Summerour v. Internal Revenue Service

• Court: District Court, District of Columbia
• Decided: July 16, 2024
• Docket: Civil Action No. 2023-2442
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

WILLIAM SUMMEROUR,

Plaintiff, Civil Action No. 23-2442 (LLA) v.

INTERNAL REVENUE SERVICE, et al.,

Defendants.

MEMORANDUM OPINION

Plaintiff William Summerour challenges penalties assessed under 26 U.S.C. § 6695A.

ECF No. 1. Defendants are the Internal Revenue Service and its Commissioner, Daniel Werfel

(collectively, the “IRS”). Id. The IRS moves to dismiss Mr. Summerour’s complaint for lack of

jurisdiction under the Anti-Injunction Act, 26 U.S.C. § 7421. ECF No. 15. For the reasons

explained below, the court will grant Defendants’ motion to dismiss.

I. Background

This suit concerns conservation easements and the tax deductions that property owners

receive for them. “A conservation easement is a permanent agreement between a property owner

and a land trust, nonprofit, or government entity through which the owner gives up some of her

rights of ownership in order to advance conservation purposes.” 177 Am. Jur. 3d Propriety and

Amount, for Federal Tax Purposes, of Charitable Deduction Arising from Donation of

Conservation Easement § 1 (2019). Under the Internal Revenue Code, Congress allows tax

deductions for “qualified conservation contribution[s],” 26 U.S.C. § 170(f)(3)(B)(iii), including

conservation easements, see id. § 170(h). To qualify for a conservation easement deduction, the

taxpayer must provide, with their tax return, an appraisal of the property from a “qualified appraiser.” Id. §§ 170(f)(11)(C)-(E). The IRS then determines the deduction amount based on the

difference between the land’s appraised value with and without the conservation easement. ECF

No. 15, at 5. Concerned that taxpayers might use false appraisals to artificially inflate their

deductions, Congress included a provision allowing the IRS to impose penalties on appraisers who

substantially or grossly misvalue a property. 26 U.S.C. § 6695A; see, e.g., Benson v. Internal

Revenue Serv., No. 21-CV-74, 2022 WL 2347366, at *1-2 (N.D. Ga. June 6, 2022) (discussing the

IRS’s assessment of Section 6695A penalties against licensed appraisers).

Mr. Summerour is a licensed real estate appraiser in Louisiana and Mississippi and a

partner at Murphy Appraisal Services, LLC. ECF No. 1 ¶¶ 10, 12. At some point before

September 2020, Mr. Summerour appraised three properties in New Orleans, Louisiana. Id.

¶¶ 34-35. For each property, he created an appraisal report. Id. ¶ 34(b). Third parties used those

appraisal reports to claim conservation easement deductions on their 2019 tax returns, which were

filed in September 2020. Id. ¶¶ 34, 35. Subsequently, the IRS opened audits on the three tax

returns that included Mr. Summerour’s appraisals. Id. ¶ 36.

In a letter dated July 26, 2023, the IRS informed Mr. Summerour that, for the three

appraisal reports he had prepared, it intended to assess against him Section 6695A penalties

totaling $187,500. Id. ¶¶ 33, 37. The IRS claimed that Mr. Summerour had grossly misvalued

each property, with his greatest overvaluation being 5,558% more than the IRS’s own appraisal.

Id. ¶ 38; ECF No. 1-2, at 5-12. Mr. Summerour has not yet paid the penalties. ECF No. 15, at 7.

II. Procedural History

Mr. Summerour brought this suit in August 2023 to prevent the IRS from imposing

$187,500 in Section 6695A penalties. ECF No. 1. He argues that the penalties are improper either

(1) because the IRS misinterpreted Section 6695A to permit it to assess penalties on an appraiser

before making a “final determination” that the appraisal actually caused a third party to underpay 2 its taxes, id. ¶¶ 3-6, 58-62; or (2) because Section 6695A is an unconstitutional bill of attainder,

id. ¶¶ 3, 6, 63-66. As relief, Mr. Summerour seeks various injunctive, declaratory, and mandamus

remedies to prohibit the IRS from imposing the Section 6695A penalties on him before making a

final determination that the third parties underpaid their taxes. Id. at 21-22 (Requests for Relief).

In December 2023, the IRS moved to dismiss Mr. Summerour’s complaint under Federal

Rule of Civil Procedure 12(b)(1). ECF No. 15. It argues that the court lacks subject-matter

jurisdiction because the Anti-Injunction Act, 26 U.S.C. § 7421, bars the suit. ECF No. 15-1, at 5.

III. Legal Standard

“Article III of the Constitution prescribes that ‘[f]ederal courts are courts of limited

subject-matter jurisdiction’ and ‘ha[ve] the power to decide only those cases over which Congress

grants jurisdiction.’” Bronner ex rel. Am. Stud. Ass’n v. Duggan, 962 F.3d 596, 602 (D.C.

Cir. 2020) (alterations in original) (quoting Al-Zahrani v. Rodriguez, 669 F.3d 315, 317 (D.C.

Cir. 2012)). The plaintiff bears the burden of demonstrating the court’s subject-matter jurisdiction

over the claim at issue. Arpaio v. Obama, 797 F.3d 11, 19 (D.C. Cir. 2015). If the court lacks

subject-matter jurisdiction, it must dismiss the case. Arbaugh v. Y & H Corp., 546 U.S. 500,

506-07 (2006).

IV. Discussion

The Anti-Injunction Act 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.” 26 U.S.C. § 7421(a). The

IRS argues that the Anti-Injunction Act bars Mr. Summerour’s suit because it targets the

assessment of a Section 6695A penalty, which it contends is a tax. ECF No. 15, at 9-12; ECF

No. 19, at 5-9. Mr. Summerour counters that the Anti-Injunction Act does not apply because his

suit does not target the tax itself; rather, he claims the suit targets the IRS’s failure to comply with

3 procedural requirements before assessing the tax. ECF No. 18, at 7-11. Mr. Summerour also

argues that the court has subject-matter jurisdiction through ultra vires review. ECF No. 18,

at 12-14.

The court concludes that Mr. Summerour’s suit seeks to enjoin the payment of a tax and is

thus barred by the Anti-Injunction Act. Because the court finds no other basis for subject-matter

jurisdiction, it will dismiss the suit.

A. Anti-Injunction Act

As noted, the Anti-Injunction Act directs that “no suit for the purpose of restraining the

assessment or collection of any tax shall be maintained in any court by any person.” 26 U.S.C.

§ 7421(a). “Because of the Act’s general prohibition against suits seeking to restrain the

assessment or collection of a tax, ‘taxes can ordinarily be challenged only after they are paid, by

suing for a refund.’” Optimal Wireless LLC v. Internal Revenue Serv., 77 F.4th 1069, 1073 (D.C.

Cir. 2023) (quoting Natl. Fed’n of Indep. Bus. v. Sebelius (“NFIB”), 567 U.S. 519, 543 (2012)).

In this way, the Anti-Injunction Act “protects the Government’s ability to collect a consistent

stream of revenue, by barring litigation to enjoin or otherwise obstruct the collection of taxes.”

NFIB, 567 U.S. at 543.1

To determine whether the Anti-Injunction Act divests the court of jurisdiction in the instant

case, the court must determine both whether a Section 6695A penalty is a “tax” under the Act, and

whether Mr. Summerour’s suit targets that tax. See 26 U.S.C. § 7421(a); Optimal Wireless LLC,

1 There are exceptions to the Anti-Injunction Act’s bar, including several enumerated by the statute, see 26 U.S.C. § 7421(a), and two created by courts, see Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962) (recognizing an exception where the court has equity jurisdiction and there are no circumstances under which the government could prevail in an eventual refund suit); South Carolina v. Regan, 465 U.S. 367, 373 (1984) (recognizing an exception where “Congress has not provided the plaintiff with an alternative legal way to challenge the validity of a tax.”). The parties agree that none of these exceptions applies here. 4 77 F.4th at 1073-75 (analyzing both the suit’s target and whether that target was a tax to determine

that the Anti-Injunction Act applied). If the assessed penalties are a tax and that tax is the target

of Mr. Summerour’s suit, then the Anti-Injunction Act bars the suit.

1. The Section 6695A penalty is a tax

While “Congress cannot change whether an exaction is a tax or a penalty for constitutional

purposes simply by describing it as one or the other,” it can “describe something as a penalty but

direct that it nonetheless be treated as a tax for purposes of the Anti-Injunction Act.” NFIB, 567

U.S. at 544 (emphasis in original). Section 6695A is located in Subchapter 68B of the Internal

Revenue Code. That subchapter directs that “any reference in this title to ‘tax’ imposed by this

title shall be deemed also to refer to the penalties and liabilities provided by this subchapter.”

26 U.S.C. § 6671(a) (emphasis added). By operation of Section 6671, the “[p]enalties in

Subchapter 68B are thus treated as taxes under Title 26, which includes the Anti-Injunction Act.”

NFIB, 567 U.S. at 544-45.

2. Mr. Summerour’s suit targets a tax

“The Anti-Injunction Act kicks in when the target of a requested injunction is a tax

obligation[.]” CIC Servs., LLC v. Internal Revenue Serv., 593 U.S. 209, 218 (2021). In

determining the “target” of a suit, the court must “inquire not into a taxpayer’s subjective motive,

but into the action’s objective aim—essentially, the relief the suit requests.” Id. at 217. If “there

is no target for an injunction other than the command to pay the tax,” then the Anti-Injunction Act

“bars pre-enforcement review . . . [a]nd it does so always—whatever the taxpayer’s subjective

reason for contesting the tax at issue.” Id. at 224.

The relief Mr. Summerour seeks is to avoid paying the $187,500 in penalties the IRS has

assessed under Section 6695A. ECF No. 1, at 21-22 (Requests for Relief). While he variously

frames his requested relief as “[a] writ of mandamus,” “a declaratory judgment,” or “[a] permanent

5 injunction,” the end result is an order from this court declaring that the IRS erroneously imposed

the Section 6695A penalties and cannot collect them. Id. In this way, Mr. Summerour’s suit

plainly targets a tax. See Optimal Wireless LLC, 77 F.4th at 1073 (affirming dismissal of tax suit

under the Anti-Injunction Act where the requested relief would have prohibited the IRS from

collecting the imposed exactions).

Mr. Summerour resists the conclusion that his suit targets a tax, arguing that his allegedly

inflated appraisals are too far removed—and thus too attenuated—from the agency’s ability to

collect taxes. See ECF No. 18, at 14-20. As support, he relies on CIC Services. There, the plaintiff

challenged reporting requirements that, if violated, could have resulted in penalties. 593 U.S.

at 214-15. Because the plaintiff had not yet violated those requirements and been subjected to a

penalty, the Supreme Court held that the Anti-Injunction Act did not bar the suit. Id. at 220-21.

As the Court explained, a “threefold contingency” had to occur for the IRS to impose a penalty

(and for the Anti-Injunction Act to be triggered): the plaintiff would have to violate the reporting

requirements; the IRS would have to determine that a violation occurred; and the IRS would have

to impose a tax penalty. Id. Given that none of these steps had occurred, the Court determined

that “CIC stands nowhere near the cusp of tax liability,” explaining that “[b]etween the upstream

[reporting requirement] and the downstream tax, the river runs long.” Id. at 221.

Mr. Summerour brings this suit in a very different posture: he has already incurred the

penalty and now refuses to pay. ECF No. 1 ¶ 33; ECF No. 15, at 7. His requested relief is not a

reprieve from any regulation, the violation of which would trigger a Section 6695A penalty, but

rather an order from this court prohibiting the IRS from collecting a penalty it has already assessed.

ECF No. 1, at 21-22 (Requests for Relief). In other words, the CIC Services plaintiff sought relief

from a regulation ex ante—before violation of any requirement or imposition of any penalty—so

6 the Anti-Injunction Act did not yet have a role to play. CIC Servs., LLC, 593 U.S. at 220-21. Here,

Mr. Summerour seeks relief ex post—after the IRS has imposed penalties—which is the

prototypical posture of a case barred by the Anti-Injunction Act. CIC Services is therefore

inapposite, and Mr. Summerour cannot rely on it to evade the Act.

Instead, Mr. Summerour’s claim is more like that brought in Optimal Wireless. There, the

plaintiff sought an injunction barring the IRS from collecting exactions imposed on entities that

failed to comply with the Affordable Care Act’s employer mandate. 77 F.4th at 1071-72. The

plaintiff complained that the IRS had not fulfilled certain procedural requirements before imposing

the exactions—much like Mr. Summerour does here. Id. at 1072. The Court nevertheless held

that the Anti-Injunction Act barred the suit because it sought to prevent collection of a tax. See id.

at 1070-71, 1076. As in Optimal Wireless, because Mr. Summerour’s suit targets the assessment

of a Section 6695A penalty, which is a “tax,” the Anti-Injunction Act bars his suit.

B. Ultra Vires Review

Notwithstanding the Anti-Injunction Act, Mr. Summerour contends that the court has

subject-matter jurisdiction because the IRS’s actions are ultra vires. ECF No. 18, at 12-14. Ultra

vires actions are those taken “in clear excess of statutory authority.” Fed. Express Corp. v. U.S.

Dep’t of Com., 39 F.4th 756, 762 (D.C. Cir. 2022). “[T]he case law in this circuit is clear that

judicial review is available when an agency acts ultra vires.” Aid Ass’n for Lutherans v. U.S.

Postal Serv., 321 F.3d 1166, 1173 (D.C. Cir. 2003).

Ultra vires review is a “Hail Mary pass.” Nyunt v. Chairman, Broad. Bd. of Governors,

589 F.3d 445, 449 (D.C. Cir. 2009). It applies “only where (i) the statutory preclusion of review

is implied rather than express; (ii) there is no alternative procedure for review of the statutory

claim; and (iii) the agency plainly acts ‘in excess of its delegated powers and contrary to a specific

prohibition in the’ statute that is ‘clear and mandatory.’” Id. (internal citations omitted) (quoting 7 Leedom v. Kyne, 358 U.S. 184, 188 (1958)). Mr. Summerour’s suit plainly does not satisfy either

of the first two conditions of the Nyunt test, which is fatal to his argument for ultra vires review

and obviates the need for the court to consider the third condition. See id. (stating that ultra vires

review requires the first two conditions “and” the third).

1. The Anti-Injunction Act expressly precludes judicial review at this stage

Ultra vires review “is available where . . . there is no express statutory preclusion of all

judicial review.” Fed. Express Corp., 39 F.4th at 763. Only express statutory preclusion bars

ultra vires review; implied preclusion is insufficient. See Bd. of Governors of Fed. Rsrv. Sys. v.

MCorp Fin., Inc., 502 U.S. 32, 44 (1991) (“[O]nly upon a showing of ‘clear and convincing

evidence’ of a contrary legislative intent should the courts restrict access to judicial review.”

(quoting Abbott Lab’ys v. Gardner, 387 U.S. 136, 141 (1967))). Express preclusion of review will

control even where “the [case’s] underlying merits seem obvious.” DCH Reg’l Med. Ctr. v. Azar,

925 F.3d 503, 509 (D.C. Cir. 2019).

“Whether and to what extent a particular statute precludes judicial review is determined

not only from its express language, but also from the structure of the statutory scheme, its

objectives, its legislative history, and the nature of the administrative action involved.” Am.

Clinical Lab’y Ass’n v. Azar, 931 F.3d 1195, 1204 (D.C. Cir. 2019) (quoting Block v. Cmty.

Nutrition Inst., 467 U.S. 340, 345 (1984)). Here, the Anti-Injunction Act states that “no suit for

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

by any person.” 26 U.S.C. § 7421(a) (emphases added). This language expressly bars courts from

entertaining such suits and precludes judicial review. See Optimal Wireless LLC, 77 F.4th at 1073

(“[T]here is no dispute that the Anti-Injunction Act is jurisdictional—i.e., that it ‘deprive[s] the

District Court of jurisdiction’ when it applies.” (quoting Bob Jones Univ. v. Simon, 416 U.S. 725,

749 (1974))). As for the Anti-Injunction Act’s objectives, “[t]he manifest purpose of [the 8 Anti-Injunction Act] 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.” Williams Packing, 370 U.S. at 7. As the Supreme Court has explained,

Congress enacted the Anti-Injunction Act in response to a wave of litigation challenging the

nation’s first income taxes. See CIC Servs., LLC, 593 U.S. at 211-12. Thus, because the language,

objectives, and history of the Anti-Injunction Act all provide clear and convincing evidence of

Congress’s intent to restrict access to judicial review, ultra vires review is unavailable. Fed.

Express Corp., 39 F.4th at 763.

2. Mr. Summerour has an alternative procedure for review

Even if the Anti-Injunction Act did not expressly preclude judicial review, ultra vires

review would be unavailable because an alternative procedure for review exists. See Nyunt, 589

F.3d at 449 (explaining that ultra vires review applies “only where . . . there is no alternative

procedure for review of the statutory claim”). Here, Mr. Summerour can pursue judicial review

by filing a refund suit. See 26 U.S.C. § 7422(a) (“No suit or proceeding shall be maintained in any

court for the recovery of any . . . penalty claimed to have been collected without authority . . . until

a claim for refund or credit has been duly filed with the Secretary.” (emphasis added)); Williams

Packing, 370 U.S. at 7 (“The manifest purpose of [the Anti-Injunction Act] is . . . to require that

the legal right to the disputed sums be determined in a suit for refund.”). Because Section 7422

provides an alternative pathway to review, ultra vires review is unavailable.

9 V. Conclusion

For the foregoing reasons, the court will grant the Defendants’ motion to dismiss, ECF

No. 15.2 A separate order will issue.

/s/ Loren L. AliKhan LOREN L. ALIKHAN United States District Judge

Date: July 16, 2024

2 Because the court is dismissing for lack of subject-matter jurisdiction, it need not address Mr. Summerour’s merits arguments that the IRS has misinterpreted Section 6695A, ECF No. 18, at 14-20; that the IRS’s position results in an unconstitutional Bill of Attainder, id. at 20-22; or that the IRS’s position violates the APA, id. at 22-23. To the extent that Mr. Summerour is contending that his Bill of Attainder argument provides an independent basis for subject-matter jurisdiction, ECF No. 18 at 23, his argument fails because the Anti-Injunction Act bars suits notwithstanding any constitutional challenges. See Alexander v. Ams. United Inc., 416 U.S. 752, 759 (1974). Mr. Summerour remains free to raise those arguments in a refund suit. Williams Packing, 370 U.S. at 7. 10