Tuesday, May 2, 2023

SC Not Hear IRC § 965 Transition Tax Challenge

According to Law360, an American expatriate who runs an Israeli law firm will not get a chance to challenge regulations implementing the transition tax for overseas profits after the U.S. Supreme Court in Monte Silver Ltd. v. Internal Revenue Service et al., case number 22-907, on May 1, 2023 declined to hear the case

The top court's refusal to hear the case ends the challenge by Monte Silver, who had argued the Internal Revenue Service failed to undertake the required analysis of the regulations under the Regulatory Flexibility Act. Silver sued the government in 2019 over the regulations governing the one-time mandatory transition tax on overseas income, a provision of the 2017 Tax Cuts and Jobs Act. Companies had eight years to pay the deemed tax on foreign income.

Silver had claimed that he and his firm would incur compliance costs as a result of the rules each time the firm distributed a dividend to him, the firm's sole shareholder. He also had argued the rules shouldn't be enforced until the IRS analyzed their impact on small businesses, as required by the RFA.

In December, The D.C. Circuit uled That Silver Lacked Standing To Challenge The Regulations Under Article III Of The U.S. Constitution Because He Hadn't Been Injured By Them.

The injuries he claimed could be tied to other tax laws and rules, the appeals court found.

The court ruled Silver did not show that granting the requested relief would redress a past injury because he had already borne the costs of compliance in determining his liability and he didn't owe any tax. The court also found that Silver had failed to show imminent future injury, another way to satisfy Article III standing.

The U.S. District Court for the District of Columbia dismissed Silver's claim in 2021, finding that Silver failed to show his burden to comply with the new regulations would change if the government granted the relief he requested.

Silver also did not present facts showing that he would be harmed in the future by the regulations, the district court ruled. He alleged that he could end up paying costs to comply with the regulations but did not present actual facts showing that he would suffer an imminent injury, the opinion said.

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1 comment:

  1. DC Circ. Gives Expat's Challenge To GILTI Another Chance

    A D.C. federal court was wrong to dismiss an expatriate attorney's challenge to the global intangible low-taxed income regulations without addressing his argument that he had no other legal avenue, the D.C. Circuit said Friday as it remanded the case to the lower court.

    Monte Silver, who lives in Israel, had cited a U.S. Supreme Court decision supporting his argument that the Anti-Injunction Act did not apply to his challenge because he had no other way to litigate his claim, the circuit said in its ruling. The lower court's decision did not address his claim, the circuit said.

    When Silver raised the issue again, the federal government responded with an argument different from one it had raised in lower court, the court said. The issue may require factual development, according to the ruling, which specifically declined to express an opinion on Silver's argument.

    Silver's suit, filed in June 2020, sought the deferment of GILTI regulations until the U.S. Department of the Treasury issued a final regulatory flexibility analysis. Silver also wanted the Internal Revenue Service to publish guidance to assist small entities in complying with the rules.

    Such forms of relief do not implicate the AIA, Silver said, and were not considered by the district court.

    Silver also argued on appeal that the lower court failed to address an exception to the AIA that Silver said was created through a 1994 Supreme Court ruling in a suit by South Carolina against Treasury.

    Under the exception, the AIA does not apply when there is no alternative forum for claims, Silver said.

    "Plaintiffs easily satisfy the South Carolina exception to the AIA because applying the AIA here would leave them with no alternative procedural mechanism for raising their [regulatory flexibility analysis] claims," Silver wrote in his appeal.

    Silver told Law360: "We are pleased with today's decision by the D.C. Circuit Court of Appeals vacating the judgment of the district court which had dismissed the challenge brought on behalf of 200,000 small businesses to the GILTI tax regulations. Hopefully today's decision will give small businesses their day in court and receive a judicial determination whether the IRS and Treasury complied with the congressional mandate to assess the impact of the GILTI rulemaking on small business."