The Supreme Court of the United States (SCOTUS) recently agreed to hear a case that questions the constitutionality of a law that hinders taxpayers from filing a lawsuit against the Internal Revenue Services (IRS). More specifically, the case questions whether or not a taxpayer should be able to stop the IRS from collecting taxes when the reason for the tax is in dispute. The law: the anti-injunction act.
Two arguments: A brave new world and a need to address tax exceptionalism
Lawmakers originally put the law into place in the 1800s to help better ensure the government had the funds it needed to function. Now, taxpayers argue that the country is a much different place. It now has a modern administrative state presence. As a result, it can survive even if it is not collecting on a specific tax obligation as the taxpayer goes through a dispute.
The case also questions the legal theory of tax exceptionalism. This concept essentially means legal disputes involving taxes are different than other disputes. If this ruling results in a negative impact on the law at issue, it will be a strike against the notion of tax exceptionalism and will allow taxpayers more power to fight back if they feel a tax is a violation.
The case at the heart of the controversy: How did we get here?
The case at issue challenges a Treasury Department notice that created a reporting requirement for insurance companies. Essentially, the agency’s notice required insurance companies report certain benefits as the government fears some taxpayers are using the benefits to fraudulently reduce tax obligations. An insurance firm has filed a lawsuit against the government, stating the notice is invalid.
Unfortunately, the lower court states they cannot bring the claim as they have yet to suffer from any damage. Essentially, due to the anti-injunction act, the insurance company cannot move forward with the lawsuit until after they pay the tax.
A glimpse into the future: What will SCOTUS decide?
Scotus may decide that these notices are not allowed. This would allow taxpayers more flexibility to file a suit to fight regulatory actions. The court may go even further and state that the anti-injunction act was not designed to bar any regulatory actions that have not yet been enforced.
Thus far, the Supreme Court’s case law on the issue has been unclear.