U.S. 1, 6 (1962). 62 Bob Jones University v. Simon, 416 U.S. 725, 742 (1974). 63 Alexander v. Americans United Inc., 416 U.S. 752 (1974). 64 Brief for the State Respondents on the Anti-Injunction Act, at 20 (citations and internal quotation marks omitted).
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opinions in the mid-1860s make clear. Even up through the 1970s, circuit courts of appeal sometimes found equitable jurisdiction to exist when there was no applicable statutory authority.65 What has confused both litigants and courts about the jurisdictional puzzle has been the similar question whether the AIA simply restated the common law jurisdictional rule or went beyond it. But that is a question about the scope of the act, not about the jurisdictional nature of the rule. And that question is what the Court did answer in National Federation: The scope of the AIA does not prohibit a challenge to what Congress has called a penalty simply because Congress directed that the penalty be codified in the tax code. It is to that question I now turn. 2. The scope issue: Summary and critique. The AIA prohibits suits for the purpose of restraining the assessment or collection of any tax. In National Federation all parties argued that this language did not literally apply to the actions brought by the states, private citizens, or the National Federation of Independent Business. To see how this argument played out, lets first look at the text of the relevant section: section 5000A, commonly called the individual mandate. The Affordable Care Act adds to the code section 5000A, titled Requirement to maintain minimum essential coverage. Section 5001A(a) establishes a requirement to purchase health insurance beginning in 2014. Section 5000A(b) requires individuals who fail to comply with the purchase requirement to self-report the failure on their tax returns and pay a penalty. Section 5000A(c) gives rules for calculating the penalty. Section 5000A(d) creates exceptions from the purchase requirement and section 5000A(e) creates exceptions from the penalty. Section 5000A(f) explains what kind of insurance must be purchased. And section 5000A(g) specifies how the IRS must assess and collect the penalty.66 All parties before the Court in National Federation argued that the section 5000A penalty was not a tax within the meaning of the AIA. Also, the private and state plaintiffs argued that the suits had not

been brought for the purpose of restraining the assessment or collection of the section 5000A penalty. The Supreme Court went for the literalist approach. It ignored the purpose of the AIA and focused instead on the literal meaning of the word tax in the statute. In sharp contrast to the functional approach the Court used to decide whether the section 5000A penalty was within Congresss constitutional taxing power, the Court placed huge weight on the label penalty: Congresss decision to label this exaction a penalty rather than a tax is significant because the Affordable Care Act describes many other exactions it creates as taxes. * * * The Anti-Injunction Act and the Affordable Care Act . . . are creatures of Congresss own creation. How they relate to each other is up to Congress, and the best evidence of Congresss intent is the statutory text.67 Even on literalist grounds, the Courts reasoning is suspect. As Judge Brett Kavanaugh and others have pointed out, section 5000A(g) says that the penalty provided by the section shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68. In turn, section 6671, the first section in Chapter 68B, provides that the penalties and liabilities provided by this subchapter shall be . . . assessed and collected in the same manner as taxes. Kavanaugh put it succinctly: As we learn in logic class, when A=B and B=C, then A=C. So it is here.68 The Court addressed this argument, calling it circuitous. At the urging of the Justice Department, the Court read the assessed and collected in the same manner as taxes language as referring only to the methodology and procedures used to assess. For example, the procedure for assessing deficiencies is different from the procedure for assessing assessable penalties. The former requires a pre-assessment notice to taxpayers, who then have the opportunity for a pre-assessment judicial review in Tax Court. The latter has no preassessment notice requirement. So even if section 5000A(g) had provided that the section 5000A penalty was to be assessed and collected in the same manner as taxes, that would mean only a direction to use the same method of assessment and tools of collection. And, the Court concluded, the AIA says

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65 This concept was called anomalous jurisdiction. See, e.g., Hunsucker v. Phinney, 497 F.2d 29, 32 (5th Cir. 1974) (subject matter jurisdiction existed not because of any statute but because of courts inherent authority over actions of its officers, but cautioning that this anomalous jurisdiction should be exercised with caution and restraint, and subject to equitable principles). 66 Professor Jordan Barry and I recently discussed the details of section 5000A(g) in Jordan Barry and Bryan Camp, Is the Individual Mandate Really Mandatory? Tax Notes, June 25, 2012, p. 1633, Doc 2012-12531, or 2012 TNT 122-10.

132 S.Ct. at 2583. Seven Sky v. Holder, 661 F.3d 1, at 31 (D.C. Cir. 2011) (Kavanaugh, dissenting).
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nothing about the procedures to be used in assessing and collecting taxes.69 The history I gave above demonstrates just how wrong the Court is in this literalist reading of the AIA. Although it is true that the AIA does not literally say how the IRS must assess or collect taxes, it is also manifestly true that the purpose of the AIA is intimately bound up in the procedures for assessment and collecting taxes, as the Court has repeatedly recognized in other cases. For example, take this quote from South Carolina v. Regan: The language and history of the Act evidence a congressional desire generally to bar both taxpayer and nontaxpayer suits, since both can substantially interrupt the process of collecting the taxes on which the government depends for its continued existence if left uncontrolled.70 Even the plaintiffs acknowledge this point that in their jurisdictional arguments, by labeling the AIA a mere claims processing rule. Yep. It is indeed a claims processing rule. The rule is that the IRS gets to assess and collect first. If it did not, it would not be assessing and collecting in the same manner as taxes. Thats procedure, folks. The Fourth Circuit got it right by looking at the entire statutory scheme. As it explained: The AIA does not use the term tax in a vacuum; rather, it protects from judicial interference the assessment . . . of any tax. The Secretarys authority to make such an assessment . . . of any tax derives directly from another provision in the Code, which charges the Secretary with making assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title. Section 6201(a) (emphases added). Thus, for purposes of the very assessment authority that the AIA protects, Congress made clear that penalties (as well as interest, additional amounts, [and] additions to the tax) count as taxes. *** In sum, the AIA forbids actions that seek to restrain the Secretary from exercising his statutory authority to assess exactions imposed by the Internal Revenue Code. The exaction imposed for failure to comply with the individual mandate constitutes a tax as defined in the Codes assessment provisions. For these reasons, the AIA bars this action.71

Robertss opinion has no coherent answer to the Fourth Circuits analysis. His opinion totally ignores the fundamental purpose of the AIA in the tax code and instead favors of an out-of-context literalist reading of the word tax. Turning to a purposeful reading of the AIA, I wonder why neither the government nor the plaintiffs pursued an argument about purpose. It might be that everyone was distracted by a fairly inane argument the plaintiffs did raise about purpose. Lets take a closer look at that argument and then look at how a purposeful interpretation of the act would have been a sounder rationale. The plaintiffs argued that they were not bringing this suit for the purpose of restraining the assessment or collection of the penalty imposed by section 5000A(b). Oh no. They insisted that they were instead attacking the purchase requirement in section 5000A(a). It was that requirement that was, in their view, unconstitutional. The problem with the plaintiffs argument was that the penalty is inseparable from the requirement. As Robertss opinion recognized in its constitutional analysis, subsections (a) and (b) work together to impose what is, functionally, a tax on those who do not have the right type of insurance. As Cummings recently explained, while the Court disapproved of regulating inactivity under the commerce clause, it approved taxing the very same inactivity.72 A better argument about purpose, however, is available. The original purpose of the AIA was simply to prevent individual and groups of taxpayers from interfering with the assessment of their own taxes, like the New York stockbrokers who sought an injunction from Nelson in 1864. Later Supreme Court precedent read the purpose more broadly, to prevent plaintiffs from interfering with the assessment or collection of anyones taxes. For example, in Bob Jones University v. Simon, a private university sought to enjoin the IRS from terminating its tax-exempt status. Like the plaintiffs in National Federation, the university argued that it was

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132 S. Ct. at 2583. South Carolina v. Regan, 465 U.S. 367, 399 (1984) (internal quotations omitted). 71 Liberty Univ. Inc. v. Geithner, 671 F.3d 391, 402-403 (4th Cir. 2011), citations and internal quotes omitted, but I encourage readers to look at this impressive string cite the Fourth Circuit
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uses to support its analysis: See, e.g., Bob Jones, 416 U.S. at 740 (holding AIA barred suit challenging IRS regulatory action when action was authorized by requirements of the code); Mobile Republican Assembly v. United States, 353 F.3d 1357, 1362 and n.5 (11th Cir. 2003) (holding AIA barred suits challenging penalties imposed for violating disclosure conditions of taxexempt status); In re Leckie Smokeless Coal Co., 99 F.3d 573, 583 and n.12 (4th Cir. 1996) (holding AIA applied to premiums assessed and collected by the secretary under color of the code); cf. Fed. Energy Admin. v. Algonquin SNG Inc., 426 U.S. 548, 558, n.9, 96 S. Ct. 2295, 49 L. Ed. 2d 49 (1976) (holding AIA did not bar challenge to fees because fees not assessed under the code). 72 See Cummings, supra note 48.

(Footnote continued in next column.)

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not seeking to affect its own taxes. Although that was debatable (the effect of terminating tax-exempt status may or may not have resulted in income or employment tax obligations), the Court noted that the AIA prohibited the suit because it would affect the taxes of its donors (because forcing the IRS to allow the university to keep its section 501(c)(3) status would allow their contributions to be tax deductible and so would reduce taxes).73 These precedents are not conclusive to this suit. It is true that sometimes the Supreme Courts rhetoric gets a bit hot. For example, in South Carolina v. Regan, the Court declared that the language and history [of the Anti-Injunction Act] evidence a congressional desire to prohibit courts from restraining any aspect of the tax laws administration, because the prohibition against injunctions should not depend on the alleged legality or character of a particular assessment.74 But the actual holding in that case allowed the suit, despite the AIA. So the rhetoric was more a way of emphasizing the exception than laying down an inviolate rule. What is fundamentally different about this suit is timing. The manifest purpose of the AIA was to enable the sure and speedy collection of taxes to fund the government. Taxpayers seeking injunctions in the middle of the Civil War were denying the treasury funds needed to pay soldiers and pay off government contractors. Later cases were also brought to restrain the IRS from doing something currently. This suit, in contrast, is brought before the IRS has any power to assess any penalty. The penalties become operative in 2014. Until then, the IRS has no power to assess or collect a dime. And that fact could provide a very narrow basis for avoiding the AIA.75 At its simplest, the reason that all the parties to this suit wanted the Court to read the constitutional merits is the same reason that the AIA could be seen as inapplicable to the suit. The government will spend huge amounts of money setting up the infrastructure to implement the statute. Knowing upfront whether the statute is constitutional does not interfere or restrain the assessment or collection, it rather enables the assessment or collection. So

even if the section 5000A penalty is a tax within the scope of the AIA (which is the better reading), one might fairly say that the suit does not restrain its assessment or collection within the scope of the acts prohibition. This purposeful reading of the AIA would get to the same result as the Courts actual holding. It would allow the Court to reach the constitutional merits of the case. So in that sense, the difference is minor and one might fairly ask, so what? The answer comes in the implications for future cases, which I consider in the next part. C. Implications of National Federation The Courts decision to use an out-of-context literalist misreading of the AIA instead of a more nuanced, purposeful reading of the statute may not make much difference in the National Federation case. But it creates a quite different set of implications for future litigation and future interpretation of the act. This part of the article will first consider the implications for future litigation of the section 5000A penalty, then its implications for other penalties in the code. 1. Implications for Affordable Care Act litigation. Because the section 5000A penalty is not a tax covered by the AIA, that statute will not prevent taxpayers from seeking to prevent the IRS from assessing or collecting the penalty from them. In contrast, had the Court held that the current suit did not violate the AIA because of timing, future suits to enjoin particular applications of the penalty would be barred. On one hand, as a practical matter, one would not expect to see a lot of litigation over the actual implementation of the penalty. First, the amount of the penalty is quite low relative to the costs of suits. Accordingly, rational taxpayers will likely not see much benefit in light of the litigation costs. Second, suits to attack IRS regulations regarding the penalty must overcome the usual array of hurdles to judicial review of any agency actions, including the restrictive doctrines of standing and ripeness. On the other hand, some plaintiffs those ideologically driven, those who make a hobby of protesting taxes, or those who are irrational might well file suits to enjoin the IRS. These suits will entail costs to defend, even though I would consider it highly unlikely that plaintiffs would be able to either obtain preliminary injunctions or win on the merits.76

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Professor Kristen E. Hickman has a nice review of AIA jurisprudence in her article A Problem of Remedy: Responding to Treasurys (Lack of) Compliance With Administrative Procedure Act Rulemaking Requirements, 76 Geo. Wash. L. Rev. 1153, 1165-1175 (2008). 74 South Carolina v. Regan, 465 U.S. 367, 399 (1984) (internal citations omitted). 75 It is actually debatable whether the AIA serves any useful purpose now that (a) taxpayers have most of their taxes withheld at the source and (b) taxpayers are required to pay their taxes when they submit their returns. But that is fodder for another article.

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76 To get a preliminary injunction, a plaintiff must establish that it will likely win on the merits, that it will suffer in the meantime an irreparable injury, that the balance of equities favor the plaintiff, and that an injunction is in the public interest. Winter v. NRDC Inc., 555 U.S. 7, 20 (2008).

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In addition to the section 5000A penalty, however, the Affordable Care Act also contains penalties against employers who fail to obey the substantive requirements imposed on them to provide qualified health insurance to their employees. Section 4980H imposes an exaction labeled an assessable payment on large employers who fail to offer proper health coverage. Large employers are those who employ 50 or more full-time employees during a defined lookback period. Section 4980H(d) uses the same language as section 5000A(g) to describe the how this assessable payment (not a tax!) is to be administered: Any assessable payment provided by this section shall be paid upon notice and demand by the Secretary and shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68. So guess what? The AIA will not prevent large employers from seeking injunctions against the IRS to restrain the assessment or collection of this penalty. But wait, theres more. Section 4980I subjects all employers to a penalty for failing to properly calculate something called an excess benefit. Sure, section 4980I(a) imposes a tax of 40 percent of the excess benefit. Under the Courts reasoning, that tax is covered by the AIA because it is, literally, labeled a tax. But section 4980I(e) imposes a further exaction on employers who are supposed to calculate the subsection (a) tax and who mess it up too badly. Section 4980I(e)(1)(B) says those employers must pay a penalty in an amount equal to the excess, plus interest at the underpayment rate. Section 4980I contains no further instructions on how this penalty is to be assessed. However, it is labeled a penalty and not a tax. So here is one place where the Courts literalist approach an approach urged by the Department of Justice might come back to bite the government on its bahooney.77 The upshot of both section 4980H and section 4980I is that employers can sue at the time and place of their choosing to prevent the IRS from assessing or collecting either the section 4980H assessable amount or the section 4980I penalty. This might present a more realistic danger of suits because large employers may well see value in challenging proposed regulations in court. To belabor the point, a purposeful reading of the AIA would not allow suits once the IRS authority to make these assessments kicks in.

2. Implication for other penalties in the code. The Courts opinion has effects beyond the implementation of the Affordable Care Act. It is true that most of the penalties in the tax code are in Chapter 68 (sections 6651 through 6720), whether imposed directly by one of those sections or indirectly by cross-reference. For example, section 220(j)(4)(C) imposes the penalty provided in section 6693(d) on some Archer MSA trustees who fail to comply with some reporting requirements contained in section 220. For those penalties, the Courts opinion does not change the law: The AIA will apply. However, there are several penalties outside Chapter 68 for which Congress uses language similar to that it uses in section 5000A(g). For example, section 527(j) imposes a penalty on section 527 political organizations for failure to make proper reports. It provides that there shall be paid by the organization an amount equal to the rate of tax specified in subsection (b)(1) multiplied by the amount to which the failure relates. For purposes of subtitle F, the amount imposed by this paragraph shall be assessed and collected in the same manner as penalties imposed by section 6652(c). Can section 527 organizations now sue the IRS to prevent the assessment and collection of this penalty? It would sure seem so. After all, the statutes direction to the IRS to assess and collect the penalty in the same manner as the section 6652 penalty is not one whit different from the section 5000A(g) direction to assess and collect the section 5000A penalty in the same manner as assessable penalties. The Courts literalist approach opens this door as well. How many suits will result is anyones guess, but once again it demonstrates how the Courts literalist reading opens holes in tax administration. But wait, theres still more. There are also penalties in the code that make no reference at all to Chapter 68. For example, section 72(q) imposes a 10 percent penalty for premature distributions from annuity contracts. Its not a tax. Its a penalty. So taking Congress at its literal word as the Roberts opinion says to do, the AIA will not keep taxpayers from suing to prevent the assessment or collection of this amount. You might think that because some of these penalties are so associated with taxes that they cannot be separated and so a suit to contest the penalty is also a suit to restrain the associated tax. But the Roberts opinion did not go down that road. The section 5000A penalty must be reported and paid on the same return that reports and pays taxes. It is no more or less associated with a tax than are the penalties in section 527 and section 72. According to the Court, if Congress gives a label other than
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77 Bahooney is a word my daughter Lilly made up when she was 3 years old. Please use it and make her famous. As with many great ideas, others have thought of it as well. A Google search reveals one proper usage, in 2007. See http://www.spa rkpeople.com/myspark/team_messageboard_thread.asp?board =0x1912x4995444.

TAX NOTES, September 10, 2012

COMMENTARY / CAMPS COMPENDIUM

tax in the tax code, the AIA does not apply unless one can find some affirmative language linking the nontax to the AIA. D. Conclusion When first enacted in 1867, the AIAs operative language was simply this: No suit for the purpose of restraining the assessment or collection of tax shall be maintained in any court. Notice that the original enactment had no exceptions. That, dear reader, is the point. Over time, as Congress has modified tax procedure and administration, it has been careful to specify the exceptions to the broad scope of the AIA. The first big one was, of course, the deficiency procedures now codified in section 6212 et seq. When the Court decided Bob Jones in 1974, the AIA contained just two exceptions, one for deficiencies and one for persons other than taxpayers to contest wrongful levies.78 Currently, there are nine exceptions. None of them are for the Affordable Care Act. The Courts opinion runs against the legal history of the AIA, not only regarding its function as I describe it above and as the Fourth Circuit correctly understood it, but also regarding the proper presumption when Congress fails to speak. The rationale in Robertss opinion that the best evidence of Congresss intent is the statutory text is an empty aphorism, something you might see stitched onto throw pillows in a living room. It gives no guidance when Congress fails to put language where you would really like to find language. The legal history of the act supports the opposite presumption: Congress intends the AIA to apply to everything in the code unless it specifically says otherwise. That is the reading of the tax code most consistent with the history of the AIA and its purpose.

78

Bob Jones Univ. v. Simon, 416 U.S. 725, 732, n.6 (1974).

Now, back to Jesus. You can tell by now my preferred interpretive approach. To me, the imperfections of text whether the text of the Bible or the text of the tax code require something more than a literalist approach. I am pleased to have no less an authority than James Madison in my corner. His writing is a bit fussy, but you deserve the unedited passage, written in The Federalist No. 37: All new laws, though penned with the greatest technical skill, and passed on the fullest and most mature deliberation, are considered as more or less obscure and equivocal, until their meaning be liquidated and ascertained by a series of particular discussions and adjudications. Besides the obscurity arising from the complexity of objects, and the imperfection of the human faculties, the medium through which the conceptions of men are conveyed to each other adds a fresh embarrassment. The use of words is to express ideas. Perspicuity, therefore, requires not only that the ideas should be distinctly formed, but that they should be expressed by words distinctly and exclusively appropriate to them. But no language is so copious as to supply words and phrases for every complex idea, or so correct as not to include many equivocally denoting different ideas. Hence it must happen that however accurately objects may be discriminated in themselves, and however accurately the discrimination may be considered, the definition of them may be rendered inaccurate by the inaccuracy of the terms in which it is delivered. And this unavoidable inaccuracy must be greater or less, according to the complexity and novelty of the objects defined. When the Almighty himself condescends to address mankind in their own language, his meaning, luminous as it must be, is rendered dim and doubtful by the cloudy medium through which it is communicated. Amen.

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TAX NOTES, September 10, 2012