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Maze v. Internal Revenue Service

United States Court of Appeals, District of Columbia Circuit

July 14, 2017

Eva Maze, et al., Appellants
v.
Internal Revenue Service, et al., Appellees

          Argued May 16, 2017

         Appeal from the United States District Court for the District of Columbia (No. 1:15-cv-01806)

          George M. Clarke III argued the cause for appellants. With him on the briefs was Joseph B. Judkins. Allison M. De Tal and Vivek A. Patel entered appearances.

          Andrew M. Weiner, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were Gilbert S. Rothenberg and Teresa E. McLaughlin, Attorneys.

          Before: Henderson, Griffith and Srinivasan, Circuit Judges.

          OPINION

          KAREN LECRAFT HENDERSON, CIRCUIT JUDGE:

         "No taxes can be devised which are not more or less inconvenient and unpleasant." -George Washington[1]

         Eva Maze, Suzanne Batra, Margot Lichtenstein, Marie Green, May Muench, Kevin Muench, Nancy Blumenkrantz and Harold Blumenkrantz ("plaintiffs") are taxpayers who failed to report-and pay tax on-foreign income. In 2012, the plaintiffs enrolled in a voluntary Internal Revenue Service ("IRS") disclosure program that allowed them to become tax code compliant on relatively favorable terms. In 2014, however, the plaintiffs wanted to change course; they sought enrollment in a new IRS disclosure program with a different tax treatment. The IRS rejected the plaintiffs' request and they then brought suit. For the reasons that follow, we conclude that the district court was without jurisdiction to resolve their claims in light of the jurisdiction-stripping provision contained in the Anti-Injunction Act ("AIA"), 26 U.S.C. §§ 7421 et seq., and therefore affirm.

         I. Background

         The IRS has periodically offered programs designed "to settle with taxpayers who ha[ve] failed to report offshore income and file any related information return . . . ." 1 Nat'l Taxpayer Advocate, 2012 Annual Report to Congress 134 (2012). In 2012, for example, the IRS announced an Offshore Voluntary Disclosure Program ("2012 OVDP"). See JA 43. Generally, the 2012 OVDP enables a taxpayer with undisclosed foreign income or assets to be relieved of liability based on his past noncompliance with reporting/payment of taxes. Once enrolled in the 2012 OVDP, a taxpayer can settle most potential penalties for which he may be liable-with the exception of accuracy-based penalties under 26 U.S.C. § 6662(a)-through a lump sum compromise equaling 27.5% of the aggregate value of his foreign assets. Moreover, a 2012 OVDP participant can sign a closing agreement, which constitutes a final settlement on previously unreported foreign assets. But the 2012 OVDP benefits flow to a participant only if he meets a number of stringent payment and filing requirements. One of the requirements is relevant here-the requirement that a 2012 OVDP participant must pay eight years' worth of accuracy-based penalties, see 26 U.S.C. § 6662(a), as a condition of enrollment.

         Two years after the implementation of the 2012 OVDP, the IRS introduced the expanded Streamlined Procedures program. See JA 70-73. Compared to the 2012 OVDP, the Streamlined Procedures offer fewer benefits to a noncompliant taxpayer-for example, the Streamlined Procedures participant's tax filings and payments serve to excuse all penalties not involving willfulness for a three year period.[2]Importantly, the Streamlined Procedures reduced benefits are counterbalanced by fewer compliance requirements; as relevant here, the Streamlined Procedures participant need not pay any accuracy-based penalty.[3]

         Shortly after the expansion of the Streamlined Procedures, the IRS also established a system-known as the "Transition Rules"-to "allow taxpayers currently participating in OVDP who meet the eligibility requirements for the expanded Streamlined Filing Compliance Procedures . . . an opportunity to remain in the OVDP while taking advantage of the favorable penalty structure of the expanded streamlined procedures." JA 102. Stated generally, the Transition Rules allowed a 2012 OVDP participant to receive tax treatment similar (but not identical) to that offered to a Streamlined Procedures participant. For example, under the Transition Rules, a 2012 OVDP participant's offshore penalty is reduced from 27.5% to 5%, a change that makes his outstanding liability much closer to what it would have been had he enrolled in the Streamlined Procedures in the first instance. The Transition Rules, however, leave some requirements untouched. Unlike the Streamlined Procedures participant, a 2012 OVDP participant who takes advantage of the Transition Rules must still pay eight years' worth of accuracy-based penalties. And a 2012 OVDP participant cannot leave that program and apply for the Streamlined Procedures; the Transition Rules are his only means of receiving somewhat comparable treatment.

         As noted, the plaintiffs are noncompliant taxpayers who enrolled in the 2012 OVDP. Beginning in 2014, however, they tried to withdraw from the 2012 OVDP and apply for the Streamlined Procedures. The IRS denied their requests and directed them to apply for comparable treatment under the Transition Rules. Instead, the plaintiffs brought suit, seeking "(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.'" Maze v. IRS, 206 F.Supp.3d 1, 9 (D.D.C. 2016). The district court did not reach the merits of their ...


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