Big Win Against IRS
For those of us on the front lines of contesting IRS summonses, this is a big, big win, and a major expansion of the means to fight the IRS at the most opportune time.
He contends that the IRS's acquisition of that information from Coinbase and Abra violated the Fourth Amendment because the IRS lacked particularized suspicion that he had violated any laws and the IRS did not obtain a judicial warrant or subpoena prior to accessing his information. Appellant also alleges that this "unlawful seizure" violated his rights under the Fifth Amendment because of the IRS's failure to provide direct notice of, and an opportunity to challenge, the third-party summons. Appellant initially sought damages and declaratory and injunctive relief, including an order requiring the IRS to expunge his financial information from its records.
The district court granted the IRS's motion to dismiss appellant's request for money damages as to the IRS and the Commissioner based on sovereign immunity. The court also dismissed appellant's money-damages claims as to the individual IRS agents under Bivens8 for failure to state a claim, finding that appellant's Fourth and Fifth Amendment claims extended Bivens to a new context and that special factors counseled against such an extension. Appellant does not appeal either of those decisions. Finally, the district court dismissed his claims for declaratory and injunctive relief for lack of subject matter jurisdiction, finding that the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. § 7421, represents an exception to the Administrative Procedure Act's ("APA") waiver of sovereign immunity, 5 U.S.C. § 702. Appellant timely appealed.
A. Standard of Review
We review de novo dismissals for lack of subject matter jurisdiction. Lyman v. Baker, 954 F.3d 351, 359 (1st Cir. 2020). Although dismissals under Rules 12(b)(1) and 12(b)(6) are "conceptually distinct, . . . the same basic principles apply in both situations." Id. (quoting Hochendoner v. Genzyme Corp., 823 F.3d 724, 730 (1st Cir. 2016)). Ignoring "statements in the complaint that simply offer legal labels and conclusions or merely rehash cause-of-action elements," we take the complaint's nonconclusory, non-speculative facts as true and draw all reasonable inferences in the plaintiff's favor to determine whether the complaint indicates that the court has subject matter jurisdiction. Id. at 360 (quoting Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012)). We may also consider information attached to or incorporated into the complaint and facts susceptible to judicial notice. Id.
B. Discussion The doctrine of sovereign immunity prevents the United States from being sued without its consent. United States v. Dalm, 494 U.S. 596, 608 (1990); Muirhead v. Mecham, 427 F.3d 14, 17 (1st Cir. 2005). "[T]he terms of [the United States'] consent to be sued in any court define that court's jurisdiction to entertain the suit." Dalm, 494 U.S. at 608 (quoting United States v. Testan, 424 U.S. 392, 399 (1976)). A waiver of sovereign immunity "'cannot be implied but must be unequivocally expressed,'" and, "[e]ven then, the waiver must be strictly construed." Muirhead, 427 F.3d at 17 (quoting United States v. King, 395 U.S. 1, 4 (1969)).
Appellant identifies the waiver provision of the APA, 5 U.S.C. § 702, as the basis for subject matter jurisdiction. Section 702 of the APA provides, in part:
5 U.S.C. § 702 (emphases added). Appellant's suit, which seeks injunctive and declaratory relief from IRS action taken pursuant to its statutory authority under 26 U.S.C. §§ 7602 and 7609, appears to fit comfortably within the plain language of this waiver.9 But § 702 also includes two limitations on the United States' waiver of sovereign immunity: it expressly leaves in place "other limitations on judicial review or the power or duty of the court to dismiss any action or deny relief on any other appropriate legal or equitable ground," and it withholds "authority to grant relief if any other statute that grants consent to suit expressly or impliedly forbids the relief which is sought." Id.; see also Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, 567 U.S. 209, 215 (2012) (describing the second exception).
The IRS argues -- and the district court agreed -- that the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. § 7421, is a statutory exception to the United States' waiver of sovereign immunity in § 702.10 The Anti-Injunction Act provides that "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." 26 U.S.C. § 7421(a).11 Relying on Colangelo v. United States, 575 F.2d 994, 996 (1st Cir. 1978), the IRS contends that the Anti-Injunction Act bars appellant's suit because it seeks to restrain "activities which are intended to or may culminate in the assessment or collection of taxes."
The Supreme Court recently clarified that the AntiInjunction Act "is 'not keyed to all activities that may improve atate's ability to assess and collect taxes.' It is instead 'keyed to the acts of assessment [and] collection themselves.'" CIC Servs., LLC v. IRS, 141 S. Ct. 1582, 1589 (2021) (quoting Direct Mktg. Ass'n v. Brohl, 575 U.S. 1, 11-12 (2015)).12 Noting that "'nformation gathering' . . . is 'a phase of tax administration procedure that occurs before assessment [or] collection,'" the Court explained that the Anti-Injunction Act would not bar a lawsuit challenging ordinary reporting requirements, even if those requirements "facilitate [the] collection of taxes" by identifying taxpayers who owe tax, because reporting requirements are part of the information-gathering phase of tax administration. Id. (emphasis added) (quoting Direct Mktg., 575 U.S. at 8, 12); see also id. at 1588-89 ("A reporting requirement is not a tax; and a suit brought to set aside such a rule is not one to enjoin a tax's assessment or collection. That is so even if the reporting rule will help the IRS bring in future tax revenue . . . .").
Appellant challenges the IRS's summons authority under 26 U.S.C. §§ 7602 and 7609. As previously noted, § 7602 authorizes the IRS to issue summonses "[f]or the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee . . ., or collecting any such liability." 26 U.S.C. § 7602(a). Pursuant to this authority, the IRS may issue a summons:
For those of us on the front lines of contesting IRS summonses, this is a big, big win, and a major expansion of the means to fight the IRS at the most opportune time.
He contends that the IRS's acquisition of that information from Coinbase and Abra violated the Fourth Amendment because the IRS lacked particularized suspicion that he had violated any laws and the IRS did not obtain a judicial warrant or subpoena prior to accessing his information. Appellant also alleges that this "unlawful seizure" violated his rights under the Fifth Amendment because of the IRS's failure to provide direct notice of, and an opportunity to challenge, the third-party summons. Appellant initially sought damages and declaratory and injunctive relief, including an order requiring the IRS to expunge his financial information from its records.
The district court granted the IRS's motion to dismiss appellant's request for money damages as to the IRS and the Commissioner based on sovereign immunity. The court also dismissed appellant's money-damages claims as to the individual IRS agents under Bivens8 for failure to state a claim, finding that appellant's Fourth and Fifth Amendment claims extended Bivens to a new context and that special factors counseled against such an extension. Appellant does not appeal either of those decisions. Finally, the district court dismissed his claims for declaratory and injunctive relief for lack of subject matter jurisdiction, finding that the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. § 7421, represents an exception to the Administrative Procedure Act's ("APA") waiver of sovereign immunity, 5 U.S.C. § 702. Appellant timely appealed.
A. Standard of Review
We review de novo dismissals for lack of subject matter jurisdiction. Lyman v. Baker, 954 F.3d 351, 359 (1st Cir. 2020). Although dismissals under Rules 12(b)(1) and 12(b)(6) are "conceptually distinct, . . . the same basic principles apply in both situations." Id. (quoting Hochendoner v. Genzyme Corp., 823 F.3d 724, 730 (1st Cir. 2016)). Ignoring "statements in the complaint that simply offer legal labels and conclusions or merely rehash cause-of-action elements," we take the complaint's nonconclusory, non-speculative facts as true and draw all reasonable inferences in the plaintiff's favor to determine whether the complaint indicates that the court has subject matter jurisdiction. Id. at 360 (quoting Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012)). We may also consider information attached to or incorporated into the complaint and facts susceptible to judicial notice. Id.
B. Discussion The doctrine of sovereign immunity prevents the United States from being sued without its consent. United States v. Dalm, 494 U.S. 596, 608 (1990); Muirhead v. Mecham, 427 F.3d 14, 17 (1st Cir. 2005). "[T]he terms of [the United States'] consent to be sued in any court define that court's jurisdiction to entertain the suit." Dalm, 494 U.S. at 608 (quoting United States v. Testan, 424 U.S. 392, 399 (1976)). A waiver of sovereign immunity "'cannot be implied but must be unequivocally expressed,'" and, "[e]ven then, the waiver must be strictly construed." Muirhead, 427 F.3d at 17 (quoting United States v. King, 395 U.S. 1, 4 (1969)).
Appellant identifies the waiver provision of the APA, 5 U.S.C. § 702, as the basis for subject matter jurisdiction. Section 702 of the APA provides, in part:
A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof. An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States or that the United States is an indispensable party.
5 U.S.C. § 702 (emphases added). Appellant's suit, which seeks injunctive and declaratory relief from IRS action taken pursuant to its statutory authority under 26 U.S.C. §§ 7602 and 7609, appears to fit comfortably within the plain language of this waiver.9 But § 702 also includes two limitations on the United States' waiver of sovereign immunity: it expressly leaves in place "other limitations on judicial review or the power or duty of the court to dismiss any action or deny relief on any other appropriate legal or equitable ground," and it withholds "authority to grant relief if any other statute that grants consent to suit expressly or impliedly forbids the relief which is sought." Id.; see also Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, 567 U.S. 209, 215 (2012) (describing the second exception).
The IRS argues -- and the district court agreed -- that the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. § 7421, is a statutory exception to the United States' waiver of sovereign immunity in § 702.10 The Anti-Injunction Act provides that "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." 26 U.S.C. § 7421(a).11 Relying on Colangelo v. United States, 575 F.2d 994, 996 (1st Cir. 1978), the IRS contends that the Anti-Injunction Act bars appellant's suit because it seeks to restrain "activities which are intended to or may culminate in the assessment or collection of taxes."
The Supreme Court recently clarified that the AntiInjunction Act "is 'not keyed to all activities that may improve a
Appellant challenges the IRS's summons authority under 26 U.S.C. §§ 7602 and 7609. As previously noted, § 7602 authorizes the IRS to issue summonses "[f]or the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee . . ., or collecting any such liability." 26 U.S.C. § 7602(a). Pursuant to this authority, the IRS may issue a summons:
(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;
(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and
(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.