Maze v. Internal Revenue Service

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

EVA MAZE, et al.,
Plaintiffs
v. Civil Action No. 15-1806 (CKK)
INTERNAL REVENUE SERVICE, et al.,
Defendants

MARIE M. GREEN, et al.,
Plaintiff
v. Civil Action No. 16-1085 (CKK)
INTERNAL REVENUE SERVICE, et al.,
Defendants

MEMORANDUM OPINION
(July 25, 2016)
Plaintiffs are individuals who failed to report offshore income in foreign accounts, to file

required documentation regarding these funds, and to pay the requisite amount of taxes

associated with those funds. After they were made to see the error of their ways, each began to

participate in a voluntary program of the Internal Revenue Service (“IRS”) to begin to unwind

these errors. The program in which they began to participate is now one among a family of such

programs designed to encourage delinquent taxpayers to correct their previous errors. Each of

these programs encourages participation by providing benefits to would-be taxpayers, as well as

replenishing the public fisc. Plaintiffs now seek injunctive and declaratory relief against the IRS

and associated defendants in connection with these programs, including a declaration that certain

rules regarding transitions between two of these programs are unlawful; an injunction against the

enforcement of those rules; and a judgment that Plaintiffs can withdraw from one program and

enter another, contrary to the existing rules governing those programs.

1
 Before the Court is Defendants’ [9] Motion to Dismiss filed in the case captioned Maze v.

Internal Revenue Service (15-cv-1806). 1 Defendants first argue that this Court is deprived of

subject matter jurisdiction over this case as a result of the Anti-Injunction Act and the tax

exception to the Declaratory Judgment Act. They next argue that the United States has not

waived its sovereign immunity over the claims in this case because the claims pertain to

enforcement decisions that are committed to agency discretion by law. See 5 U.S.C. § 701(a)(2)

(Administrative Procedure Act inapplicable when “(2) agency action is committed to agency

discretion by law”). Upon consideration of the pleadings, 2 the relevant legal authorities, and the

record for purposes of this motion, the Court GRANTS Defendants’ [9] Motion to Dismiss. As

explained further below, the Court concludes that it has no jurisdiction over this action in light of

the Anti-Injunction Act and the tax exception to the Declaratory Judgment Act. Therefore, the

Court does not reach Defendants’ argument that this case must be dismissed because

enforcement activities are committed to the agency’s discretion by law. This case is dismissed in

its entirety for want of subject matter jurisdiction under Federal Rule of Civil Procedure

12(b)(1).

1
The Court granted the parties’ joint motion to consolidate Case No. 15-cv-1806 (Maze v.
Internal Revenue Service) and Case No. 16-cv-1085 (Green v. Internal Revenue Service).
Pursuant to the parties’ stipulation and the Court’s order granting the motion to consolidate, the
resolution of the motion to dismiss filed in Maze will bind all parties to this consolidated action.
For the remainder of this Memorandum Opinion, however, the Court only refers to the parties in
Maze and to the briefing that they filed for the sake of clarity.
2
The Court’s consideration has focused on the following documents:
• Defs.’ Mot. to Dismiss (“Defs.’ Mot.”), ECF No. 9;
• Pls.’ Opp’n to Defs.’ Mot. to Dismiss (“Pl.’s Opp’n”), ECF No. 13; and
• Defs.’ Reply in Supp. of Mot. to Dismiss (“Defs.’ Reply”), ECF No. 14 .
In an exercise of its discretion, the Court finds that holding oral argument in this action would
not be of assistance in rendering a decision. See LCvR 7(f).

2
 I. BACKGROUND

The Court limits its presentation of the background to the key facts that are necessary for

the Court’s resolution of the fundamental issue presented in the pending motion: whether the

Court is deprived of jurisdiction over this action in light of the jurisdiction-stripping provision of

the Anti-Injunction Act and in light of the tax exception to the Declaratory Judgment Act.

A. Statutory and Regulatory Context
The United States tax system has a broad reach. Notably, “[t]he United States income tax

system reaches all U.S. citizens’ income no matter where in the world it is earned, ‘unless it is

expressly excepted by another provision in the Tax Code.’ ” Rogers v. Comm’r of I.R.S., 783 F.3d

320, 322 (D.C. Cir.), cert. denied 136 S. Ct. 369 (2015) (citations omitted). In order to

implement this system, as the Supreme Court has noted, “our tax structure is based on a system

of self-reporting.” United States v. Bisceglia, 420 U.S. 141, 145 (1975); see also Florida Bankers

Ass’n v. U.S. Dep’t of the Treasury, 799 F.3d 1065, 1073 (D.C. Cir. 2015) (Henderson, J.,

dissenting), cert. denied 136 S. Ct. 2429 (2016). Those reporting requirements are both detailed

and complex, and they extend to certain foreign assets, accounts, and income. See, e.g., 26

U.S.C. § 6048(c) (reporting required by United States beneficiaries of foreign trusts). As the

Supreme Court has further noted, “basically the Government depends upon the good faith and

integrity of each potential taxpayer to disclose honestly all information relevant to tax liability.”

Bisceglia, 420 U.S. at 145. In addition to depending on the honesty of each taxpayer, the system

includes an array of civil and criminal penalties, including, but not limited to, accuracy-related

penalties for the underpayment of taxes and penalties for failing to file certain required

documentation. See, e.g., 26 U.S.C. §§ 6046, 6046A, 6048, 6677, 6679 (failure to file penalties);

id. § 6662 (accuracy-related penalties). This scheme includes criminal penalties for willful

3
failures to comply with tax obligations. See, e.g., id. § 7201 (“Any person who willfully attempts

in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in

addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof,

shall be fined not more than $100,000 … , or imprisoned not more than 5 years, or both, together

with the costs of prosecution.”); id. § 7206 (criminal penalties for willful false statements in tax

materials submitted).

The IRS engages in affirmative investigations of taxpayers suspected of non-compliance.

However, in light of the limited resources available for such investigations, the IRS uses a

variety of voluntary disclosure programs to encourage non-compliant taxpayers to come into

compliance with the applicable law. Common to all such programs is that the IRS provides

certain benefits for taxpayers in exchange for voluntary disclosure pursuant to the applicable

guidelines. Providing some benefit for voluntary disclosure—even belated—encourages

voluntary participation in those programs. 3 It is several such programs, all with respect to foreign

assets, accounts, and income, that are central to this case.

Two basic types of programs are at issue in this case: Offshore Voluntary Disclosure

Programs (“OVDPs”) and Streamlined Filing Compliance Procedures (“SFCP or “Streamlined

3
Taxpayers who are undergoing a civil examination or a criminal investigation are not eligible
for participation in such programs. See, e.g., Streamlined Filing Compliance Procedures,
https://www.irs.gov/Individuals/International-
Taxpayers/Streamlined-Filing-Compliance-Procedures (last visited July 18, 2016); Offshore
Voluntary Disclosure Program Frequently Asked Questions and Answers 2014,
https://www.irs.gov/individuals/international-taxpayers/offshore-voluntary-disclosure-program-
frequently-asked-questions-and-answers-2012-revised (last visited July 18, 2016).

4
Procedures”). To participate in the 2012 OVDP, 4 which Plaintiffs entered, a taxpayer are

required to comply with the following requirements, among others:

• file eight years of tax returns and Reports of Foreign Bank and Financial
Accounts (“FBARs”);

• pay tax and interest for eight years; and

• pay accuracy-related penalties for eight years.

Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers 2014

(“Revised 2012 OVDP FAQs”), https://www.irs.gov/individuals/international-

taxpayers/offshore-voluntary-disclosure-program-frequently-asked-questions-and-answers-2012-

revised (last visited July 18, 2016). 5

In return for full compliance with the applicable requirements, the IRS offers participants

the following three primary benefits. First, with the exception of the accuracy-related penalties

under section 6662(a) of the Internal Revenue Code, a compromise of all penalties for which a

taxpayer may be liable by paying 27.5% of the aggregate value of the taxpayer’s foreign assets.

Id. This compromise encompasses “FBAR and offshore-related information return penalties and

tax liabilities for years prior to the voluntary disclosure period.” Id. The compromise penalty,

which consists of 27.5% of the value of a taxpayer’s foreign assets, is referred to as the

miscellaneous Title 26 offshore penalty. Id. Second, the IRS will not recommend to the

4
Those provisions were revised when the IRS announced the 2014 Streamlined Procedures.
When discussing the 2012 OVDP, the Court refers to the OVDP as revised, given that the revised
program is now at issue.
5
Defendants note that taxpayers under the 2012 OVDP must pay any applicable failure-to-file
penalties under section 6651(a)(1) and failure-to-pay penalties under 6651(a)(2)-(3) for eight
years. Defs.’ Mot. at 8 n.3; see also Revised 2012 OVDP FAQs, FAQ No. 7. But Defendants also
note that it is unlikely that such penalties would be applicable to Plaintiffs. Defs.’ Mot. at 8 n.3.
Accordingly, like Defendants, the Court does not discuss those penalties further.

5
Department of Justice criminal prosecution for any matter relating to tax noncompliance or

failure to file a Report of Foreign Bank and Financial Accounts. 6 Id. As explained by the IRS,

participation in an OVDP “generally eliminate[s] the risk of criminal prosecution for all issues

relating to tax noncompliance and failing to file FBARs” for past tax years. AR 170, FAQ No. 4.

Third, the IRS and the taxpayer sign a closing agreement, which constitutes a final settlement of

all matters relating to the disclosure period and to years prior to the disclosure period. Id.

Altogether these actions bar the IRS from taking action based on any tax delinquency in the

years before the eight-year disclosure period.

In 2014, the IRS introduced the 2014 Streamlined Procedures. The IRS explained that

“[t]he expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose

their offshore assets was non-willful.” AR 146. To participate in the 2014 Streamlined

Procedures, a taxpayer is required to comply with the following requirements, among others:

• file three years of tax returns and six years of FBARs;

• pay tax and interest for three years; and

• pay a miscellaneous Title 26 offshore penalty equivalent to 5% of the
value of the taxpayer’s foreign assets.

Streamlined Filing Compliance Procedures, https://www.irs.gov/individuals/international-

taxpayers/u-s-taxpayers-residing-in-the-united-states

(last visited July 18, 2016) (“2014 Streamlined Procedures (U.S.)”). A compromise

miscellaneous offshore penalty payment is not required for non-U.S. residents. See U.S.

6
Defendants state that, upon the completion of the requirements of the program, a taxpayer will
receive a non-prosecution letter from the IRS, which they describe as essentially assurance from
the Commission of the Internal Revenue that the IRS will not refer the matter to the Department
of Justice for prosecution. Defs.’ Mot. at 7. But Defendants do not point to any material in the
record or any legal authority that shows that such letters are automatically issued. In any event,
this distinction is immaterial to the resolution of this case.

6
Taxpayers Residing Outside the United States, https://www.irs.gov/individuals/international-

taxpayers/u-s-taxpayers-residing-outside-the-united-states (last visited July 18, 2016) (“2014

Streamlined Procedures (Outside)”). In return, these filings and payments serve as a compromise

for all penalties not involving willfulness for the three years covered by the program. See id.;

2014 Streamlined Procedures (U.S.). However, the IRS can pursue the taxpayer for fraud-related

penalties for all years and for willful FBAR penalties for all years, as well as other penalties from

the years prior to the three years subject to this program. See id. The Streamlined Procedures do

not involve any assurance regarding a decision not to refer the matter for criminal prosecution—

as the OVDP does—nor do they involve a final settlement agreement resolving tax issues

pertaining to prior years. See id.

The relationship between these two programs is at the core of this case. A “taxpayer who

submits an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014,

is not eligible to participate in the streamlined procedures.” AR 151; see also Streamlined Filing

Compliance Procedures, https://www.irs.gov/individuals/international-taxpayers/streamlined-

filing-compliance-procedures (last visited July 18, 2016) (“Streamlined Procedures Overview”).

“A taxpayer eligible for treatment under the streamlined procedures who submits, or has

submitted, a voluntary disclosure letter under the OVDP (or any predecessor offshore voluntary

disclosure program) prior to July 1, 2014, but who does not yet have a fully executed OVDP

closing agreement, may request treatment under the applicable penalty terms available under the

streamlined procedures.” AR 151 (emphasis added). “A taxpayer seeking such treatment does not

need to opt out of OVDP, but will be required to certify, in accordance with the instructions set

forth below, that the failure to report all income, pay all tax, and submit all required information

returns, including FBARs, was due to non-willful conduct.” AR 151-52. Finally, the IRS would

7
consider a request for such treatment “in light of all the facts and circumstances of the taxpayer's

case and will determine whether or not to incorporate the streamlined penalty terms in the OVDP

closing agreement.” AR 152.

In short, a taxpayer that enters an OVDP after July 1, 2014—shortly after the 2014

Streamlined Procedures were introduced—is categorically barred from the Streamlined

Procedures. A taxpayer that had already entered an OVDP before that deadline, such as Plaintiffs

in this case, may be able to receive the favorable penalty terms of the Streamlined Procedures,

but must remain in the OVDP in order to do so. The Court will refer to this option, as do

Defendants, as the “Transition Treatment.” An applicant is not automatically afforded the

benefits of Transition Treatment. See Transition Rules: Frequently Asked Questions (FAQs),

https://www.irs.gov/individuals/international-taxpayers/transition-rules-frequently-asked-

questions-faqs (last visited on July 18, 2016) (“Transition FAQs”). Among other requirements

for qualifying for this treatment, the IRS “must agree that the available information is consistent

with the taxpayer’s certification of non-willful conduct.” Id. A taxpayer afforded the Transition

Treatment will only be required to pay the miscellaneous Title 26 offshore penalty required under

the Streamlined Procedures rather than the penalty required under the OVDP. Id. That is, for a

domestic taxpayer, only a 5% penalty will be required as opposed to the 27.5% penalty mandated

under the 2012 OVDP, as explained above. There is no alternative path for a taxpayer

participating in an OVDP to leave such a program and enter the Streamlined Procedures on the

terms applicable to new participants in that program.

Lastly, the treatment of participants in these several programs differs with respect to the

availability of criminal non-prosecution letters. As noted above, under the OVDP, participants

can receive a criminal non-prosecution letter, which provides assurance that the IRS will not

8
refer related tax matters to the Department of Justice for criminal prosecution. Def.’s Mot. at 7.

This benefit is not available under the 2014 Streamlined Procedures. See generally 2014

Streamlined Procedures (U.S.). By contrast, the benefit of non-prosecution letters remains

available under the Transition Treatment because the participants never exit the OVDP itself;

instead, they remain bound by the rules of that program, except that they are eligible to receive

beneficial treatment regarding certain penalties, as detailed above. See generally Transition

FAQs.

B. Plaintiffs’ Claims and Relief Sought
Each plaintiff’s claims emerges from a similar factual background: after a number of

years of failing to report funds held in foreign bank accounts, each plaintiff entered the IRS’s

2011 or 2012 Offshore Voluntary Disclosure Program. 7 Compl. ¶¶ 82 (Eva Maze); 90 (Suzanne

Batra); 97 (Margot Lichtenstein). Each subsequently sought to “directly enter” the 2014

Streamlined Procedures, and each was told that doing so was not possible. Id. ¶¶ 83-84 (Maze);

91-92 (Batra); 98-99 (Lichtenstein). Having received this response, they joined together to bring

this action. The parties have not suggested any material differences among the experiences of the

several plaintiffs.

7
As Defendants have noted, Plaintiffs include contradictory allegations about whether Plaintiff
Batra entered the 2011 Program or the 2012 Program. Compare Compl. ¶ 1 (all plaintiffs
participated in the 2012 program) with id. ¶ 90 (describing participation of Batra in 2011
program). It appears that all references to Batra individually refer to participation in the 2011
Program. See id. ¶ 90; Pls.’ Opp’n at 4 (citing Decl. of William Sweeney at ¶ 7, Ex. A); id. at 5-6.
It may be that Plaintiffs’ references to all of them participating in the 2012 program and seeking
to exit that program are simplifications or misstatements. See, e.g., Compl. ¶¶ 101-103, Request
for Relief ¶ D. In any event, these discrepancies are immaterial for the purposes for the pending
motion because the programs are substantially similar. See Defs.’ Mot. at 13 n.5. The one
difference that the parties all note is that the 2011 OVDP required a payment of 25% of foreign
assets, while the 2012 OVDP required a payment of 27.5% of foreign assets. See id.; Pls.’ Mot. at
13. But that difference has no effect on the result in this case.

9
 Based on these underlying allegations, Plaintiffs further allege that the “IRS blocked the

Plaintiffs from withdrawing from the 2012 OVDP and entering the 2014 SFCP through any route

other than the Transition Rules.” Id. ¶ 103. Plaintiffs then claim that they were harmed by the

IRS’s “decision to deny Plaintiffs entry into the 2014 [Streamlined Procedures] through any

route other than the Transition Rules.” Id. ¶ 104. Plaintiffs further claim that “the IRS’s failure to

provide a direct method of entry into the 2014 SFCP imposed upon the Plaintiffs a greater

offshore penalty, exposure to additional civil penalties, increased filing burdens, a disparate

standard of review, and a longer case-review time (and thus attorneys’ fees) as compared to other

similarly situated applicants.” Id.

On the basis of this claim of injury, Plaintiffs claim that Defendants actions violated two

provisions of the Administrative Procedure Act. First, they claim that “Defendants actions in

promulgating the Transition Rules were arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law.” Id. ¶ 106 (citing 5 U.S.C. § 706(2)(A)). Second, they claim that the

“Transition Rules” were procedurally defective because they “were contrary to the notice-and-

comment rulemaking requirements” of the Administrative Procedure Act and were “without

observance of procedure required by law.” Id. ¶ 107 (citing 5 U.S.C. §§ 553, 706(2)(D)).

The Court presents in full the relief requested by Plaintiffs through the Complaint, as it

pertains directly to the legal question before the Court. Plaintiffs request:

A. A holding by the Court setting aside the Transition Rules as unlawful under 5
U.S.C. § 706(2);

B. A judgment by the Court that, under 5 U.S.C. § 706(2)(A), the Transition Rules
are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law, and are therefore invalid;

C. A judgment by the Court that the Transition Rules did not comply with the
notice-and-comment rulemaking requirements of 5 U.S.C. § 553, were without
observance of procedure required by law under 5 U.S.C. §706(2)(D), and are
therefore invalid;

10
 D. A judgment that Plaintiffs may withdraw from the 2012 OVDP [Offshore
Voluntary Disclosure Program] and directly enter the 2014 SFCP [Streamlined
Procedures] where the IRS must treat them the same as any other 2014 SFCP
applicants;

E. An injunction prohibiting Defendants or their agents from enforcing the
Transition Rules;

F. An award of attorneys’ fees, costs, and expenses in this action; and

G. Any other legal or equitable relief to which the Plaintiffs may show themselves
to be justly entitled.

Compl., Request for Relief. To summarize, Plaintiffs request (1) judgments that the “Transition

Rules” were unlawful under the Administrative Procedure Act, (2) an injunction allowing

Plaintiffs to transfer from one IRS voluntary program to another, contrary to the IRS’s existing

rules prohibiting such a transfer; and (3) an injunction prohibiting the enforcement of the

“Transition Rules.” Moreover, it appears that Plaintiffs seek to retain benefits that are available

only under the OVDP, specifically assurances from the IRS regarding the referral of matters for

criminal prosecution for past tax years. Compare Defs.’ Mot. at 13 (noting receipt of non-

prosecution letters by Plaintiffs) and Defs.’ Reply at 3 (detailing benefits of non-prosecution

letters) with Pls.’ Opp’n at 20, 31 (failing to relinquish of benefits of non-prosecution letter).

Finally, Plaintiffs never claim that they have paid all of the taxes and penalties they owe with

respect to all eight tax years relevant to the voluntary programs considered in this case; they only

claim that they have now paid taxes for the three years covered by the Streamlined Procedures.

II. LEGAL STANDARD

“Federal courts are courts of limited jurisdiction” and can adjudicate only those cases

entrusted to them by the Constitution or an Act of Congress. Kokkonen v. Guardian Life Ins. Co.

of Am., 511 U.S. 375, 377 (1994). The Court begins with the presumption that it does not have

subject matter jurisdiction over a case. Id. To survive a motion to dismiss pursuant to Rule

11
12(b)(1), a plaintiff bears the burden of establishing that the Court has subject matter jurisdiction

over its claim. Moms Against Mercury v. FDA, 483 F.3d 824, 828 (D.C. Cir. 2007). In

determining whether there is jurisdiction, the Court may “consider the complaint supplemented

by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts

plus the court’s resolution of disputed facts.” Coal. for Underground Expansion v. Mineta, 333

F.3d 193, 198 (D.C. Cir. 2003) (citations omitted). “At the motion to dismiss stage, counseled

complaints, as well as pro se complaints, are to be construed with sufficient liberality to afford

all possible inferences favorable to the pleader on allegations of fact.” Settles v. U.S. Parole

Comm’n, 429 F.3d 1098, 1106 (D.C. Cir. 2005). “Although a court must accept as true all factual

allegations contained in the complaint when reviewing a motion to dismiss pursuant to Rule

12(b)(1),” the factual allegations in the complaint “will bear closer scrutiny in resolving a

12(b)(1) motion than in resolving a 12(b)(6) motion for failure to state a claim.” Wright v.

Foreign Serv. Grievance Bd., 503 F. Supp. 2d 163, 170 (D.D.C. 2007) (citations omitted).

III. DISCUSSION

Defendants argue that this Court has no jurisdiction over the claims in this case because

of the jurisdiction-stripping provision of the Anti-Injunction Act and because of the analogous

tax exception to the Declaratory Judgment Act. As explained below, the Court agrees with

Defendants that this Court is deprived of jurisdiction over this action in its entirety by those

statutes. Therefore, the Court does not reach Defendants’ alternative argument that Plaintiffs may

not bring these claims under the Administrative Procedure Act because the underlying

enforcement regime is a matter committed to the IRS’s discretion as a matter of law.

Under the Anti-Injunction Act, except as explicitly provided by the statute, “no suit for

the purpose of restraining the assessment or collection of any tax shall be maintained in any court

12
by any person.” 8 26 U.S.C. § 7421(a). “The Declaratory Judgment Act likewise prohibits most

declaratory suits ‘with respect to Federal taxes.’ ” Florida Bankers Ass’n v. U.S. Dep’t of

Treasury, 799 F.3d 1065, 1067 (D.C. Cir. 2015) cert. denied 136 S. Ct. 2429 (2016) (quoting 28

U.S.C. § 2201(a)). Two acts are “coterminous.” Id. (citing Cohen v. United States, 650 F.3d 717,

730-31 (D.C. Cir. 2011) (en banc)). Practically that means that the scope of the Anti-Injunction

Act governs the outcome of this case, and there is no need to refer to the tax exception under the

Declaratory Judgment Act further. See id. at 1068 (“For simplicity, we will refer only to the

Anti–Injunction Act.”); Cohen, 650 F.3d at 730-31 (“In this light, the case is greatly simplified.

The DJA [Declaratory Judgment Act] falls out of the picture because the scope of relief available

under the DJA is subsumed by the broader injunctive relief available under the AIA [Anti-

Injunction Act].”).

“The manifest purpose of § 7421(a) is to permit the United States to assess and collect

taxes alleged to be due without judicial intervention, and to require that the legal right to the

disputed sums be determined in a suit for refund.” Enochs v. Williams Packing & Nav. Co., 370

U.S. 1, 7 (1962). “As the Supreme Court explained, the provision reflected ‘appropriate concern

about 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 at 724 (quoting Alexander v. “Americans United” Inc., 416 U.S. 752,

769 (1974) (Blackmun, J., dissenting)). While the Anti-Injunction Act does not bar all legal

claims pertaining to taxation, it does bar “those suits seeking to restrain the assessment or

collection of taxes.” Id. (quoting Bob Jones Univ. v. Simon, 416 U.S. 725, 737 (1974)). Applying

8
Plaintiffs do not claim that this action falls under one of the statutorily enumerated exceptions
to the jurisdiction-stripping provision.

13
the Act “requires a careful inquiry into the remedy sought, the statutory basis for that remedy,

and any implication the remedy may have on assessment and collection.’’ Id. at 727; see also Z

Street v. Koskinen, 791 F.3d 24, 30 (D.C. Cir. 2015) (same). Upon careful consideration of the

remedies sought by Plaintiffs, the basis for those remedies, and the implications for the

assessment and collection of unpaid taxes, the Court concludes that it has no jurisdiction over

this case and dismisses it accordingly.

Defendants present three ways in which this suit seeks to restrain the assessment and

collection of unpaid taxes. First, Defendants argue that, if Plaintiffs were permitted to directly

participate in the 2014 Streamlined Procedures, as they request, it would directly interfere with

the ability of the IRS to assess and collect accuracy-related penalties and failure-to-file penalties,

which are treated as taxes under the Anti-Injunction Act. Second, Defendants argue that, if

Plaintiffs were permitted to directly participate in the 2014 Streamlined Procedures, it would

result in the IRS being forced to compromise Plaintiffs’ outstanding tax liability without

receiving eight years of tax returns and payments—as required under the 2011 and 2012 OVDPs.

Third, Defendants argue that, under the relief requested by Plaintiffs, if the IRS chose to

investigate whether Plaintiffs actually qualified for the 2014 Streamlined Procedures, the IRS

would be required to prove fraud before assessing additional taxes and penalties. Defendants also

emphasize that Plaintiffs seek to retain the benefit of the non-prosecution letters that are issued

under the OVDP, while also enjoying the benefits of the 2014 Streamlined Procedures. In

addition to presenting these three pathways through which the requested relief would restrain the

assessment and collection of unpaid taxes, Defendants argue that Plaintiffs have not suffered a

harm for which no alternative remedy exists and that, therefore, the attendant exception to the

Anti-Injunction Act’s jurisdictional bar is inapplicable.

14
 With respect to each of these purported effects on tax assessment and collection,

Plaintiffs respond that none of them constitutes a restraint on the IRS’s ability to assess or collect

taxes. Plaintiffs present several additional arguments in response. First, they argue that, because

they claim they have paid the three-years of taxes required under the streamlined procedures,

there is nothing to “assess or collect.” (They do not argue that they have paid taxes for the five

earlier years encompassed by the OVDPs.) Second, they characterize the “Transition Rules” as a

procedural rule and argue that the Anti-Injunction Act does not bar a challenge to such a

procedural rule. Third, Plaintiffs argue that the requested relief would not restrain the assessment

or collection of taxes because it would not bar the IRS from seeking tax payments for certain

years that would not be covered by the 2014 Streamlined Procedures, including the five earlier

years that are covered by the OVDPs. Finally, Plaintiffs argue that Anti-Injunction Act is

inapplicable because Plaintiffs have no adequate alternative remedy to the current litigation.

The Court first considers whether this action seeks to restrain the assessment or collection

of unpaid taxes in the first instance. The Court agrees with Defendants that it does. Then, the

Court turns to the question of whether Plaintiffs lack an alternative remedy such that this case

falls into that exception to the Anti-Injunction Act’s jurisdictional bar. The Court once again

agrees with Defendants that adequate alternative remedies are available. Therefore, the Court is

deprived of jurisdiction over this action.

A. Restraint of Collection or Assessment of Unpaid Taxes
As noted above, Defendants argue that three facets of the relief sought by Plaintiffs

constitute a restraint on the assessment or collection of unpaid taxes. The Court evaluates each of

those facets, together with Plaintiffs’ arguments that none of these facets constitutes a restraint

15
on the assessment or collection of taxes. The Court then turns to Plaintiffs’ additional arguments

as to why this case does not entail the restraint of the assessment or collection of taxes.

1. Penalties Treated as Taxes
Certain penalties are treated as taxes for the purposes of the Anti-Injunction Act and of

the Declaratory Judgment Act. Florida Bankers Ass’n, 799 F.3d at 1067 (“Because of its location

in the U.S. Code, that penalty is treated as a tax for purposes of the Anti–Injunction Act.”).

Defendants argue that this case seeks to restrain the assessment and collection of taxes—

specifically taxes that are owed but as of yet unpaid—because the relief it seeks would directly

restrain the IRS’s ability to collect certain penalties that are treated as taxes. The Court addresses

the impact of the requested relief on various types of penalties in turn.

Under section 6662(a), an accuracy-related penalty of 20% is applicable to any

“underpayment of tax required to be shown on a return.” 26 U.S.C. § 6662(a). A provision in

Chapter 68 of the Internal Revenue Code provides that the penalties in that chapter, which

include the accuracy-related penalties, are considered taxes: “Any reference in this title to ‘tax’

imposed by this title [that is, the Internal Revenue Code] shall be deemed also to refer to the

additions to the tax, additional amounts, and penalties provided by this chapter.” Id. § 6665(a)(2).

In Florida Bankers Association, the D.C. Circuit concluded that identical language in Chapter

68, Subchapter B, results in penalties in that subchapter being considered taxes under the Anti-

Injunction Act. See Florida Bankers Ass’n, 799 F.3d at 1068. Because there is no basis to

distinguish between the language analyzed by the D.C. Circuit in Florida Bankers Association

and the language in section 6665(a)(2), it is necessarily true that the accuracy-related penalties in

Chapter 68 are similarly considered taxes for the purposes of the Anti-Injunction Act.

16
 As explained above, participants in the 2012 OVDP must pay eight years of accuracy-

related penalties (insofar as they are applicable to individual tax returns). The miscellaneous Title

26 offshore penalty does not serve as a compromise for these accuracy-related penalties. These

requirements remain applicable to OVDP participants who receive the benefit of the Transition

Treatment. See Transition FAQs, FAQ No. 9. By contrast, participants in the Streamlined

Procedures are not required to pay accuracy-related penalties; instead, the 5% miscellaneous

Title 26 offshore penalty serves as a compromise for all non-willful penalties for the three years

in question, including the accuracy-related penalties. As a result, Plaintiffs’ requested relief

would bar the IRS from collecting accuracy-related penalties for the three years covered by the

Streamlined Procedures. Because the accuracy-related penalties are considered taxes, the

inability of the IRS to collect these penalties constitutes a restraint on the assessment and

collection of unpaid taxes and penalties. Moreover, with respect to the five years covered by the

OVDP but not covered by the Streamlined Procedures, the requested relief would substantially

increase the difficulty in collecting the unpaid taxes and penalties. Specifically, while the IRS

would not be barred from collecting accuracy-related penalties, it would not benefit from the

automatic submission of tax returns required under the OVDP. The Court concludes that the

substantial increase in the difficulty in the collection of those penalties constitutes a restraint on

the assessment and collection of unpaid taxes, as well. That is, for both of these reasons, the

requested relief constitutes a restraint on the assessment and collection of unpaid taxes.

In addition to the impact of the requested relief on the assessment and collection of

accuracy-related penalties, Defendants identify other penalties that would be affected by the

requested relief. As described above, participants in the 2012 OVDP are required to pay 27.5%

of foreign assets as a compromise for all penalties other than accuracy-related penalties that may

17
be owed by the taxpayers. These penalties include failure-to-file penalties under section 6677 in

the following circumstances: for failure to file a return reporting a transaction with a foreign

trust, see 26 U.S.C. § 6048(a); for failure to file a return to report ownership in a foreign trust,

see id. § 6048(b); for failure to file a return for a foreign corporation, see id. § 6046; and for

failure to file a return for a foreign partnership, see id. § 6046A. As explained above, under the

Streamlined Procedures, domestic taxpayers are required to pay only a miscellaneous Title 26

offshore penalty of 5% as a compromise for all penalties, including these failure-to-file penalties.

In short, under the Streamlined Procedures, taxpayers compromise their penalties for a

significantly lower payment than under the OVDP. 9

The remaining question is whether the reduced-value compromise of these several

penalties constitutes a restraint on the assessment or collection of taxes. All of the failure-to-file

penalties listed above are found in Subchapter B of Chapter 68 of the Internal Revenue Code.

Therefore, they are considered taxes for the purposes of the Anti-Injunction Act. Florida Bankers

Ass’n, 799 F.3d at 168 (considering penalties in Subchapter B of Chapter 68). Accordingly, the

Court concludes that the substantial reduction in the amount of the miscellaneous offshore

penalty—from 27.5% of assets under the 2012 OVDP to 5% of assets—in order to compromise

the failure-to-file penalties, among others, constitutes a restraint on the assessment and collection

of unpaid taxes. 10

9
Other than the several failure-to-file penalties listed above, Defendants have not identified any
specific penalties affected by the requested relief. Nor have they provided any basis for the Court
to conclude that those unidentified penalties should be treated as taxes under the Anti-Injunction
Act. With that in mind, the Court finds no basis to treat these unidentified penalties as taxes.
10
It is immaterial that, under the Transition Treatment, participants are able to compromise the
outstanding penalties for a miscellaneous offshore penalty of only 5% of their foreign assets. It is
yet unclear whether Plaintiffs would even qualify for the Transition Treatment. Yet, they seek a
judgment allowing them to exit the 2012 OVDP and to participate “directly” in the Streamlined

18
 In response, Plaintiffs focus on the FBAR penalty, arguing that it does not constitute a tax

under the Anti-Injunction Act. See Pls.’ Opp’n at 12-15. But Defendants never argue that the

FBAR penalty in fact constitutes a tax. The impact of the requested relief on the IRS’s ability to

collect the FBAR penalty does not serve as one of the bases for Defendants’ argument that this

Court is deprived of jurisdiction over this action. Instead, there are other penalties—specifically

the accuracy-related and failure-to-file penalties discussed above—that serve as the basis for

Defendants’ argument. Plaintiffs never discuss those specific penalties, let alone argue that they

cannot serve as a basis for depriving this Court of jurisdiction under the Anti-Injunction Act.

Plaintiffs also focus on the miscellaneous Title 26 offshore penalty, which they argue that the IRS

“made up.” But they are mistaking the nature of the miscellaneous penalty. It is not a new

penalty that the IRS invented; it is a label that the IRS developed to refer to standard payments

required of taxpayers in order to compromise other statutorily-created penalties, including the

accuracy and failure-to-file penalties. In effect, it is a substitute for those other penalties. Because

those penalties are considered taxes under the Anti-Injunction Act for the reasons explained

above, so too is the substitute miscellaneous Title 26 offshore penalty. Finally, Plaintiffs

emphasize that the IRS collects a miscellaneous penalty under any of programs involved. But

that statement ignores the fact that the miscellaneous penalty is substantially reduced in size

under the Streamlined Procedures—5% of foreign assets—compared to 27.5% under the 2012

OVDP. 11 That reduction itself constitutes a restraint on the collection and assessment of unpaid

taxes.

Procedures. Compl., Relief Requested ¶ D. Therefore, the relevant comparison on this issue is
between the 2012 OVDP, outside of the Transition Treatment, and the Streamlined Procedures.
11
The penalty is 25% under the 2011 ODVP. The reduction of that amount to 5% is also a
substantial reduction and constitutes a restraint on the assessment and collection of unpaid taxes.

19
 For these reasons, the Court concludes that the impacts of the requested relief on the

ability of the IRS to collect the accuracy and failure-to-file penalties discussed here constitute a

restraint on the assessment and collection of unpaid taxes, depriving the Court of jurisdiction

over this suit.

2. Submission of Tax Returns and Payments
Defendants next argue that allowing Plaintiffs to switch from the 2012 OVDP to the 2014

Streamlined Procedures would restrain the assessment and collection of unpaid taxes because the

IRS would only receive tax returns for three years, rather than eight years under the 2012 OVDP.

The Court agrees.

As explained above, participants in the 2012 OVDP, including the Transition Treatment

under the OVDP, are required to file eight years of tax returns and to pay the associated taxes.

By contrast, participants in the 2014 Streamlined Procedures are only required to file three years

of tax returns and to pay the associated taxes. Under the Streamlined Procedures, Plaintiffs are

correct that the IRS is not barred from seeking the tax returns for the previous five years.

However, the burden on the IRS of taking affirmative action to ensure that those returns are filed

and that the associated taxes are paid is higher than the burden under the 2012 OVDP, under

which the filing of eight years of tax returns and the submission of tax payments for all of those

years is a condition of participation. As noted above, Plaintiffs have never claimed that they have

paid all of the taxes, interest, and penalties associated with the five years under the OVDP that

are not covered by the Streamlined Procedures. Nor are they willing to undergo IRS examination

with respect to those five years—which is required as a condition for exiting the OVDP. See

Revised 2012 OVDP FAQs, No. 51. Accordingly, Plaintiffs’ requested relief would shift the

burden to the IRS to collect the unpaid taxes, as well as any associated penalties and interest, that

20
are due for the five years that are not covered by the Streamlined Procedures. Accordingly, the

Court has little trouble concluding that relief allowing Plaintiffs to switch from a program under

which eight years of returns are filed to one under which only three years of returns are filed

constitutes a restraint on the assessment and collection of unpaid taxes.

3. Shifting Burden of Proof Regarding Willfulness
Taxpayers that qualify for the Transition Treatment within the OVDP or directly enter the

2014 Streamlined Procedures must certify, under the penalty of perjury, that they acted non-

willfully with respect to the related tax activities. See Streamlined Procedures (Overview);

Transition FAQs, FAQ No. 6 (“[Y]ou must provide to the IRS … a written statement in the

appropriate certification form that would be required under the Streamlined Filing Compliance

Procedures signed under penalty of perjury certifying their non-willfulness with respect to all

foreign activities/assets, specifically describing the reasons for the failure to report all income”).

Even though the requirement that taxpayers certify non-willfulness is common to the Transition

Treatment and to direct participation in the 2014 Streamlined Procedures, the IRS’s treatment of

this information is materially different. Applications do not automatically qualify for the

Transition Treatment. Rather, “[b]efore transitional treatment is given, the IRS must agree that

the taxpayer is eligible for transitional treatment and must agree that the available information is

consistent with the taxpayer’s certification of non-willful conduct.” Id., FAQ No. 7. In making

the determination about whether to allow Transitional Treatment for a particular taxpayer, the

IRS assesses this information along with other information submitted. Id., FAQ No. 8. In short,

before OVDP participants can receive the benefits of the Transition Treatment, the participants

must convince the IRS that their activity was not willful. By contrast, to enter the Streamlined

Procedures directly, the taxpayer must simply certify non-willfulness. See Streamlined

21
Procedures (U.S.). The returns filed are then subject to auditing under the standard IRS

procedures, which necessarily places the burden on the IRS for showing willfulness. See

Streamlined Procedures (Overview) (“Returns submitted under either the Streamlined Foreign

Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS

audit automatically, but they may be selected for audit under the existing audit selection

processes applicable to any U. S. tax return and may also be subject to verification procedures in

that the accuracy and completeness of submissions may be checked against information received

from banks, financial advisors, and other sources.”). Accordingly, the relief that Plaintiffs

request—directly entering the 2014 Streamlined Procedures rather than being subject to the

Transition Treatment—would shift the burden to the IRS for finding willfulness before it could

levy associated taxes, penalties, and interest.

Moreover, Defendants emphasize that Plaintiffs are receiving the benefits of assurances

that the IRS will not refer them for criminal prosecution, which are only available under the

OVDP but not under the Streamlined Procedures. See Defs.’ Mot. at 13. Yet, Plaintiffs have not

agreed to relinquish these benefits, even though they seek “direct” entry to the Streamlined

Procedures, which do not offer the benefit of criminal non-prosecution letters. See Pls.’ Opp’n at

20, 31.

Plaintiffs argue that the burden of proof for willfulness is established by statute and

cannot be modified by agency practice. But the statute sets the burden of proof for willfulness in

the litigation context. No litigation as to willfulness is involved here. Instead, what is involved is

two different voluntary disclosure schemes set up by the IRS. For direct entry into the

Streamlined Procedures, the IRS has set up the scheme such that taxpayers can participate upon

certification of non-willfulness; they need not convince the IRS of their non-willfulness before

22
receiving the benefits of this program. Instead, the IRS must establish willfulness before

assessing additional taxes, penalties, and interest that may not otherwise be due under the

Streamlined Procedures. By contrast for OVDP participants to receive the Transition Treatment,

they must convince the IRS, through the documentation they submit, of the non-willfulness of

their conduct. This difference is significant because the additional effort to show non-willfulness

could easily hamper the IRS in its tax collection efforts, and because the additional burden on the

IRS of proving willfulness—a precondition to certain additional taxes and penalties—restrains

the assessment and collection of those unpaid taxes.

Plaintiffs are right that the two programs are established by the IRS. But that fact is

immaterial. Plaintiffs are seeking a legal judgment allowing them to switch from one of those

programs to the other contrary to the rules established for those programs. Because a greater

burden is placed on the IRS under the Streamlined Procedures as compared to the Transition

Treatment, a judgment allowing Plaintiffs to be considered directly under the 2014 Streamlined

Procedures necessarily restrains the assessment and collection of unpaid taxes. Therefore, the

Court concludes that the impact of the requested relief on the burden regarding willfulness is yet

another reason that this Court is deprived of jurisdiction over this suit under the Anti-Injunction

Act.

4. Plaintiffs’ Additional Responses
In addition to Plaintiffs’ arguments addressing the three specific bases for Defendants’

claim that Plaintiffs seek to restrain the assessment and collection of taxes through this suit,

Plaintiffs present several additional arguments as to why there is no restraint on the assessment

or collection of taxes in this case and, therefore, why this case is not barred by the Anti-

Injunction Act. The Court concludes that none of those arguments have merit.

23
 First, Plaintiffs claim that they have paid the three years of tax, interest, and penalties

required under the Streamlined Procedures. (They never argue that they have paid all of the

taxes, interest, and penalties due for the eight years encompassed by the OVDP.) On this basis,

they argue that there is nothing left for the IRS to collect and, as a result, the Anti-Injunction Act

is applicable. For this argument, they rely on Cohen v. United States, in which the D.C. Circuit

sitting en banc concluded that the claims in that case did not “seek to restrain the assessment or

collection of any tax” because, in part, “the IRS previously assessed and collected the excise tax

at issue.” 650 F.3d at 725. The facts in that case bear no resemblance to those in the case before

this Court. In that case, “the money [was] in the U.S. treasury,” and the “legal right to it has been

previously determined.” Id. Not so here. In support of this argument, Plaintiffs only state that

they have paid the tax, interest, and penalties that would be due under the Streamlined

Procedures—that is, for three years. But they never state that they have paid the taxes, penalties,

and interest for the previous five years, which are required to be paid under the 2012 OVDP.

Plaintiffs are not simply seeking entry into the Streamlined Procedures, as if writing on a blank

slate; rather, they are seeking to transition from the OVDP into the Streamlined Procedures.

Therefore, the entire eight years that are relevant under the OVDP are also relevant to the

question of whether this suit seeks to restrain the assessment or collection of unpaid taxes.

Because Plaintiffs have never claimed, let alone shown, that the “the money is in the U.S.

treasury,” id. at 725, with respect to all eight years at issue, this argument fails.

Second, Plaintiffs argue that the Anti-Injunction Act does not apply to this challenge to

the Transition Treatment because it is a challenge to a procedural rules for sorting between two

IRS programs. Once again, the cases on which Plaintiffs rely bear no resemblance to the case at

hand. In Seven-Sky v. Holder, the D.C. Circuit considered a challenge to the individual mandate

24
of the Affordable Care Act. 661 F.3d 1, 9 (D.C. Cir. 2011) abrogated by Nat’l Fed’n v. Sebelius,

132 S. Ct. 2566 (2012). The court held that the challenge was not barred by the Anti-Injunction

Act because the “shared responsibility payment” was separate and distinct from the individual

mandate and because the suit was aimed at the mandate, rather than at the payment. Id. In this

case, the relief Plaintiffs seek would directly restrain the assessment and collection of unpaid

taxes, as amply demonstrated above. It cannot be characterized as a challenge to “regulatory

requirements that bear no relationship to tax revenues or enforcement.” Id. Indeed, the Seven-Sky

court noted that the Anti-Injunction Act “bars suits that interfere with ancillary functions to tax

collection.” Id. at 10. While “[m]andating the purchase of health insurance is plainly not such a

function,” the voluntary disclosure programs subject to this suit are far more than ancillary to tax

collection. Id. Therefore, they are encompassed within the jurisdictional bar of the Anti-

Injunction Act—unlike the challenge to the individual mandate in Seven-Sky. So, too, Plaintiffs’

reliance on Foodservice and Lodging Institute, Inc. v. Regan, 809 F.2d 842 (D.C. Cir. 1987), is

wholly unavailing. In Foodservice, the D.C. Circuit concluded that a challenge to a regulation

imposing certain requirements on submission of data to assess compliance with tip requirements

was not barred by the Anti-Injunction Act. Id. at 846. The court reasoned that “[o]n its face, the

regulation does not relate to the assessment or collection of taxes, but to IRS efforts to determine

the extent of tip compliance in the food and beverage industry.” Id. This case could not be more

dissimilar. On their face, the rules challenged here pertain wholly to the assessment and

collection of unpaid taxes, not to any unrelated regulatory goals. For all of these reasons,

Plaintiffs’ argument that this case is a challenge to a regulatory command untouched by the Anti-

Injunction Act is wholly unsuccessful.

25
 Third, Plaintiffs argue that that relief requested in this case does not restrain the

assessment or collection of taxes because the IRS is not prohibited from seeking tax returns and

payments from all eight years that would be covered by the 2012 OVDP. Once again, notably,

Plaintiffs never claim that they have actually paid taxes and associated penalties for all eight of

those years. The Court explained above why releasing Plaintiffs from the obligation to file tax

returns and pay taxes on the first five of those eight years—and only requiring returns and

payments for the last three years—constitutes a restraint on the assessment and collection of

unpaid taxes. Plaintiffs offer three additional arguments why that is not the case. To the extent

the Court has not addressed these arguments above, the Court explains here why none of

Plaintiffs’ arguments are persuasive.

Plaintiffs present a cursory argument, with no legal support whatsoever, that Defendants

have somehow waived reliance on the Anti-Injunction Act because they created the multiple

voluntary disclosure programs that are subject to dispute in this case. There is no basis for this

argument. Defendants created multiple disclosure programs, with distinct eligibility rules for

each, as well as rules for the hybrid Transition Treatment. By doing so, they in no way waived

their ability to rely on the Anti-Injunction Act to fend off this challenge, which is targeted at the

very gatekeeping rules that establish who may participate in each program.

Next, Plaintiffs argue that the D.C. Circuit and the Supreme Court have foreclosed the

theory that the entire tax system should be consider a “single mechanism” for the purposes of

applying the Anti-Injunction Act. Cohen, 650 U.S. at 726 (citing Hibbs v. Winn, 542 U.S. 88,

102, 104 (2004)). This entire argument is inapplicable because the Defendants have not pressed

an argument based on a “single mechanism” theory. Instead, they argue that there is no

jurisdiction over this case because it directly seeks to restrain the assessment and collection of

26
unpaid taxes. As explained above, the Court agrees with Defendants that the relief requested in

this case would restrain the assessment and collection of unpaid taxes, and therefore, Plaintiffs’

argument regarding a single mechanism theory is inapposite.

Lastly, Plaintiffs rely on the Supreme Court’s recent interpretation of the Tax Injunction

Act in Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (2015), to argue for a narrower

meaning of the word “restrains,” as used in the Anti-Injunction Act. This argument is unavailing

because the law in the two cases is different and because the facts are distinguishable.

With respect to the law, in Direct Marketing, the Supreme Court was interpreting the Tax

Injunction Act, “which provides that federal district courts ‘shall not enjoin, suspend or restrain

the assessment, levy or collection of any tax under State law.’ ” Id. (quoting 28 U.S.C. § 1341).

That case did not concern either the Anti-Injunction Act or the Declaratory Judgment Act.

Indeed, although the Supreme Court explained that it looks to federal law for the interpretation of

the Tax Injunction Act, id. at 1129, its analysis focused on the specific language of the Tax

Injunction Act, id. at 1132-33, which differs in material respects from the language of the Anti-

Injunction Act. Specifically, while the Tax Injunction Act forbids “enjoin[ing], suspend[ing] or

restrain[ing] the assessment, levy or collection of any tax,” the Anti-Injunction simply forbids

suits “restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a). For the Supreme

Court, it was important that the word “restrain” kept company with “suspend” and “enjoin” in

the Tax Injunction Act. 135 S. Ct. at 1132. The Supreme Court explained that the words

“suspend” and “enjoin” “refer to different equitable remedies that restrict or stop official action

to varying degrees, strongly suggesting that ‘restrain’ does the same.” Id. Under the Anti-

Injunction Act, the word “restrain” keeps no such company and, therefore, no such inference

would be either possible or proper.

27
 With respect to the facts, Direct Marketing concerned a Colorado state law that imposed

notice and reporting obligations regarding sales taxes on certain retailers. Id. at 1128. The

Supreme Court concluded that the notice and reporting requirements were separate and distinct

from the enumerated actions of “the [1] assessment, [2] levy or [3] collection of any tax” and

therefore not subject to the Tax Injunction Act’s jurisdictional bar that applies to such activities.

Id. at 1131 (alterations added). The Supreme Court concluded that the notice and reporting

requirements merely inhibited, but did not “restrain” the “assessment, levy or collection of any

tax.” Id. at 1133. Once again, notwithstanding Plaintiffs’ contentions to the contrary, this case

could not be more different. As demonstrated thoroughly above, Plaintiffs seek relief that would

directly restrain the assessment and collection of unpaid taxes by presenting a challenge to the

eligibility rules for the IRS’s voluntary disclosure program, which set out different schemes for

collecting unpaid taxes and associated penalties, and by seeking a judgment allowing them entry

to a program from which they would otherwise be barred. Direct Marking is wholly

distinguishable and, accordingly, provides no basis to disturb the conclusion that this Court is

deprived of jurisdiction over this case by the Anti-Injunction Act.

* * *

In sum, the Court concludes that, for all of the reasons discussed above, this case

constitutes a suit “for the purpose of restraining the assessment or collection of any tax.” 26

U.S.C. § 7421(a). Therefore, if no exception to that rule is applicable, this Court is deprived of

jurisdiction over this action. The Court now turns to Plaintiffs’ argument that just such an

exception applies in this case.

28
B. No Alternative Remedy Available
The Anti-Injunction Act “does not apply at all where the plaintiff has no other remedy for

its alleged injury.” Z Street, 791 F.3d at 31. As the Supreme Court explained in South Carolina v.

Regan, the “Act’s purpose and the circumstances of its enactment indicate that Congress did not

intend the Act to apply to actions brought by aggrieved parties for whom it has not provided an

alternative remedy.” 465 U.S. 367, 378 (1984). “Put another way, ‘the Act was intended to apply

only when Congress has provided an alternative avenue for an aggrieved party to litigate its

claims.’ ” Z Street, 791 F.3d at 29 (quoting South Carolina, 465 U.S. at 381).

Defendants identify two alternative remedies that Plaintiffs can pursue: specifically, to

pursue a settlement with the IRS independent of the established voluntary disclosure programs

and, if those settlement talks fail, to pay the full assessed liabilities and seek a refund through a

refund suit. That is, it is not necessary to participate in one of the programs established by the

IRS to pursue a settlement with the IRS. Although Plaintiffs seek the specific relief regarding

taxes and penalties that would be afforded them if they were allowed to directly enter the 2014

Streamlined Procedures, they are not barred from seeking such benefits through separate

negotiations with the IRS outside the OVDPs in which they are currently enrolled. See Defs.’

Reply at 12. In short, as an alternative to the remedies sought through this action, Plaintiffs may

negotiate directly with the IRS.

If those negotiations do not yield the results they seek, Plaintiffs may avail themselves of

a second alternative opportunity to pursue these results. They can opt-out of the OVDP, allow the

IRS to determine their liabilities by examination, pay the assessed liabilities, and file an

administrative claim for a refund for the difference between the liability determined and the

amount that would be due under the Streamlined Procedures; if that administrative refund claim

is denied, they may then file a refund suit in federal court. See Revised 2012 OVDP FAQs, No.

29
51 (explaining opt-out process); 26 U.S.C. § 7422(a) (setting out conditions for federal suit for

refund).

Because Plaintiffs are equipped with these alternative remedies, they do not face

circumstances like those faced by the State of South Carolina in South Carolina. 465 U.S. at 380.

As the D.C. Circuit has explained, “because South Carolina paid no taxes, it was ‘unable to

utilize any statutory procedure to contest the constitutionality of [the tax].’ ” Z Street, 791 F.3d at

29 (quoting South Carolina, 465 U.S. at 380) (alteration in original). In other words, the State of

South Carolina had no alternatives whatsoever. Here, by contrast, the taxpayers themselves may

engage in settlement negotiations with the IRS in order to pursue the relief that is substantively

equivalent to the relief they seek through this suit. And, if any such attempts fail, they may

follow the procedure outlined above to pay the assessed liabilities and file a suit in federal court

for a refund.

Plaintiffs emphasize that they may not now file a suit in federal court (1) because they

have not been issued a notice of deficiency and (2) because they claim that they are not actually

seeking the refund of any taxes they have already paid—as they claim they have paid the amount

that would be required under the Streamlined Procedures. But once again they ignore the five

years prior to those covered by the Streamlined Procedures that are within the eight-year

framework of the OVDP. Plaintiffs have never claimed that they have paid all liabilities that

would be due on a full examination of all of those years—either during the years in which the

respective taxes were owed or in the process of rectifying their prior errors. Upon examination

and payment of liabilities for all of those years, they could seek any refund compared to the

amounts that would be due under the Streamlined Procedures—or as compared to whatever

amount they claim they should be due under the applicable law. The Court concludes that these

30
remedies are both available and adequate with respect to the relief Plaintiffs seek in this court.

See Cohen, 650 F.3d at 733 (requiring an alternative remedy to be “adequate”).

Because Plaintiffs possess adequate alternative remedies to the current suit, the Court

concludes that this suit remains within the ambit of the jurisdiction-stripping provision of the

Anti-Injunction Act and, concomitantly, within the tax exception to the Declaratory Judgment

Act). Therefore, the Court need not consider Defendants’ argument that Plaintiffs have no legal

right to settlement terms offered to other taxpayers.

* * *

The details of the schemes at issue in this case are complex, but it is useful to close by

returning to the core of this case. Plaintiffs claim that they have been harmed because “the IRS’s

failure to provide a direct method of entry into the 2014 SFCP imposed upon the Plaintiffs a

greater offshore penalty, exposure to additional civil penalties, increased filing burdens, a

disparate standard of review, and a longer case-review time (and thus attorneys’ fees) as

compared to other similarly situated applicants.” Compl. ¶ 107 (emphasis added). And Plaintiffs

seek, through this case, a judgment allowing them to participate in the 2014 Streamlined

Procedures under the same terms as an applicant who had not previously participated in another

related IRS voluntary disclosure program. See id., Request for Relief, ¶ D. That is, they seek to

undo the alleged harm they claim was caused by their inability to enter the 2014 Streamlined

Procedures directly: “greater offshore penalty, exposure to additional civil penalties, increased

filing burdens, a disparate standard of review, and a longer case-review time (and thus attorneys’

fees) as compared to other similarly situated applicants.” Id. ¶ 107. Notably, Plaintiffs never

claim that they have paid all of the taxes and associated penalties owed under all of the tax years

covered by the programs at issue in this case. Notwithstanding Plaintiffs’ attempts to minimize

31
the effect that this lawsuit would have on their bottom line and on the public fisc, they are not

simply bringing this lawsuit because they are philosophically dismayed by what they claim was

the unlawful promulgation of the “Transition Rules.” It is not simply that they seek to have that

putative legal wrong remedied in the abstract. They are seeking for that wrong to be remedied as

it applies to them, with all of the attendant effects on the taxes, penalties, and other payments that

they must make to the United States Treasury via the IRS.

With that background, the question before the Court is whether the unwinding of the

impacts alleged by Plaintiffs’ through the specific relief they request would restrain the

assessment or collection of unpaid taxes. Because the Court answers that question in the

affirmative, and because Plaintiffs are not seeking relief for which they would have no adequate

alternative remedy, this Court is deprived of subject matter jurisdiction over this case by the

Anti-Injunction Act and by the tax exception to the Declaratory Judgment Act. Accordingly, the

Court dismisses this case for lack of subject matter jurisdiction. 12

IV. CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants’ [9] Motion to Dismiss. The

Court dismisses this case for want of subject matter jurisdiction under Federal Rule of Civil

Procedure 12(b)(1). This case is dismissed in its entirety.

An appropriate Order accompanies this Memorandum Opinion.

Dated: July 25, 2016
/s/
COLLEEN KOLLAR-KOTELLY
United States District Judge

12
As a result, the Court does not reach Defendants’ alternative argument that Plaintiffs may not
bring this case under the Administrative Procedure Act because the challenge addresses matters
that are committed to the IRS’s discretion as a matter of law.

32