Background
Norcave Properties, L.L.C. claimed a charitable deduction after donating a conservation servitude over 321.13 acres in 2018. Following an audit, the IRS issued a Notice of Final Partnership Adjustment in 2025 that disallowed the deduction and imposed a civil-fraud penalty under 26 U.S.C. § 6663 and accuracy-related valuation penalties under § 6662 for negligence, substantial understatement of income tax, and gross-valuation misstatements.
Norcave sued in federal district court for declaratory and injunctive relief, seeking a prepayment jury trial on the penalties, while also filing a parallel Tax Court petition. The district court dismissed for lack of subject-matter jurisdiction under the Anti-Injunction Act and the Declaratory Judgment Act. During the appeal, the IRS abandoned the civil-fraud penalty, leaving only the § 6662 penalties at issue.
The Court’s Holding
The Fifth Circuit affirmed. It held that § 6662 accuracy-related penalties count as “tax” for purposes of the Anti-Injunction Act because 26 U.S.C. § 6665 directs that penalties in the relevant chapter be assessed, collected, and paid in the same manner as taxes and deems statutory references to “tax” to include those penalties. Norcave’s requested relief objectively targeted an assessment already underway and therefore sought to restrain the assessment or collection of a tax.
The court distinguished challenges to standalone regulatory requirements, explaining that Norcave directly sought to eliminate tax penalties rather than attack a preliminary obligation only incidentally connected to taxation. The Declaratory Judgment Act independently barred the action because its federal-tax exception is at least as broad as the Anti-Injunction Act. Because Congress withheld jurisdiction over this prepayment district-court challenge, the court could not entertain Norcave’s Seventh Amendment claim concerning the statutory bench-trial scheme.
Key Takeaways
- Accuracy-related penalties imposed under § 6662 are treated as taxes under § 6665 for purposes of the Anti-Injunction Act.
- A suit seeking declaratory or injunctive relief from penalties in an existing final partnership adjustment directly restrains tax assessment and collection.
- The Tax Court provides a prepayment forum for challenging a partnership adjustment, while district-court and Court of Federal Claims proceedings generally require the disputed underpayment and penalties to be deposited.
Why It Matters
The decision reinforces the federal tax system’s pay-now-sue-later structure and confirms that taxpayers cannot obtain a prepayment jury trial in district court merely by characterizing an attack on assessed tax penalties as a constitutional challenge. Partnerships disputing a final partnership adjustment must proceed through the review paths Congress authorized, including a prepayment challenge in the Tax Court.