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Betsy Goldman | Bloomberg LawLiberty University, Inc. v. Geithner, No. 10-2347, 2011 BL 230276 (4th Cir. Sept. 8, 2011) The U.S. Court of Appeals for the Fourth Circuit dismissed a constitutional challenge to the health care overhaul brought by Liberty University, Inc., a private Christian University, and certain individuals, holding that the Anti-Injunction Act (AIA), 26 U.S.C. § 7421(a), stripped it of subject matter jurisdiction.
Plaintiffs' Constitutional ChallengeOn March 23, 2010, the day that President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148, 124 Stat. 119, plaintiffs filed an action to enjoin the Secretary of the U.S. Department of Health and Human Services and other government officials from enforcing it. In particular, they challenged two provisions of the PPACA as unconstitutional: (1) the provision amending the Internal Revenue Code (IRC) to include a "penalty" upon an individual taxpayer who fails to maintain adequate health insurance, 26 U.S.C. § 5000A(a)–(b); and (2) the provision amending the IRC to impose an "assessable payment" upon "large employer[s]" if at least one employee receives a government subsidy to offset payments for certain health-related expenses, 26 U.S.C. § 4980H(a), (b). Under the PPACA, the exactions associated with the individual and employer mandates were to be assessed and collected by the Secretary "in the same manner as an assessable penalty" under the IRC. 26 U.S.C. §§ 5000A(g)(1), 4980H(d)(1). The Secretary moved to dismiss the case, arguing that the AIA precluded the district court from addressing the merits of plaintiffs' claims. 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." According to the Secretary, because the exactions under the PPACA were to be collected in the same manner as other IRC taxes and penalties to which the AIA applied, it barred the district court from deciding the matter. The district court rejected the Secretary's reasoning, explaining that Congress did not specifically extend the term "tax" in the AIA to include the exactions contemplated under the PPACA and that, in any case, they did not qualify as a tax for purposes of the AIA because they functioned as regulatory penalties. The district court ultimately concluded that the challenged exactions were valid exercises of Congress's power under the Commerce Clause of the U.S. Constitution and dismissed the action for failure to state a claim. On appeal, plaintiffs argued that the district court erred as a matter of law in upholding the PPACA. The Secretary, however, contended that the exactions were authorized pursuant to Congress's power under the Taxing and Spending Clause of the U.S. Constitution. Because the Secretary's argument concerning Congress's taxing power suggested that the AIA could bar the suit, the Fourth Circuit ordered the parties to submit briefs addressing its applicability. In their respective briefs, both sides argued that the AIA did not bar the action.
The AIA Barred the Court from Deciding the Merits of the ActionThe Fourth Circuit first explained that the AIA precludes only pre-enforcement actions filed prior to the assessment or collection of an exaction. Because the parties agreed that plaintiffs brought a pre-enforcement action, the Court noted that "[r]esolution of the case at hand therefore turns on whether plaintiffs' suit seeks to restrain the assessment or collection of 'any tax.'" According to the Fourth Circuit, "[a] 'tax, in the general understanding of the term,' is simply 'an exaction for the support of the government.'" (Quoting United States v. Butler, 297 U.S. 1, 61 (1936).) The Court explained that the U.S. Supreme Court has concluded that the AIA uses the term "tax" in "its broadest possible sense" and that an exaction constitutes a tax under the AIA as long as the method prescribed for its assessment conforms to the process of tax enforcement. Citing to several Supreme Court decisions, it further noted that the term "tax" in the AIA encompasses penalties that function as regulatory measures, even though such exactions fall outside of Congress's taxing power. The Fourth Circuit noted that the Supreme Court's broad interpretation of the AIA barring interference with the collection of taxes imposed by the IRC was consistent with with other provisions of the IRC. In particular, the Court cited to Sections 6201(a) and 6202 of the IRC, which provide the Secretary with the authority to assess not only taxes, but penalties, interest, and other additions to taxes as well. Reasoning that "Congress must have intended the term 'tax' in the AIA to refer to this same broad range of exactions," the Court explained that "[i]n sum, the AIA forbids actions that seek to restrain the Secretary from exercising his statutory authority to assess exactions imposed by the Internal Revenue Code." It thus concluded that the exactions imposed for failure to comply with the individual and employer mandates constituted taxes and, therefore, the AIA barred plaintiffs' action.
The Parties' Arguments against the Applicability of the AIA Were UnpersuasiveThe Fourth Circuit rejected the Secretary's position that the AIA did not apply because the exaction in the individual mandate was referred to as a "penalty," rather than a "tax." It observed that historically, the AIA indisputably barred pre-enforcement challenges even when the exaction clearly functioned as a penalty. In light of Supreme Court precedent, the Court stated that "it seems inconceivable that Congress would intend to exclude an exaction from the AIA merely by describing it as a 'penalty.'" The Court further observed that "the Supreme Court has repeatedly instructed that congressional labels have little bearing on whether an exaction qualifies as a 'tax' for statutory purposes." Moreover, it noted that no federal appellate court, except the Sixth Circuit in its recent decision in Thomas More Law Center v. Obama, No. 10-2388, 2011 BL 170453 (6th Cir. June 29, 2011), has ever held that an exaction's label controlled the applicability of the AIA. The Court also rejected the Secretary's argument concerning the structure of the IRC. In particular, the Secretary contended that Section 6665(a)(2) of the IRC, which provides that "any reference in this title to 'tax' imposed by this title shall be deemed also to refer to the . . . penalties provided by this chapter," implied that any penalty outside of Chapter 68, the chapter to which the provision referred, did not qualify as a "tax" for purposes of the IRC. According to the Secretary, because the PPACA was codified in Chapter 48 of the IRC as opposed to Chapter 68, Congress did not intend the individual mandate to constitute a tax for purposes of the AIA. The Fourth Circuit, however, reasoned that Section 6665(a)(2) simply clarified that the term "tax" included the penalties contained in Chapter 68 and did not limit the term "tax" to only those penalties. It explained that there was "no evidence . . . that Congress intended to exclude a 'penalty' codified outside of Chapter 68 from also qualifying as a 'tax.'" In addition, the Secretary's position violated Congress's "express instructions" in Section 7806(b) of the IRC forbidding courts from inferring or implying the meaning of a provision of the IRC based upon the "location or grouping of any particular section or provision or portion." Similarly, the Fourth Circuit dispensed with plaintiffs' argument that the AIA did not apply because the exaction under the individual mandate was a penalty and not a tax. Calling plaintiffs' position "wholly unpersuasive," the Court observed that plaintiffs characterized the exaction as a "tax" in their complaint, thereby contradicting their own argument. The Court also rejected plaintiffs' position that the individual mandate violated the Commerce Clause and Taxing and Spending Clause because it constituted a regulatory penalty not designed to raise revenue, finding that a challenge on the ground that it is an unconstitutional regulatory penalty does not insulate the claim from the AIA. Summarizing its conclusion concerning the applicability of the AIA, the Fourth Circuit stated: [W]e recognize that Congress has imposed a potentially harsh regime on some taxpayers. However . . . the question of whether these concerns merit consideration is a matter for Congress to weigh. Unless and until Congress tells us otherwise, we must respect the AIA's bar to the intrusion of the injunctive power of the courts into the administration of the revenue. (Internal quotations and citations omitted.) Accordingly, the Court vacated the judgment of the district court and remanded the action for dismissal for lack of subject matter jurisdiction.
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