Standard Insurances v. IRS: Collateral Attacks on Tax Deficiencies Barred by the Anti-Injunction and Declaratory Judgment Acts

I. Introduction

In Standard Insurances v. IRS, No. 24-4094 (10th Cir. Dec. 22, 2025), the Tenth Circuit reaffirmed and sharpened the reach of the Tax Anti-Injunction Act (AIA), 26 U.S.C. § 7421(a), and the tax exception to the Declaratory Judgment Act (DJA), 28 U.S.C. § 2201(a), in the context of micro-captive insurance arrangements.

Standard Insurances Company, a Utah-based micro-captive insurance company, and a constellation of related insured entities, sued the IRS, the Department of the Treasury, and the United States in federal district court. The IRS had audited Standard, concluded it was not a qualifying micro-captive under 26 U.S.C. § 831(b), and issued deficiency notices disallowing the favorable tax treatment both to the captive and to its affiliates.

While Standard was already pursuing redetermination of those deficiencies in the U.S. Tax Court, it filed a parallel action in district court seeking:

1. A declaration that IRS Notice 2016-66 (targeting micro-captives as "transactions of interest") was unlawful and void.
2. An injunction compelling the IRS to return or destroy documents obtained under Notice 2016-66 and during the audit.
3. A declaratory judgment that Standard is a legitimate captive insurance company and that the IRS’s contrary determination is void and unenforceable.

The district court dismissed for lack of subject-matter jurisdiction, concluding that the DJA and AIA barred the suit as one whose purpose was to restrain the assessment and collection of federal taxes. On appeal, the Tenth Circuit affirmed. The opinion provides an important, detailed application of the Supreme Court’s decision in CIC Services, LLC v. IRS, 593 U.S. 209 (2021), and clarifies how far taxpayers can go in challenging IRS actions outside traditional tax litigation channels.

This commentary analyzes the decision’s facts, reasoning, use of precedent, and likely impact on tax procedure, particularly for micro-captive insurance participants and other taxpayers seeking to use Administrative Procedure Act (APA) or equitable theories to constrain IRS deficiency proceedings.

II. Summary of the Opinion

The Tenth Circuit holds:

• The Tax Anti-Injunction Act and the DJA’s federal tax exception are coterminous and bar any suit whose objective purpose is to restrain the assessment or collection of federal taxes.
• Standard’s request for a declaratory judgment that it is a legitimate micro-captive insurance company (and that the IRS’s contrary finding is void) is barred, because granting that relief would effectively require the IRS to concede the pending Tax Court deficiency cases.
• Standard’s request for an injunction ordering the IRS to return or destroy documents obtained through Notice 2016-66 and the audit is equally barred. That relief would undermine the evidentiary basis for the deficiency determinations and thus restrain a closely proximal step in tax assessment.
• The so-called South Carolina exception (from South Carolina v. Regan, 465 U.S. 367 (1984)) does not apply, because Standard has an adequate avenue for judicial review via its Tax Court petition and potential refund litigation. The exception covers the absence of any judicial forum, not the unavailability of the taxpayer’s preferred form of relief.
• A separate challenge to Notice 2016-66 became moot when the IRS withdrew the Notice; Standard did not appeal that aspect of the district court’s ruling, and the Tenth Circuit does not address it.

Accordingly, the Tenth Circuit affirms the district court’s dismissal of Standard’s complaint for lack of jurisdiction.

III. Detailed Analysis

A. Statutory and Doctrinal Framework

1. The Anti-Injunction Act and Declaratory Judgment Act

The AIA provides:

"no suit for the purpose of 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(a) (emphasis added).

The DJA generally authorizes declaratory relief but removes federal jurisdiction "with respect to Federal taxes." 28 U.S.C. § 2201(a). The Tenth Circuit, following its own precedent in Green Solution Retail v. United States, 855 F.3d 1111 (10th Cir. 2017), reiterates that these two provisions are coterminous: the DJA’s tax carve-out has the same scope as the AIA’s prohibition.

Thus, the critical question is whether the “purpose” of the suit is to restrain the assessment or collection of a tax. If so, both statutes bar jurisdiction.

2. The “Purpose” Inquiry After CIC Services

The Supreme Court’s decision in CIC Services guides how courts determine a suit’s “purpose.” The inquiry is objective, not subjective:

• Courts look to the relief requested, the claims brought, and the injuries alleged.
• They examine the face of the complaint, not the taxpayer’s “innermost reasons for suing.”

CIC Services held that a pre-enforcement challenge to Notice 2016-66 by a material advisor—who risked significant civil and criminal penalties for non-compliance—was not barred by the AIA because:

1. The challenger sought to restrain a reporting and data-collection obligation, not a tax assessment.
2. The challenger was "nowhere near the cusp of tax liability": the penalties at issue were not contingent on any tax being owed.
3. The suit targeted conduct also punishable by independent criminal sanctions, making it more than a disguised tax challenge.

But CIC also cautioned that the AIA still bars “tax actions in disguise”—lawsuits nominally framed as APA, constitutional, or equitable challenges whose real-world effect is to impede assessment or collection.

3. Proximate Steps and “Tax Actions in Disguise”

The Tenth Circuit reiterates its prior holdings that the AIA and DJA bar not only suits targeting the moment of assessment or collection, but also those restraining closely related steps that culminate in assessment:

• Lowrie v. United States, 824 F.2d 827 (10th Cir. 1987), held the AIA applies to "activities leading up to, and culminating in, such assessment and collection."
• Green Solution Retail, 855 F.3d 1111, found that a suit seeking to enjoin an IRS investigation — aimed at determining whether a marijuana dispensary trafficked in controlled substances (a predicate to disallowing deductions under § 280E) — was barred because the investigation was proximate to assessment.

Although Lowrie stands in some tension with the Supreme Court’s Direct Marketing Ass’n v. Brohl, 575 U.S. 1 (2015), which took a narrower view of what counts as “restraining assessment” under a parallel statute, the Tenth Circuit notes it need not resolve that tension here, because its ruling is fully consistent with CIC.

The upshot: the court will treat as “tax actions in disguise” lawsuits that, while not nominally asking to block a tax bill, would effectively disable or predetermine the outcome of pending or forthcoming deficiency proceedings.

B. Application to Standard’s Captive Insurance Declaration Claim

1. The Relief Requested

Standard sought a declaratory judgment:

• “declaring Standard Insurances as a legitimate and legally recognized captive insurance company as determined by the Utah Insurance Department,” and
• holding the IRS’s contrary determination “void, improper and unenforceable.”

On the face of the complaint, Standard itself acknowledged that such relief would amount to the IRS "conced[ing] the Plaintiffs' cases before the U.S. Tax Court." The court treats that as a candid admission of the suit’s objective aim.

2. Why This Directly Implicates Tax Assessment

The deficiency notices at issue rest on the IRS’s conclusion that:

• Standard is not an § 831(b) “micro-captive insurance company,” and
• its premium transactions are consequently not insurance transactions for federal tax purposes.

The IRS increased Standard’s taxable income and disallowed insured affiliates’ business-expense deductions for premiums accordingly. If a federal district court were to declare that Standard is a legitimate micro-captive recognized for federal tax purposes and that the IRS’s contrary determination is void:

• The Tax Court would be foreclosed from upholding the deficiencies on that central theory.
• The requested declaration would effectively resolve, in another forum, the key substantive question at the heart of the pending Tax Court litigation.

That, in the Tenth Circuit’s view, places the lawsuit squarely within the AIA/DJA bar: its purpose is to restrain the assessment of tax by preempting and disabling the IRS’s deficiency determination.

3. Rejection of Standard’s “Alternative Grounds” Argument

Standard argued that a declaration about its micro-captive status would not fully restrain assessment, because the IRS cited multiple grounds for the deficiencies, including that the transactions:

• lacked economic substance,
• were engaged in for no purpose other than tax avoidance or evasion,
• did not give rise to deductible “ordinary and necessary” business expenses, and
• were not “insurance transactions.”

Standard contended these were independent grounds that could sustain the deficiencies even if a district court declared it a legitimate captive.

The Tenth Circuit rejected that characterization, emphasizing that these purported “alternatives” are:

"peas-in-a-pod with Standard's micro-captive insurance company theory."

In other words, the IRS’s finding that the transactions lacked economic substance and were not insurance was inextricably tied to its foundational conclusion that Standard was not a genuine insurance company for federal tax purposes. The court notes:

• For Standard itself, the IRS stated that the premium income was "not insurance transactions within the meaning of the federal tax law" because Standard was "not [a micro-captive] insurance company."
• For the insured entities, the IRS noted that the payments were not made "to an insurance company" and not "for insurance," that the expenses were not "ordinary and necessary," and that the transactions lacked economic substance and were undertaken to avoid or evade tax.

Thus, a declaration blessing Standard as a legitimate micro-captive would destroy the backbone of the IRS’s deficiency theory. It would directly restrain the IRS’s ability to defend and the Tax Court’s ability to uphold the deficiencies, bringing the suit within the scope of the AIA and DJA.

C. Application to the Documents-Return / Destruction Claim

1. The Relief Requested

Standard also sought an injunction ordering the IRS to:

"return or destroy . . . all documents and information produced or otherwise provided by Plaintiffs pursuant to the unlawful Notice 2016-66 as well as the subsequent unlawful audit."

Standard framed this as a remedy for the IRS’s allegedly unlawful use of Notice 2016-66 and an unlawful audit, and suggested that the IRS’s possession of sensitive documents created privacy and security risks.

2. Why This Relief Also Restrains Assessment

The Tenth Circuit again applies the CIC lens: it asks what the objective aim of the requested injunction is, examining the complaint as a whole.

The answer, the court concludes, is plain:

• The documents in question formed part of the evidentiary foundation for the IRS’s deficiency determinations.
• The Tax Court proceedings, then pending, would rely on those documents to determine the existence and amount of any deficiency under 26 U.S.C. § 6215(a).
• Ordering the return or destruction of those documents would hamper — at least temporarily — the Tax Court’s ability to adjudicate the deficiencies and the IRS’s ability to defend its assessments.

Even if the IRS could in theory reacquire similar information through Tax Court discovery, the Tenth Circuit underscores that an injunction compelling destruction or return would nevertheless:

"operate to hinder the tax court's determination of the deficiency, a necessary and proximate step in assessment."

That link to a proximate step in assessment is enough to trigger the AIA/DJA bar.

3. Court’s View of the “Privacy/Security” Rationale

Standard argued that the suit was really about the separate wrong of the IRS holding onto its documents, posing future privacy and security risks. The court is unpersuaded:

• The complaint barely develops these non-tax injuries.
• Standard does not explain why an injunction targeting past audit/acquisition of documents would prevent the IRS from obtaining the same information through lawful discovery in Tax Court.
• Reading the complaint as a whole, the functional purpose of the requested relief is to impair the IRS’s ability to defend the deficiencies.

Because the injunction’s objective effect would be to impede tax assessment, this claim also qualifies as a barred “tax action in disguise.”

D. The South Carolina Exception and Availability of Judicial Review

1. The Exception Defined

The Supreme Court in South Carolina v. Regan, 465 U.S. 367 (1984), recognized a narrow exception to the AIA: the Act does not apply where a plaintiff has no alternative way to obtain judicial review of a tax provision’s validity.

In South Carolina:

• The state challenged a federal tax provision on constitutional grounds.
• The provision inflicted financial harm on South Carolina but did not impose any tax liability on the state itself.
• Thus, South Carolina could not file a refund suit or otherwise litigate the issue within the normal tax system; it would have had to rely on third-party taxpayers to raise its constitutional objections.

The Court held that, under these circumstances, the AIA did not bar a suit challenging the provision because the state lacked "any alternative legal way to challenge the validity of a tax."

2. Standard’s Attempt to Invoke the Exception

Standard argued that the South Carolina exception should apply because the Tax Court could not award it the specific forms of equitable relief it sought: declaratory recognition as a legitimate captive and an injunction compelling document destruction.

3. The Tenth Circuit’s Rejection: “Any Review” vs. “Precise Relief”

The Tenth Circuit rejects this argument as fundamentally misunderstanding the exception. Citing Ambort v. United States, 392 F.3d 1138 (10th Cir. 2004), and the Fourth Circuit’s decision in Judicial Watch, Inc. v. Rossotti, 317 F.3d 401 (4th Cir. 2003), the court emphasizes:

• The relevant question is whether the plaintiff has any access at all to judicial review of the challenged tax obligation.
• It is not whether the plaintiff can obtain the precise form of relief it prefers (e.g., prospective declaratory or injunctive remedies).

In Ambort, a taxpayer sought declaratory and injunctive relief to shield himself from criminal prosecution while making refund claims based on spurious “nonresident alien” theories. The Tenth Circuit held the AIA and DJA barred his suit, even though the Tax Court could not grant his requested declaratory/injunctive relief, because he could still litigate the validity of the underlying taxes in a refund action.

Applying that logic here:

• Standard has already filed a Tax Court petition challenging the deficiencies.
• If dissatisfied with the Tax Court’s decision, it can appeal to the appropriate court of appeals.
• Alternatively, Standard could pay the tax and file a refund suit in district court, where it can fully litigate the same substantive question—whether it is an insurance company for federal tax purposes, whether the transactions have economic substance, etc.

Thus, unlike South Carolina, Standard is not forced to rely on others or left without any judicial forum. Its inability to obtain broad, forward-looking declaratory or injunctive relief in the Tax Court does not trigger the South Carolina exception.

The court also notes that Standard’s theory that the IRS is violating the McCarran-Ferguson Act, 15 U.S.C. §§ 1011–1015, by failing to respect Utah’s insurance determination can likewise be litigated in Tax Court (or in a refund action), as illustrated by Modern Life & Accident Ins. v. Commissioner, 420 F.2d 36 (7th Cir. 1969).

E. Role of Other Precedents Cited

1. Green Solution Retail v. United States

As noted, Green Solution Retail, 855 F.3d 1111 (10th Cir. 2017), treated the AIA and DJA as coterminous and barred an attempt to enjoin an IRS investigation into a marijuana business, because that investigation was a proximate step toward disallowing deductions and assessing higher taxes. The court here reiterates that teaching: the statutes do not just bar direct attacks on assessments; they also bar restraints on closely related predicate steps.

2. Direct Marketing Ass’n v. Brohl

The Supreme Court’s Direct Marketing decision, involving Colorado’s reporting regime for out-of-state retailers, interpreted the Tax Injunction Act (TIA), a close cousin of the AIA. It held that a challenge to reporting obligations did not “restrain assessment” because it merely inhibited an antecedent step.

The Tenth Circuit candidly acknowledges that this reading placed some pressure on its earlier decision in Lowrie, but finds that the present case can be resolved without choosing between them, because here the relief sought against the IRS (a) would not merely inhibit reporting, but (b) would directly undermine the determination of tax deficiencies already in litigation.

3. Reservation Mechanical Corp. v. Commissioner

The court cites Reservation Mechanical, 34 F.4th 881 (10th Cir. 2022), as an example of a case where the Tenth Circuit reviewed a Tax Court decision on whether an entity was an “insurance company” for federal tax purposes. This underscores that Standard has a straightforward, established pathway to litigate the same core question—via the Tax Court, then appeal.

F. Interaction with Micro-Captive Enforcement and Notice 2016-66

Although the court does not decide the legality of Notice 2016-66 itself (that claim was deemed moot after the IRS withdrew the Notice, and Standard did not appeal that ruling), the context is important:

• Notice 2016-66 designated certain micro-captive transactions as “transactions of interest,” requiring extensive reporting.
• In CIC Services, the Supreme Court allowed a pre-enforcement challenge to that Notice by a material advisor, on APA grounds, because the suit targeted reporting obligations and penalties, not tax assessment.
• Subsequently, a district court set aside Notice 2016-66 under the APA, and the IRS formally withdrew it (2023-17 I.R.B. 798).

In Standard Insurances, the Tenth Circuit:

• Accepts that Standard framed its suit in APA and related terms.
• But emphasizes that, unlike in CIC Services, Standard is a taxpayer directly facing deficiency assessments, already “on the cusp” or beyond in terms of tax liability.
• And the requested relief does not merely regulate reporting burdens or penalties; it goes to the heart of the IRS’s deficiency determinations and the use of audit evidence.

Thus, while CIC Services opened the door for certain APA challenges to IRS information-reporting regulations, Standard Insurances makes clear that taxpayers cannot leverage that doctrine to short-circuit or flank ongoing deficiency proceedings concerning those same transactions.

G. Clarification of the “Purpose” Test and Indirect Restraints

The opinion reinforces several key principles about how courts apply the AIA/DJA "purpose" test post-CIC:

1. Objective Focus on Relief Sought. Courts look at what the plaintiff is asking the court to do and the real-world effect of that relief, not how the complaint is labeled (APA, constitutional, equitable, etc.) or what subjective motives the taxpayer professes.
2. Close Proximity to Assessment is Dispositive. Where relief would:
   • predetermine a central merits question in a pending deficiency case (“you are a legitimate insurance company”), or
   • strip the IRS and the Tax Court of crucial audit evidence,
   the suit is treated as a tax action in disguise and barred.
3. “Alternative grounds” do not necessarily save jurisdiction. If the requested declaration would knock out the IRS’s foundational theory, the fact that the IRS also recited closely related doctrines (economic substance, ordinary and necessary expenses) does not insulate the lawsuit from the AIA/DJA.

The court’s analysis thus contributes to a more concrete working definition of when a collateral challenge crosses the line into a forbidden attempt to restrain assessment: when the requested relief would compel the IRS effectively to lose, or lose the ability to prove, the deficiency case.

H. Practical Impact and Forward-Looking Implications

1. For Micro-Captive Insurance Participants

The IRS has aggressively scrutinized micro-captive arrangements, treating many as abusive tax shelters. This decision confirms that:

• Once deficiency notices issue, participants cannot go to district court seeking declarations that their captive is “legitimate” or that the IRS’s contrary view is void, as a way to undercut the Tax Court case.
• Nor can they seek injunctions requiring the IRS to return, destroy, or quarantine audit documents or information, at least where the practical result would be to hamstring the deficiency litigation.

Instead, micro-captive taxpayers must litigate all substantive issues—including whether the entity qualifies as an insurance company, whether premiums are deductible, economic substance, and any McCarran-Ferguson-based federalism arguments—within the traditional tax litigation framework:

• prepayment in the Tax Court, or
• post-payment in refund suits.

2. For APA and Procedural Challenges to IRS Actions

After CIC Services, some taxpayers and advisors hoped to reframe IRS disputes as APA challenges to regulations, notices, or audit procedures and bring them in district court, sidestepping the tax-specific procedural limits. Standard Insurances signals that:

• Such strategies have limited reach once actual deficiencies have been asserted.
• Where the practical effect of a successful APA challenge would be to invalidate or preempt the IRS’s deficiency determinations, the suit is likely to be barred under the AIA/DJA.

The opinion thus complements CIC by defining the boundary between permissible APA-based pre-enforcement review and impermissible collateral attacks on ongoing deficiency litigation.

3. For Tax Litigation Strategy in General

More broadly, the decision:

• Reinforces that the Tax Court and refund suits remain the primary, and often exclusive, channels to challenge federal tax liability.
• Warns against creative efforts to obtain substantive rulings affecting tax liability in general federal-question jurisdiction cases, whether under the APA, the Constitution, or other statutes.
• Clarifies that taxpayers cannot use non-tax statutory schemes (like McCarran-Ferguson) to bypass AIA/DJA; such arguments must be folded into the tax litigation itself.

IV. Complex Concepts Simplified

1. Micro-Captive Insurance Company

A captive insurance company is an insurer owned by the company (or group) it insures. A micro-captive, under 26 U.S.C. § 831(b), is a small captive receiving below a statutory premium threshold (historically around $2.2 million per year, adjusted over time).

Tax benefits:

• The micro-captive can exclude underwriting income (premium income) from its taxable income under § 831(b).
• The insured operating companies can deduct premiums as business expenses under § 162(a).

The IRS worries that some micro-captives are not real insurance companies but are set up mainly to shift income to a low-tax entity, creating abusive tax shelters. That concern underlay Notice 2016-66 and the audit here.

2. Tax Deficiency and Tax Court

• A deficiency is the IRS’s determination that a taxpayer underpaid tax for a prior period.
• The IRS issues a notice of deficiency (a “90-day letter”), and the taxpayer may:
  • file a petition in the U.S. Tax Court (without first paying the tax), or
  • pay the tax, then file a refund claim and, if denied, sue in district court or the Court of Federal Claims.

The Tax Court specializes in tax disputes and regularly addresses complex issues like whether a captive is an “insurance company” for federal tax purposes.

3. Anti-Injunction Act (AIA)

The AIA blocks virtually all lawsuits that would prevent the IRS from assessing or collecting a tax. Congress designed it to:

• protect the government’s revenue stream, and
• force disputes into structured channels (Tax Court or refund suits) rather than ad hoc injunctions in district courts.

Key idea: you generally cannot stop the IRS from issuing or enforcing a tax bill by going to federal court—your remedy is to challenge the bill in Tax Court or pay and sue for a refund.

4. Declaratory Judgment Act (Tax Exception)

The DJA usually lets federal courts declare parties’ legal rights before coercive enforcement, but it specifically excludes cases “with respect to Federal taxes.” This means you cannot usually get an advance declaration about:

• whether a particular tax rule is valid, or
• whether your transactions are taxable in a particular way.

Those questions must ordinarily be resolved through the tax system, not freestanding declaratory judgment actions.

5. South Carolina v. Regan Exception

The South Carolina exception is very narrow. It applies only if:

• You are harmed by a federal tax rule,
• but you cannot possibly get into any court via the usual tax procedures (you have no tax liability and no way to file a refund claim),
• and no other judicial forum exists to challenge the rule.

It does not apply merely because you want a different type of relief (e.g., a forward-looking injunction) than the Tax Court or refund process typically provides.

V. Conclusion

Standard Insurances v. IRS confirms and extends a central structural principle of federal tax law: tax liability disputes must flow through the tax system, and the AIA and DJA will bar attempts to achieve functionally equivalent outcomes through collateral litigation in district court.

By:

• treating the DJA and AIA as coterminous,
• applying an objective, effect-focused "purpose" test under CIC Services,
• classifying both the micro-captive status declaration and the documents-destruction injunction as “tax actions in disguise,” and
• construing the South Carolina exception narrowly as about the absence of any judicial forum,

the Tenth Circuit significantly narrows the space for taxpayers—especially those already under deficiency notices—to use APA, procedural, or equitable theories to preempt or undermine IRS deficiency proceedings.

For micro-captive participants and other taxpayers in complex transactions, the decision sends a clear message: challenges to the IRS’s substantive tax determinations, to the use of audit evidence, and to related legal theories (including McCarran-Ferguson-based arguments about state insurance regulation) must be litigated through the Tax Court or refund litigation, not through collateral suits seeking to sideline or disable those processes.

In the broader legal landscape, Standard Insurances stands as a key post-CIC appellate decision delineating the boundary between permissible pre-enforcement APA challenges to IRS actions and impermissible collateral attacks on assessments already in process. It reinforces the primacy of the tax-specific remedial structure and clarifies that courts will look past artful pleading to the real-world impact of the relief sought when applying the Anti-Injunction and Declaratory Judgment Acts.