Key takeaway
The Supreme Court clarified that a plaintiff's right of action for APA claims does not accrue for statute of limitation purposes until the plaintiff is injured by final agency action.
In more detail
28 U.S.C. § 2401(a) requires that a civil action against the United States be commenced within six years "after the right of action first accrues." Under this statute of limitations, courts before Corner Post were split on whether an APA claim accrued when agency action is final under APA § 704. Some courts held that an APA claim against an agency regulation was time-barred after six years of the regulation's effective date. Other courts held that this limitations period began when the plaintiff was injured by agency action, even if that injury occurred many years after the agency action became final. The Supreme Court in Corner Post adopted the latter view, concluding that "[a]n APA claim does not accrue … until the plaintiff is injured by final agency action," because a right of action accrues only when the plaintiff has the "complete and present" right to "file suit and obtain relief." Corner Post, No. 22-1008, slip op. at 1, 6-7.
The plaintiff in Corner Post owned a North Dakota truck stop that accepted debit card purchases and paid interchange fees to banks that processed debit card transactions. (Interchange fees are charged by payment networks, like Visa and Mastercard, to process the transaction.) In 2011, the Federal Reserve Board issued a regulation regarding these fees. In 2021, three years after it opened business in 2018, Corner Post challenged the Federal Reserve Board's regulation on procedural and substantive grounds. The lower courts dismissed the case as time-barred because they determined that the six-year statute of limitations had commenced when the regulation became effective in 2011 and had thus expired. The Supreme Court reversed and held that, for Corner Post, the limitations period under 28 U.S.C. § 2401(a) did not start running until 2018, when Corner Post was injured by the regulation, and had not expired when Corner Post filed suit in 2021. The Supreme Court remanded the case to the Eighth Circuit to address Corner Post's arguments challenging the Federal Reserve Board's regulation.
Justice Barrett wrote for the six-justice majority, with Justice Kavanaugh concurring. In the concurrence, Kavanaugh observed that Corner Post confirms that "the APA authorizes vacatur of agency rules." Corner Post, No. 22-1008, slip op. at 1 (Kavanaugh, J., concurring). Justices Jackson, Sotomayor, and Kagan dissented. The dissent criticized the majority for effectively removing "any limitations period for lawsuits that challenge agency regulations" and voiced concern that Corner Post would allow a "new commercial entity to bring fresh facial challenges to long-existing regulations." Corner Post, No. 22-1008, slip op. at 2 (Jackson, J., dissenting).
Initial implications for tax disputes
Corner Post is favorable for taxpayers considering a challenge to the validity of tax rules. Before Corner Post, the government sometimes has successfully argued that challenges to certain old Treasury rules and regulations are time-barred under 28 U.S.C. § 2401(a). Now, the Supreme Court has made clear that taxpayers have six years after injury to challenge tax rules and regulations under the APA, regardless of when the rules and regulations take effect. This opens up opportunities for taxpayers to seek judicial review of tax rules and regulations that have been in place for years.
The application of the holding in Corner Post in tax controversies is informed by the Anti-Injunction Act, which bars any "suit for the purpose of restraining the assessment or collection of any tax." I.R.C. § 7421(a). In CIC Servs., LLC v. Internal Revenue Serv., 593 US 209 (2021), the Supreme Court unanimously held that the Anti-Injunction Act did not preclude an APA action against an IRS Notice that contained an information reporting requirement because the taxpayer did not challenge a tax liability; it only challenged the reporting requirement, which was "separate from any tax." Id. at 225. The Supreme Court concluded that the Anti-Injunction Act prohibits "pre-enforcement review" of tax rules and regulations that would "foreclose tax liability." Id. at 224.
Because of the Anti-Injunction Act, taxpayers generally must wait until after enforcement proceedings have begun to challenge tax rules and regulations that relate to the taxpayer's tax liability. In these cases, the Code generally allows a taxpayer to bring a deficiency suit in the Tax Court within 90 days after the IRS mails a notice of deficiency. Construing Corner Post and CIC Services together, the six-year limitations period in 28 U.S.C. § 2401(a) likely does not begin until the IRS mails a notice of deficiency. At that time, the taxpayer's cause of action is "complete and present," and the taxpayer may petition the Tax Court to "obtain relief" from the Commissioner's deficiency determination.
Tax refund suits involve similar threshold requirements that must be satisfied before a taxpayer may file a refund suit in a federal district court or the US Court of Federal Claims with respect to its tax liability. These requirements include filing an administrative claim for refund, paying the taxes and penalties in full, and waiting to file the complaint until six months after the taxpayer has filed its refund claim. See I.R.C. §§ 7422(a), 6532(a). Thus, for a taxpayer that wishes to challenge the validity of a tax regulation that relates to its tax liability in order to obtain a refund of a tax overpayment, the six-year limitations period may begin as soon as six months after the taxpayer files its refund claim.
For tax rules and regulations that relate solely to reporting requirements—and not to the taxpayer's tax liability—the right to sue may begin earlier. The IRS Notice at issue in CIC Services "compel[led] taxpayers and their material advisors to collect and submit detailed information" about their transactions; those efforts were "likely to involve significant time and expense." 593 US at 220. Reading CIC Services together with Corner Post, taxpayers subject to an unlawful reporting rule may argue that they are injured when they incur costs to comply with the reporting rule. That could happen before the first reporting deadline becomes due.
By determining that the six-year statute of limitations begins to accrue when the plaintiff suffers an injury, the Supreme Court signaled that the inquiry of whether an APA claim is timely filed is a plaintiff-specific analysis. As applied to Treasury regulations and IRS guidance, however, the inquiry would not only be taxpayer-by-taxpayer, but also year-by-year because each tax year stands on its own, see United States v. Skelly Oil Co., 394 US 678 (1969), and a taxpayer's cause of action does not arise until it receives a notice of deficiency with respect to a particular tax year. Accordingly, a taxpayer that has not challenged a rule or regulation as applied to an earlier tax year may have grounds to challenge its application in a later year when the IRS issues a notice of deficiency for the later year and the taxpayer's cause of action becomes "complete and present".
Conclusion
The Supreme Court's decision in Corner Post is welcome news to taxpayers who are adversely affected by unlawful agency actions of the IRS and Treasury. The Court's opinion leaves open the door to challenging tax rules that affect tax liability even if those rules are more than six years old. In the wake of intensified IRS audits and rulemaking, taxpayers should carefully analyze the Supreme Court's opinions in Corner Post and CIC Services, as well as in Loper Bright Enterprises v. Raimondo, No. 22-451 (June 28, 2024), which inform their ability to raise validity challenges in court. Taxpayers contemplating filing APA actions against the IRS's guidance and Treasury's regulations should follow Corner Post and make sure to bring APA claims within six years after their right to file suit first accrues.
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