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May 21, 2021

Unanimous Supreme Court holds that Anti-Injunction Act does not bar lawsuit challenging IRS reporting requirements

In a unanimous opinion, the U.S. Supreme Court in CIC Services, LLC v. IRS held that the Anti-Injunction Act does not prohibit a lawsuit challenging the IRS's information-reporting requirement for "micro-captive transactions,"1 even though violation of the requirement may result in a tax penalty.


The Anti-Injunction Act states that no lawsuit "for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." Instead, taxpayers may challenge a federal tax by suing for a refund after paying the tax (among other potential remedies).

The issue presented in CIC Services, LLC v. IRS was whether the Anti-Injunction Act precludes challenges to an IRS Notice requiring information to be reported to the IRS and imposing penalties for failing to report that information. Specifically, Notice 2016-66 (Notice) identifies micro-captive transactions as reportable "transactions of interest"2 and requires participants in those transactions (including the captive itself) or any material advisor to a micro-captive transaction to file an information return with the IRS describing the transaction so the IRS can understand its tax structure. Advisors to and participants in micro-captive transactions could face civil monetary penalties (which are deemed to be taxes) and/or criminal prosecution if they fail to comply with the reporting requirements.

The stated goal of the Notice was for the IRS to collect sufficient information to identify which micro-captive insurance transactions should be identified as tax-avoidance transactions and to define the characteristics that distinguish the tax avoidance transactions from other transactions involving the IRC Section 831(b) election. The Notice describes the transaction of interest broadly and specifies that a micro-captive transaction need not have tax avoidance as its goal to be included as a transaction of interest.

The IRS has also identified micro-captive transactions as one of its issue-based compliance campaigns.3


CIC Services, LLC (CIC Services) is a material advisor to taxpayers participating in transactions with captive insurers making the IRC Section 831(b) election. CIC Services initially brought suit in the U.S. District Court for the Eastern District of Tennessee to enjoin the enforcement of the Notice as an unlawful rule, alleging that the IRS violated the Administrative Procedure Act (APA) by publishing it without complying with the APA's notice and comment procedures. The district court dismissed the case, finding that CIC Services' lawsuit sought "to restrain the IRS's assessment or collection" of the tax penalty that could be imposed for noncompliance, thereby violating the Anti-Injunction Act. The Court of Appeals for the Sixth Circuit affirmed. CIC Services petitioned the Supreme Court, which heard oral arguments in the case on December 1, 2020.

During the pendency of the litigation, CIC Services complied with the Notice's reporting requirements.

Supreme Court's analysis

On May 17, 2021, in an opinion authored by Justice Kagan, the Supreme Court reversed and remanded the Sixth Circuit's decision.

As explained by the Supreme Court, "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 — here, by identifying sham insurance transactions."

The complication, the Supreme Court observed, is that the Notice's reporting obligations are backed up by a statutory tax penalty. The lawsuit, however, challenged the legality of the Notice, not the potential imposition of the tax penalty.

The Supreme Court gave three reasons for finding that CIC Service's lawsuit was not "a tax action in disguise:"

  • The Notice imposes an affirmative reporting obligation and the resulting costs are those required for compliance; it does not levy a tax
  • The Notice's reporting rule and the statutory tax penalty "are several steps removed from each other"
  • Violating the Notice can result in a separate criminal penalty apart from the tax penalty, so an injunction against the Notice and its reporting requirements differs from an injunction against taxes

Justices Sotomayor and Kavanaugh wrote concurring opinions. Of particular importance to Justice Sotomayor was the fact that the party challenging the Notice was the material advisor, a party whose tax liability was unaffected by the micro-captive transactions that were required to be reported.


The Supreme Court's limitation on the scope of the Anti-Injunction Act potentially opens the door for new challenges to tax rules unrelated to the assessment of tax itself, like the information reporting rule at issue in CIC Services. In recent years, the IRS and Congress have looked to expanded information reporting obligations as a way to improve tax enforcement. Relying on CIC Services, taxpayers may in the future seek to enjoin enforcement of such information reporting regimes through immediate legal action.

In the case of CIC Services, the IRS issued the Notice on November 1, 2016. CIC Services first filed suit in federal district court in December 2016, in a complaint that was voluntarily dismissed and then refiled in substantially the same form in March 2017. In the more than four years during which CIC Services was litigated through all levels of the federal court system, taxpayers and material advisors like CIC Services have complied with the Notice and provided the requested information, arguably allowing the IRS to achieve its stated goals around micro-captive transactions, all while a legal challenge to the Notice was pending. Since the Notice was issued, the IRS has prevailed in several micro-captive cases before the Tax Court and has settled similar cases with numerous other taxpayers.4 The ability to immediately challenge future notices could significantly change this dynamic.

It remains to be seen whether the Supreme Court would rule similarly if the plaintiff was a taxpayer whose tax liability was affected by the transaction required to be reported, as opposed to an unrelated third-party advisor. This distinction was, at minimum, important to Justice Sotomayor in her concurring opinion. Further, the Supreme Court's opinion did not address the underlying merits of CIC Services' challenge, i.e., whether the IRS complied with the APA in issuing the Notice. Following the Supreme Court's opinion, however, CIC Services may pursue that challenge should it still wish to do so. Perhaps more importantly, challenges to future notices by similarly situated parties may be resolved more quickly on the merits.


Contact Information
For additional information concerning this Alert, please contact:
Tax Policy and Controversy
   • Bryon Christensen (
   • John DiIorio (
   • Melissa Wiley (
Financial Services Office – Insurance Sector
   • Maureen Nelson (
   • Paul H Phillips III (
   • Mikhail Raybshteyn (


1 In a micro-captive transaction, an insured party purchases and deducts the premiums paid for insurance coverage from a related captive insurer. The captive insurer then elects to be taxed only on investment income under IRC Section 831(b) and may exclude the premiums received from taxable income. This election is available only to an insurance company that has no more than $2.2 million (as indexed for inflation) of earned premium during the tax year and meets certain diversification requirements.

2 Notice 2016-66 describes the micro-captive transaction of interest as one in which a person (Owner) directly or indirectly owns an interest in an entity conducting a trade or business (Insured), as well as an entity purporting to insure the business-conducting entity (or reinsure its risks) (Captive). Under this arrangement, Captive elects under IRC Section 831(b) to be taxed only on its net investment income; Owner, the Insured or one or more related persons (within the meaning of IRC Section 267(b) or IRC Section 707(b)) (Related Party) directly or indirectly owns at least 20% of the voting power or value of the Captive's stock. The liabilities for Captive's losses and claims administration expenses during its five most recent tax years (or its entire period of existence, if less than five years) (Computation Period) are less than 70% of its earned premiums during the same period (after reduction by any policyholder dividends paid by the Captive during the same period); alternatively, Captive has directly or indirectly made (or agreed to make) any of the payments it received available to Owner, the Insured or any Related Party in a financing, loan or similar arrangement during the Computation Period.

3 See Tax Alert 2017-0234.

4 See Avrahami v. Commissioner, 149 T.C. 144 (2017); Syzygy Insurance Co., Inc., et al. v. Commissioner, TC Memo 2019-34; Reserve Mechanical Corp. v. Commissioner, TC Memo 2018-86 (appeal pending 10th Cir.); Caylor Land Development Inc. v. Commissioner, TC Memo 2021-30.