Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-15-05010/USCOURTS-caDC-15-05010-0/pdf.json

Parties Involved:
John A. Koskinen
Appellant
Liberty Institute
Amicus Curiae for Appellee
Z Street
Appellee

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 4, 2015 Decided June 19, 2015

No. 15-5010

Z STREET,

APPELLEE

v.

JOHN A. KOSKINEN, IN HIS OFFICIAL CAPACITY AS

COMMISSIONER OF INTERNAL REVENUE,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 1:12-cv-00401)

Teresa E. McLaughlin, Attorney, U.S. Department of 

Justice, argued the cause for appellant. With her on the briefs 

were Gilbert S. Rothenberg and Ellen Page DelSole, 

Attorneys.

Jerome M. Marcus argued the cause for appellee. On the 

brief was Jay M. Levin. 

H. Christopher Bartolomucci and Stephen V. Potenza 

were on the brief for amicus curiae Liberty Institute in 

support of appellee.

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Before: GARLAND, Chief Judge, TATEL, Circuit Judge, 

and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Z Street, a nonprofit organization 

“devoted to educating the public about Zionism” and “the 

facts relating to the Middle East,” applied for a section 

501(c)(3) tax exemption. Based on a conversation its lawyer

had with an IRS agent, Z Street alleges that the agency has an 

“Israel Special Policy” under which applications from 

organizations holding “political views inconsistent with those 

espoused by the Obama administration” receive increased 

“scrutin[y]” that results in such applications “tak[ing] longer 

to process than those made by organizations without that 

characteristic.” Z Street sued the Commissioner, alleging that 

the “Israel Special Policy” violates the First Amendment. The 

Commissioner moved to dismiss, arguing that the action is 

barred by the Anti-Injunction Act, which prohibits suits to 

“restrain[] the assessment or collection of any tax.” The 

district court, assuming the truth of Z Street’s allegations—as 

it must at this stage of the litigation—denied the motion, 

explaining that Z Street was not seeking to restrain the 

“assessment or collection” of a tax, but rather to prevent the 

IRS from delaying consideration of its application in violation 

of the First Amendment. We affirm.

I.

Because of 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 717, 724 (D.C. Cir. 2011)

(en banc) (internal quotation marks and citations omitted), the 

Anti-Injunction Act provides that “no suit for the purpose of 

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restraining the assessment or collection of any tax shall be 

maintained in any court by any person, whether or not such 

person is the person against whom such tax was assessed,” 26 

U.S.C. § 7421. “The manifest purpose of [the Act] is to 

permit the United States to assess and collect taxes alleged to 

be due without judicial intervention . . . .” Enochs v. Williams 

Packing & Navigation Co., 370 U.S. 1, 7 (1962); see also

Cohen, 650 F.3d at 727 (discussing the tax exception to the 

Declaratory Judgment Act, 28 U.S.C. § 2201(a), which is 

“coterminous” with the Anti-Injunction Act).

Despite this prohibition, taxpayers have several avenues 

to challenge the assessment and collection of taxes, including, 

according to the Commissioner, three that are relevant here.

Under section 7422, they can pay and then sue for a refund on 

the grounds that the tax was “erroneously or illegally assessed

or collected.” 26 U.S.C. § 7422(a). Nonprofit taxpayers may

use section 7422 to challenge the denial or revocation of their

tax-exempt status. See Bob Jones University v. Simon, 416 

U.S. 725, 746 (1974) (“[A] suit for a refund . . . offer[s] 

petitioner a full, albeit delayed opportunity to litigate the 

legality of the Service’s revocation of tax-exempt 

status . . . .”). Under section 6213, a taxpayer who receives a 

deficiency notice “may file a petition with the Tax Court for a 

redetermination of the deficiency.” 26 U.S.C. § 6213(a). This

provision also allows a nonprofit organization to litigate its 

eligibility for a section 501(c)(3) exemption. See Bob Jones, 

416 U.S. at 730 (“[T]he organization may litigate the legality 

of the Service’s action by petitioning the Tax Court to review 

a notice of deficiency.”). Finally, section 7428 creates an 

option expressly designed for section 501(c)(3) applicants. If 

the IRS denies an application, or if it fails to act within 270 

days and the organization has taken “all reasonable steps to 

secure [a] determination,” then the applicant can bring a 

declaratory judgment action in the Tax Court, the Court of 

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Federal Claims, or the United States District Court for the 

District of Columbia. 26 U.S.C. § 7428. Designed to ensure 

“that a taxpayer ha[s] prompt judicial review,” Centre for 

International Understanding v. Commissioner of Internal 

Revenue, 84 T.C. 279, 283 (1985), section 7428 authorizes the 

court to “make a declaration with respect to [an 

organization’s] initial qualification or continuing 

qualification” for a tax exemption, 26 U.S.C. § 7428(a). 

Z Street alleges that after it applied for a tax exemption in 

December of 2009, an IRS agent informed its lawyer that the 

agency has “special concern about applications from 

organizations whose activities are related to Israel, and that 

are organizations whose positions contradict the US 

Administration’s Israeli Policy.” First Am. Compl. 9 ¶ 18. 

According to the lawyer, the IRS agent went on to say that 

“the IRS is carefully scrutinizing organizations that are in any 

way connected with Israel” and that “these cases are being 

sent to a special unit in the D.C. office to determine whether 

the organization’s activities contradict the Administration’s 

public policies.” Id. at 10 ¶¶ 24–25 (internal quotation marks 

omitted). Based on this conversation, Z Street alleges that the

IRS has an “Israel Special Policy,” which “mandates that []

applications [from organizations holding views about Israel

inconsistent with those espoused by the Obama 

administration] be scrutinized differently and at greater 

length, and therefore that they take longer to process than 

those made by organizations without that characteristic.” Id.

at 11 ¶ 27.

Eight months later—just 32 days shy of the date on 

which it could have proceeded under section 7428—Z Street 

sued the Commissioner “[p]ursuant to the Declaratory 

Judgment Act, 28 U.S.C. § 2201,” claiming that the “Israel 

Special Policy” constitutes “blatant viewpoint discrimination 

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in violation of the First Amendment,” First Am. Compl. 15; 

id. at 15 ¶ 44. It sought a declaration to that effect, as well as

an injunction “[b]arring application of the Special Policy to its

pending application” and requiring that the IRS adjudicate the 

application “expeditiously and fairly and without any 

consideration of whether the positions espoused by the 

Plaintiff or its officers are or are not consistent or inconsistent 

with the policy positions taken by the Obama administration.”

Id. at 16. Although Z Street filed its complaint in the Eastern 

District of Pennsylvania, that court, believing that the suit “is 

best construed as a controversy arising under [section] 7428,”

transferred the case to the United States District Court here.

See Order Transferring Case to the District Court of the 

United States for the District of Columbia.

The Commissioner moved to dismiss pursuant to Federal 

Rules of Civil Procedure 12(b)(1) and 12(b)(6). He argued

that the court lacked jurisdiction both because the AntiInjunction Act barred the suit and because the doctrine of

sovereign immunity protected the government. Mot. to 

Dismiss Am. Compl. 1–2; see also Memorandum of Law in 

Support of Mot. to Dismiss Am. Compl. 14–16 (making same 

argument based on the Declaratory Judgment Act).

Additionally, he maintained that the complaint failed to state a 

claim for injunctive relief since the plaintiff had adequate 

remedies at law, i.e., a refund suit, or, if Z Street had simply

waited another 32 days, a section 7428 action. Mot. to 

Dismiss Am. Compl. 1. On the merits, the Commissioner

disputed Z Street’s allegations, contending that “there simply 

was no viewpoint discrimination” because “there is no ‘Israel 

Special Policy’ and Z Street’s application has not been subject 

to ‘heightened scrutiny.’” Memorandum of Law in Support of 

Mot. to Dismiss Am. Compl. 7. But because the 

Commissioner moved to dismiss under Rules 12(b)(1) and 

(6), the district court was required to assume that the IRS in 

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fact has an “Israel Special Policy” that delays the processing 

of section 501(c)(3) applications from organizations whose 

views on Israel differ from the administration’s. See American 

National Insurance Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. 

Cir. 2011) (at the motion to dismiss stage a court must 

“assume the truth of all material factual allegations in the 

complaint” (internal citations and emphasis omitted)).

The district court denied the Commissioner’s motion to 

dismiss, concluding that “Z Street’s First Amendment 

claim . . . cannot properly be characterized as a lawsuit 

implicating the ‘assessment or collection’ of taxes” because 

the organization “seeks only to have a ‘constitutionally valid 

process’ used when its application for Section 501(c)(3) status 

is evaluated—nothing more and nothing less.” Z Street, Inc. v. 

Koskinen, 44 F. Supp. 3d 48, 59, 67 (D.D.C. 2014) (citations 

omitted). Likewise, the court held, Z Street stated a claim for 

injunctive relief because “none of the[ other] paths to the 

courthouse”—a refund suit, a deficiency petition, or a section 

7428 action—“would in fact provide Z Street with an 

adequate remedy for the harm that it has alleged.” Id. at 66.

At the Commissioner’s request, the district court certified 

its order for interlocutory appeal, see Order Granting Mot. to 

Certify for Interlocutory Appeal; 28 U.S.C. § 1292(b)

(allowing district judges to certify orders for immediate 

appeal when they are “of the opinion that [an] order involves 

a controlling question of law . . . and that an immediate appeal 

from the order may materially advance the ultimate 

termination of the litigation”), and this court granted the 

requisite permission, see Order Granting Petition for 

Permission to Appeal; 28 U.S.C. § 1292(b) (“The Court of 

Appeals . . . may . . . in its discretion[] permit an appeal to be 

taken from such order . . . .”). Here, the Commissioner

reiterates his arguments that the Anti-Injunction Act and the 

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doctrine of sovereign immunity bar this suit. He adds that Z 

Street’s claim is “not yet justiciable” because the alleged 

policy “has not been ‘formalized and . . . felt in a concrete 

way.’” Appellant’s Br. 56 (quoting Abbott Laboratories v. 

Gardner, 387 U.S. 136, 148 (1967)). Given that we are

reviewing the denial of a motion to dismiss, “we make legal 

determinations de novo,” American National Insurance Co., 

642 F.3d at 1139, and, like the district court, assume the truth 

of Z Street’s allegations.

II. 

Before considering the parties’ arguments, we think it 

helpful to summarize the cases they debate and that control 

the ultimate disposition of this case. 

In Bob Jones University v. Simon, 416 U.S. 725 (1974),

after the IRS moved to withdraw Bob Jones’ section 501(c)(3) 

status because it refused to admit African-American students, 

the University sued to maintain its exemption. In a companion 

case, Alexander v. “Americans United” Inc., 416 U.S. 752 

(1974), a non-profit group challenged its reclassification from 

a section 501(c)(3) to a section 501(c)(4) organization due to 

its lobbying activities. The Court found both suits barred by 

the Anti-Injunction Act, explaining in Bob Jones that “prior to 

the assessment and collection of any tax, a court may [not] 

enjoin the Service from revoking [tax-exempt status].” Bob 

Jones, 416 U.S. at 727. The Court brushed aside the 

challengers’ counterarguments. “[T]he constitutional nature of 

a taxpayer’s claim,” the Court explained, “is of no 

consequence under the Anti-Injunction Act.” “Americans 

United”, 416 U.S. at 759. And even though Bob Jones

insisted that it had sued the IRS to ensure “the maintenance of 

the flow of contributions, not [to] obstruct[] . . . revenue,” the 

Court saw the situation differently, stating that the 

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University’s “complaint and supporting documents filed in 

the District Court belie any notion that this is not a suit to 

enjoin the assessment or collection of federal taxes.” Bob 

Jones, 416 U.S. at 738; see also “Americans United”, 416 

U.S. at 760–61 (“The obvious purpose of respondent’s action 

was to restore advance assurance that donations to it would 

qualify as charitable deductions under § 170 that would 

reduce the level of taxes of its donors.”). That said, the Court 

emphasized that “[t]his is not a case in which an aggrieved 

party has no access at all to judicial review.” Bob Jones, 716 

U.S. at 746. “Were that true,” it continued, “our conclusion 

might well be different.” Id.

That scenario came to pass in South Carolina v. Regan,

465 U.S. 367 (1984), where the state challenged an 

amendment to the Internal Revenue Code that altered the

taxation of certain state-issued bonds. Because South Carolina

paid no taxes, it was “unable to utilize any statutory procedure 

to contest the constitutionality of [the tax].” Id. at 380. Under 

these circumstances, the Court held, South Carolina’s suit was 

not barred by the Anti-Injunction Act. 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.” 

Id. at 378. 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.” Id. at 381. 

This circuit has also considered the Anti-Injunction Act, 

though in a very different situation. In Cohen v. United States, 

650 F.3d 717 (D.C. Cir. 2011) (en banc), taxpayers

challenged a special procedure the IRS had established for 

refunding an unlawfully collected tax. We rejected the 

government’s argument that the case was barred by the AntiInjunction Act, explaining that the case did not involve the 

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“assessment or collection” of taxes because “[t]he IRS 

previously assessed and collected the excise tax at issue[,] 

[t]he money is in the U.S. treasury[, and t]he legal right to it

has been previously determined.” Id. at 725. In so ruling, we 

rejected the IRS’s view of “a world in which no challenge to 

its actions is ever outside the closed loop of its taxing 

authority.” Id. at 726. Instead, the Anti-Injunction Act, “as its 

plain text states, bars suits concerning the ‘assessment or 

collection of any tax[,]’ [and] is no obstacle to other claims 

seeking to enjoin the IRS, regardless of any attenuated 

connection to the broader regulatory scheme.” Id. at 727.

Accordingly, 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. (discussing We the People Foundation, Inc. v. 

United States, 485 F.3d 140 (D.C. Cir. 2007)).

A final series of cases informs our analysis. In Regan v. 

Taxation with Representation of Washington, 461 U.S. 540

(1983), the Supreme Court held that the tax code may not 

“discriminate invidiously . . . in such a way as to aim at the 

suppression of dangerous ideas.” Id. at 548 (internal quotation

marks and alteration omitted). That decision, the Court later 

explained in Rosenberger v. Rector and Visitors of University 

of Virginia, 515 U.S. 819 (1995), “reaffirmed the requirement 

of viewpoint neutrality in the Government’s provision of 

financial benefits.” Id. at 834. 

These cases, then, stand for the following basic

propositions. First, outside of certain statutorily authorized 

actions, like those brought pursuant to section 7428, the AntiInjunction Act bars suits to litigate an organization’s tax 

status (Bob Jones and “Americans United”). Second, the Act 

does not apply in situations where the plaintiff has no 

alternative means to challenge the IRS’s action (South 

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Carolina) or where the claim has no “implication[s]” for tax 

assessment or collection (Cohen). Finally, in administering 

the tax code, the IRS may not discriminate on the basis of 

viewpoint (Regan).

III.

The Commissioner argues that Bob Jones and 

“Americans United” govern this case. Z Street argues that 

Cohen controls. Neither is correct, though Z Street is much 

closer to the mark.

Contrary to the Commissioner’s contention, Bob Jones

and “Americans United” are quite different from this case

given that the plaintiffs there sought to litigate their tax status, 

see supra at 7–8, whereas Z Street seeks to prevent the IRS 

from unconstitutionally delaying consideration of its 

application—“not to obtain tax exempt status.” Appellee’s Br. 

18. Indeed, even if Z Street obtains all the relief it seeks, the 

IRS could, as counsel for the Commissioner conceded at oral 

argument, see Oral Arg. Rec. 6:05–16, still deny its 

application for any number of reasons. See 26 C.F.R.

§ 1.501(c)(3)-(1) (describing the requirements for the 

501(c)(3) exemption). In other words, unlike the plaintiffs in 

Bob Jones and “Americans United”, Z Street does not have 

the “obvious purpose” of securing “assurance that donations” 

will “qualify as charitable deductions.” “Americans United”, 

416 U.S. 760–61.

The Commissioner nonetheless insists that Bob Jones and 

“Americans United” require a broad approach to what 

constitutes prohibited “tax litigation.” Appellant’s Br. 30. As 

explained above, however, in Cohen we rejected this view of 

“a world in which no challenge to [the IRS’s] actions is ever 

outside the closed loop of its taxing authority.” Cohen, 650 

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F.3d at 726. The Commissioner points out that even after 

Cohen, this court described the Anti-Injunction Act as 

“barr[ing] suits that interfere with ancillary functions to tax 

collection.” Seven-Sky v. Holder, 661 F.3d 1, 10 (D.C. Cir. 

2011), cert. denied, 133 S. Ct. 63 (2012). But that language is 

simply shorthand for what we said in Cohen, i.e., that 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.” Cohen, 650 

F.3d at 727.

Our rejection of the Commissioner’s broad reading of the 

Act finds support in the Supreme Court’s recent decision in 

Direct Marketing Association v. Brohl, 135 S. Ct. 1124 

(2015). There, interpreting the Anti-Injunction Act’s cousin,

the Tax Injunction Act, which serves a similar function for 

federal court challenges to state taxes, the Court read

“restrain” in that statute as having a “narrow[]

meaning . . . captur[ing] only those orders that 

stop . . . assessment, levy and collection” rather than “merely 

inhibit” those activities. Id. at 1132 (internal quotation marks

omitted). True, the two statutes differ: the Tax Injunction Act

pairs “restrain” with “‘enjoin’ and ‘suspend’” suggesting that 

the word is used “in its narrow[] sense,” id., while the word

“restraining” stands alone in the Anti-Injunction Act. Yet 

Brohl’s holding is significant here because the Court 

“assume[s] that words used in both Acts are generally used in 

the same way.” Id. at 1129.

Bob Jones and “Americans United” thus do not mean

that the Anti-Injunction Act bars Z Street’s suit. Contrary to Z 

Street’s argument, however, we are unpersuaded that Cohen

squarely permits it. Recall that Cohen requires that we 

examine Z Street’s complaint to determine, among other 

things, “any implication the remedy [it seeks] may have on 

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assessment and collection.” Supra at 9. In Cohen, the remedy 

sought could have no possible “implication” for assessment 

and collection because the IRS had already assessed and 

collected the tax—it was in the Treasury. Id. By contrast, Z 

Street’s suit arguably could have “implication[s]” for 

assessment and collection. If, for example, Z Street prevails in 

this case and obtains a tax exemption earlier than it otherwise 

would have, contributions to it will be tax deductible earlier, 

thus reducing the overall assessment and collection of taxes.

In the end, however, we have no need to decide whether 

such an implication is sufficient to trigger the Anti-Injunction 

Act. As the Court explained in South Carolina, the Act does 

not apply at all where the plaintiff has no other remedy for its 

alleged injury—precisely the situation in which Z Street finds 

itself.

Consider section 7428. According to the Commissioner,

if Z Street had just waited an additional 32 days it could have 

filed suit under this provision and obtained an “adequate 

remedy.” Appellant’s Br. 48. But as the Commissioner 

concedes, section 7428 authorizes a court to issue only “a 

declaration with respect to [an organization’s] qualification” 

for a section 501(c)(3) exemption, 26 U.S.C. § 7428, and Z 

Street is not seeking to establish its eligibility for a tax 

exemption, supra at 10. Instead, it seeks an order prohibiting 

the IRS from delaying consideration of Z Street’s section 

501(c)(3) application because of the organization’s views on 

Israel. The “only thing we’re suing about,” Z Street’s counsel 

told us at oral argument, “is delay.” Oral Arg. Rec. 51:14–38;

see also id. at 41:57–42:57 (statement of Z Street’s counsel 

agreeing that all Z Street seeks is an order barring application 

of the “Israel Special Policy” insofar as it causes delay). In 

other words, although section 7428 provides a remedy, that

remedy cannot address Z Street’s alleged injury. 

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The same is true with respect to the remedies offered by 

sections 6213 (deficiency petition) and 7422 (refund suit). 

Under either provision, the court would be limited to 

reviewing the taxpayer’s tax liability—the “deficiency” in the 

case of section 6213, or whether the tax was “erroneously or 

illegally collected” in the case of section 7422. 26 U.S.C. 

§ 6213; id. § 7422. Neither provision would allow the court to 

review the allegedly unconstitutional delay in processing Z 

Street’s section 501(c)(3) application. 

In the words of South Carolina, then, Z Street is “unable 

to utilize any statutory procedure to contest the 

constitutionality,” South Carolina, 465 U.S. at 380, of the 

delay allegedly caused by the IRS’s “Israel Special Policy.”

Under these circumstances, the Anti-Injunction Act does not 

bar this suit. Id. Were it otherwise, the IRS would be free for 

at least 270 days—the period of time taxpayers must wait to 

invoke section 7428—to process exemption applications 

pursuant to different standards and at different rates 

depending upon the viewpoint of the applicants—a blatant

violation of the First Amendment. See Rosenberger, 515 U.S. 

at 834 (“Regan . . . reaffirmed the requirement of viewpoint 

neutrality in the Government’s provision of financial 

benefits. . . .”). Indeed, in situations where a taxpayer elects 

not to sue under section 7428, the IRS would have even 

longer since the taxpayer would be unable to invoke either 

section 6213 or section 7422 until the agency actually denies 

an exemption and assesses liability.

IV.

We can easily resolve the Commissioner’s remaining 

arguments. The district court lucidly explained why sovereign 

immunity presents no bar to Z Street’s suit: section 702 of the 

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Administrative Procedure Act “waives sovereign immunity 

with respect to suits for nonmonetary damages that allege 

wrongful action by an agency or its officers or employees, 

and the instant lawsuit fits precisely those criteria.” Z Street, 

44 F. Supp. 3d at 63. Although the Commissioner never 

raised his justiciability argument in the district court, that 

argument fails for the same reason the district court and we

have rejected his Anti-Injunction Act argument: Z Street 

seeks not to restrain “the assessment or collection” of a tax, 

but rather to obtain relief from unconstitutional delay, the 

effects of which it is now suffering. 

V. 

For the foregoing reasons, we affirm.

So ordered.

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