Give Taxpayers Access to Federal Courts

The tax code is unique in that it touches the lives of every person in America. The tax code also houses substantive policy beyond merely raising money for the government. The code encourages marriagessponsors home ownership over renting, was used to pass major policy provisions of the Affordable Care Act (Obamacare), and even regulates political speech.

Right now, federal courts have practically no jurisdiction to hear challenges to unconstitutional tax regulations from the IRS. The Anti-Injunction Act (AIA) (26 U.S.C. § 7421(a)), Declaratory Judgment Act (DJA) (28 U.S.C. § 2201(a)), and Tax Injunction Act (TIA) (28 U.S.C. § 1341) all broadly prohibit cases that “restrain the assessment, levy or collection of any tax”--even those that challenge tax laws that violate the Constitution. 

The IRS often argues that everything it does is in furtherance of tax collection and so any case seeking to stop the IRS’s plans must violate the AIA and/or DJA. Similarly, state departments of revenue argue the same, saying the TIA applies. This needs to change as the IRS (and states) have increasingly used rulemaking or laws that restrain free trade among the states or punish perfectly legitimate behavior like political activity–all without any way into federal court. 

The fix is easy too. Congress could simply prohibit courts from ”preliminarily or temporarily” stopping the collection of taxes under these laws. The government would get every chance to defend the law while still collecting the tax revenue while the case was pending, but the AIA and related laws would no longer be a trump card to stop challenges.

These laws can be amended to only stop preliminary injunctions and orders. For example, see below with the proposed changes in red:

Anti Injunction Act, 26 U.S.C. § 7421(a):

Except as provided in sections 6015(e), 6212(a) and (c), 6213(a), 6232(c), 6330(e)(1), 6331(i), 6672(c), 6694(c), 7426(a) and (b)(1), 7429(b), and 7436, no suit for the purpose of preliminarily or temporarily 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. Injunctive or declaratory relief shall be available only after judgment on the merits.

Declaratory Judgment Act, 28 U.S.C. § 2201(a):

In a case of actual controversy within its jurisdiction, except with respect to preliminarily or temporarily restraining Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of merchandise of a free trade area country (as defined in section 516A(f)(9) of the Tariff Act of 1930), as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

Tax Injunction Act, 28 U.S.C. § 1341:

The district courts shall not preliminarily or temporarily enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.

These modest changes give the chance for the government to defend its tax and keep collecting until a final resolution. It would  keep tax-delay litigation down, since the tax would still be due, but yet allow for greater freedom for tax challenges. The AIA, TIA, and DJA would  longer be trump cards to stop challenges to tax laws and regulations, most especially Treasury Regulations that may otherwise violate the Administrative Procedure Act, for example.

Providing taxpayers with greater access to federal courts will provide greater certainty and consistency and help to ensure the IRS does not unduly burden taxpayers’ rights. Everyone should get their day in court, especially against such a strong adversary as the IRS.