Israel-based U.S. tax attorney Monte Silver has formally countered the Internal Revenue Service’s motion earlier this month to dismiss his and his company's ongoing lawsuit that challenges a key component of President Trump's December 2017 tax reform legislation.
In what Silver admitted today would be a decisive legal motion in a number of ways, depending on its outcome, he and his co-plaintiff – his law firm – argue in papers filed yesterday that “[both] the Supreme Court and the [District of Columbia] Circuit [Court] have regularly rejected both” the arguments that the IRS cited in its claim that they “lack[ed] standing to pursue their challenge” to the Tax Cuts and Jobs Act regulations.
Silver and his co-plaintiff company also contend in their response that “[both] the Supreme Court and the [District of Columbia] Circuit [Court] have regularly rejected both” the arguments that the IRS cited in its claim that they “lack[ed] standing to pursue their challenge” to the Tax Cuts and Jobs Act regulations.
“Standing” is a legal term which in the U.S. has to do with whether a litigant is entitled to to have the court in question decide the merits of a specific lawsuit. If a litigant is deemed to lack standing, the lawsuit must be dismissed.
The Supreme Court and D.C. Circuit Court have also “regularly rejected” in the past arguments by defendants that something known as the Anti-Injunction Act prohibits the courts from providing the relief requested, Silver and Monte Silver Ltd. maintain, in their response to the IRS's Motion to Dismiss.
They note that they “have standing under two different lines of authority,” including the fact that they have “suffered injuries-in-fact in the form of added compliance costs and other burdens as a result” of the TCJA regulations, and because they “seek to enforce a procedural requirement, the disregard of which could impair a concrete interest of theirs.”
The U.S. Treasury and IRS, in drawing up the Transition Tax regulations in question, they further argue, had failed to comply with “procedural safeguards” contained in the so-called Regulatory Flexibility Act. This existing legislation, in force in the U.S. since 1980, is designed to protect small businesses from the overwhelming compliance burdens that they otherwise could inadvertently be burdened with by new government statues and regulations designed for larger companies.
Although Silver is bringing the case personally as well as alongside his own law firm, unofficially he is seen as representing thousands of other Americans and U.S. citizen-owned small businesses (in the U.S. as well as abroad) that have been affected by certain provisions in the Tax Cuts and Jobs Act of 2017, many of which have been helping to fund his effort.
A Washington, DC-based lawyer, Stuart J. Bassin of The Bassin Law Firm, is overseeing the case in Washington.
Failure to consider
One of the major criticisms of the TCJA by others as well as Silver has been that in drafting it towards the end of 2017, with the aim of targeting large multi-national companies owned by Americans that were being seen to have held corporate profits overseas for decades to avoid paying U.S. tax on them, the TCJA’s authors inadvertently ended up ensnaring small overseas businesses owned by Americans as well.
Among the unforeseen consequences of this failure on the part of the legislation is that such small businesses have been subjected to such elements of the TCJA as its one-off tax on previously-untaxed foreign earnings dating back to 1986.
Silver's main argument in his case, as reported here in February, is that the so-called Transition Tax regulations contained in the TCJA, failed to contain a "regulatory flexibility analysis" that the Regulatory Flexibility Act requires federal agencies to carry out when they draft new laws.
Sometimes referred to as the Repatriation Tax, the Transition Tax is said to hit individual owners of small businesses and partnerships located outside of the U.S. particularly hard, because many of them had been counting on their set-aside corporate profits to either expand their businesses in the short term, or to rely on later in life to fund their retirements.
Commenting on the legal document filed yesterday urging the court to deny the IRS’s motion to dismiss his lawsuit challenging the Transition Tax regulations, Silver described it as “compelling,” and noted that if he and his legal team succeed in convincing the court of the flaws in the IRS’s efforts to use “technicalities” to dismiss their arguments, "we will make legal history, on two grounds never before accomplished.
"One, getting around an anti-injunction act, on matters of issuing regulations; and two, getting a court to agree to use the Regulatory Flexibility Act to oversee how the Treasury issues such regulations."
He added that the chances of winning the legal action "are very high, since apart from technicalities, the government lacks any defenses with respect to the merits of our arguments."
However, he added, "if we lose this round, and the court accepts the IRS’s motion to dismiss our case on the basis of those technicalities, it’s game over.”
As reported earlier this month, legal experts said the IRS's strategic response to Silver’s lawsuit was unsurprising, as it would potentially enable the tax authority to avoid the otherwise possibly messy business of having to actually argue the merits of the government’s case.
In his 19-page court document, dated January 30, Silver argued that “rather than attempt to find potential solutions for small businesses with regard to the TCJA as required by law, [the] defendants [the IRS, the Treasury, IRS commissioner Charles Rettig and Treasury secretary Steven Mnuchin] issued impenetrable regulations on or about January 15, 2019 that impose many unreasonably complicated burdens upon a vast number of small businesses and small business owners."
He also maintained that the final draft of the TCJA imposed "many unreasonably complicated burdens” on small businesses, and that the defendants had "made no effort to examine the helpless situation of small business, and did not attempt to address alternatives which would allow small business to comply with the law without undue burden."
In his lawsuit Silver noted that the government argued that it didn't have to abide by the Regulatory Flexibility Act when it drafted the TCJA because, it claimed, the regulations "would not have a 'significant economic impact’ on a substantial number of small entities," even though the Treasury had "recognized the burdens of small business compliance" two months earlier, and didn't offer "any factual support [of this claim] as required by law."
Silver also argued in his lawsuit that the TCJA regulations violate something called the Paperwork Reduction Act, which requires U.S. lawmakers to show that they took into account the potential compliance burdens they could be introducing to taxpayers in introducing new legislation, as well as something called the Administrative Procedures Act.
His lawsuit asked the court for a number of remedies, including the deferment of the regulations and possibly the underlying legislation until what he calls the "procedural defects" he is raising have been dealt with.
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