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Z Street v. Koskinen

United States Court of Appeals, District of Columbia Circuit

June 19, 2015

Z STREET, APPELLEE
v.
JOHN A. KOSKINEN, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF INTERNAL REVENUE, APPELLANT

Argued: May 4, 2015.

Page 25

Appeal from the United States District Court for the District of Columbia. (No. 1:12-cv-00401).

Teresa E. McLaughlin, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Gilbert S. Rothenberg and Ellen Page DelSole, Attorneys.

Jerome M. Marcus argued the cause for appellee. On the brief was Jay M. Levin.

H. Christopher Bartolomucci and Stephen V. Potenza were on the brief for amicus curiae Liberty Institute in support of appellee.

Before: GARLAND, Chief Judge, TATEL, Circuit Judge, and SENTELLE, Senior Circuit Judge. OPINION filed by Circuit Judge TATEL.

OPINION

Page 26

Tatel, Circuit Judge :

Z Street, a nonprofit organization " devoted to educating the public about Zionism" and " the facts relating to the Middle East," applied for a section 501(c)(3) tax exemption. Based on a conversation its lawyer had with an IRS agent, Z Street alleges that the agency has an " Israel Special Policy" under which applications from organizations holding " political views inconsistent with those espoused by the Obama administration" receive increased " scrutin[y]" that results in such applications " tak[ing] longer to process than those made by organizations without that characteristic." Z Street sued the Commissioner, alleging that the " Israel Special Policy" violates the First Amendment. The Commissioner moved to dismiss, arguing that the action is barred by the Anti-Injunction Act, which prohibits suits to " restrain[] the assessment or collection of any tax." The district court, assuming the truth of Z Street's allegations--as it must at this stage of the litigation--denied the motion, explaining that Z Street was not seeking to restrain the " assessment or collection" of a tax, but rather to prevent the IRS from delaying consideration of its application in violation of the First Amendment. We affirm.

I.

Because of the " danger that a multitude of spurious suits, or even suits with possible merit, would so interrupt the free flow of revenues as to jeopardize the Nation's fiscal stability," Cohen v. United States, 650 F.3d 717, 724, 397 U.S.App.D.C. 33 (D.C. Cir. 2011) (en banc) (internal quotation marks and citations omitted), 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. " The manifest purpose of [the Act] is to permit the United States to assess and collect taxes alleged to be due without judicial intervention . . . ." Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962); see also Cohen, 650 F.3d at 727 (discussing the tax exception to the Declaratory Judgment Act, 28 U.S.C. § 2201(a), which is " coterminous" with the Anti-Injunction Act).

Despite this prohibition, taxpayers have several avenues to challenge the assessment and collection of taxes, including, according to the Commissioner, three that are relevant here. Under section 7422, they can pay and then sue for a refund on the grounds that the tax was " erroneously or illegally assessed or collected." 26 U.S.C. § 7422(a). Nonprofit taxpayers may use section 7422 to challenge the denial or revocation of their tax-exempt status. See Bob Jones University v. Simon, 416 U.S. 725, 746, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974) (" [A] suit for a refund . . . offer[s] petitioner a full, albeit delayed opportunity to litigate the legality of the Service's revocation of tax-exempt status . . . ." ). Under section 6213, a taxpayer who receives a deficiency notice " may file a petition with the Tax Court for a redetermination of the deficiency." 26 U.S.C. § 6213(a). This provision also allows a nonprofit organization to litigate its eligibility for a section 501(c)(3) exemption. See Bob Jones, 416 U.S. at 730 (" [T]he organization may litigate the

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legality of the Service's action by petitioning the Tax Court to review a notice of deficiency." ). Finally, section 7428 creates an option expressly designed for section 501(c)(3) applicants. If the IRS denies an application, or if it fails to act within 270 days and the organization has taken " all reasonable steps to secure [a] determination," then the applicant can bring a declaratory judgment action in the Tax Court, the Court of Federal Claims, or the United States District Court for the District of Columbia. 26 U.S.C. § 7428. Designed to ensure " that a taxpayer ha[s] prompt judicial review," Centre for International Understanding v. Commissioner of Internal Revenue, 84 T.C. 279, 283 (1985), section 7428 authorizes the court to ...


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