U.S. Supreme Court Denies Cert Petition in Case Challenging Information Reporting Requirements

The Supreme Court denied the petition for certiorari filed by two bankers associations that sought to challenge the validity of IRS regulations issued under the Foreign Account Tax Compliance Act (FATCA) that impose a penalty on banks that fail to report interest income earned by nonresident aliens on accounts in U.S. banks.

The denial leaves in place a divided D.C. Circuit panel decision holding that the Anti-Injunction Act (AIA) bars the bankers associations from challenging the validity of the regulations.  The associations argued that a recent Supreme Court decision regarding the similar Tax Injunction Act, which relates to state taxation, allowed them to file suit under the Administrative Procedure Act to enjoin certain IRS information reporting requirements when the information is not subject to domestic taxation and the noncompliance penalty does not constitute a restraint on the “assessment or collection” of a tax.  The D.C. Circuit accepted the government’s contention that because the penalties for noncompliance under Sections 6721 and 6722 are treated as a tax, the AIA bars pre-assessment challenges to the reporting requirements of the regulations.

The decision leaves those required to file information returns without recourse to challenge an information reporting requirement unless they forego the required reporting and are assessed a penalty under Section 6721 or 6722.

Additional discussion of this case can be found in our April 27 and March 1 posts.