Challenge to Listed Transaction Notice Held Barred by Anti‐Injunction Act

Published date01 August 2019
Date01 August 2019
August 2019 5
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
any formal relationship between the entities. He did not
seek or obtain approval in advance from the Catholic
Church regarding any aspect of his evangelism activities;
he was not required to report to the Church about these
The Tax Court painstakingly reviewed each of the
expenses at issue (about $40,000) and concluded
that most of them were incurred, in whole or in part,
for personal purposes and thus are not deductible as
charitable gifts (Oliveri v. Commissioner, decision dated
May 28). For example, the “cost of eating in a restau-
rant is a personal expense and is not made deductible
by evangelizing persons randomly encountered while
eating.” Because this individual’s evangelism activities
were “mostly random and uncoordinated by either the
Catholic Church or BSDM,” the expenses associated
with those activities were likewise ruled nondeductible.
The evangelist did not obtain any gift substantiation
documentation. The court held that the basic require-
ment of a contemporary written acknowledgment (IRC §
170(f)(8)) applies with respect to unreimbursed expenses,
so some of his expenditures were rendered nondeduct-
ible on that basis.
This individual contended that the IRS characterized
his evangelism “as if it were not a religious activity” to
the extent that the IRS unconstitutionally discriminated
against him because of his religious beliefs. The court
rejected that argument, stating that the IRS’s position is
that the expenses involved are not deductible, not that
the individual’s activities are not religious. A correspond-
ing argument was that the government’s three audits
of him over the span of 10 years constitute “excessive
Government entanglement with his exercise of religion.”
This argument was unsuccessful because the court reit-
erated its general policy of not looking behind notices of
deficiency to examine IRS motives or the administrative
policy or procedures involved in making the determina-
tion. [9.15, 9.16., 21.3(a)]
A lawsuit was filed seeking to enjoin enforcement of
an IRS notice that identified a transaction as a transac-
tion of interest, on the grounds that the notice was
promulgated in violation of the Administrative Procedure
Act (because the notice-and-comment rule was not
followed and the notice is allegedly arbitrary and capri-
cious) and the Congressional Review Act. The plaintiff
is a material advisor to taxpayers engaging in the trans-
action involved. The district court dismissed the case
for lack of subject-matter jurisdiction, holding that the
complaint is barred by the Anti-Injunction Act. The US
Court of Appeals for the Sixth Circuit, by decision dated
May 22, affirmed (2-1) the dismissal (CIC Services, LLC v.
United States).
The AIA 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” (IRC
§ 7421(a)). (There are a few inapplicable exceptions to
this law.) Thus, a court presented with a complaint must
determine whether it is properly characterized as one
involving this type of lawsuit.
Congress delegated authority to the IRS to identify
and gather information about potential tax shelters
(IRC § 6707A). The IRS requires taxpayers and certain
third parties to maintain and submit records pertaining
to reportable transactions (IRC § 6707A(c)). Reportable
transactions are those transactions deemed as such by
IRS regulation (Id.; Reg. § 1.6011-4(b)).
Failure to adhere to these IRS requirements can result
in significant penalties. For example, an individual who
fails to submit to the IRS a return listing his or her report-
able transactions faces a penalty of 75 percent of his or
her tax savings resulting from these transactions, from a
minimum of $5,000 to a maximum of $200,000 (IRC §§
6011, 6707A(b)). A material advisor — one who provides
material aid to one or more individuals in his, her, or their
carrying out reportable transactions and who derives
a threshold amount of gross income from provision of
that aid (IRC § 6111(b)) — faces similar penalties. For
example, a material advisor who fails to submit to the
IRS a return listing the reportable transactions in which
he or she aided faces a penalty of between $50,000 and
$200,000 (IRC § 6111(a), 6707(b)). Likewise, a material
advisor who fails to maintain a list of the taxpayers he
or she aided in carrying out reportable transactions faces
a penalty of $10,000 per day if the list is not produced
to the IRS within 20 business days of a request from the
agency (IRC §§ 6112(a), 6708(a)).
Transactions of interest are one of five categories of
reportable transactions (Reg. § 1.6011-4(b)(6)).
The plaintiff in this case asserted that the AIA is not
implicated in its lawsuit, in that it is a suit to enjoin the
enforcement of a reporting requirement, not enjoin tax
assessment or collection. The US Supreme Court has
recognized that information gathering, in accordance
with a reporting rule, is a phase of tax administration
procedure occurring before assessment or collection, just
as assessment must precede collection.
But the appellate court made much of the fact that
this reporting requirement is enforced by penalties (IRC
§§ 6707, 6707A, 6708) that constitute taxes (IRC §

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