By David Hansen · June 12, 2020, 8:14 PM EDT
The U.S. Treasury Department's final regulations implementing the tax on global intangible low-taxed income, a provision of the 2017 federal tax overhaul, violate administrative law and must be suspended, an expatriate attorney told a D.C. federal court Friday.
The Tax Cuts and Jobs Act regulations implementing the tax on GILTI exclude an analysis of their impact on small businesses, American lawyer Monte Silver said in a complaint. The court should remand the regulations back to Treasury and defer enforcement until the agency complies, he said.
"The final regulations imposed and continue to impose unreasonably complicated and costly burdens upon a vast number of small businesses and small business owners like plaintiffs," Silver said in his complaint.
Treasury issued regulations implementing the pertinent Internal Revenue Code Section 951A in 2019. Many small companies, such as Silver's one-person law office in Israel, struggle to comply because the regulations are "impenetrable," he said in his complaint, which echoes his earlier, pending challenge to a separate international provision in the TCJA.
Treasury should have provided an initial and a final analysis of the impact the GILTI regulations would have on small businesses, as required by the Regulatory Flexibility Act, Silver said.
The act requires an analysis summarizing significant issues raised during the rulemaking process, estimating how many small companies will be affected, quantifying the administrative tasks firms must perform to comply and describing any steps taken by the government to minimize the impact, he said.
Treasury provided neither an initial nor final analysis because the department didn't think small businesses would be significantly affected, Silver said. The final regulations were 318 pages and 100,700 words long, he noted.
"Had defendants [taken] their administrative duties seriously and actually researched and analyzed the empirical data, they could not have issued the certifications that they, in fact, did," Silver said in his complaint. "Instead, defendants wrote off hundreds of thousands of small businesses by promulgating impenetrable and esoteric fiscal regulations that have a catastrophic effect on plaintiffs and similarly situated persons."
Small businesses are especially vulnerable to the burdens of complying with GILTI, Silver said. They can't take the credits and deductions available to large firms such as Apple and Google and end up paying more in taxes, he said.
The final regulations also violate the Paperwork Reduction Act and the Administrative Procedure Act, Silver said. The paperwork act requires federal agencies to certify that they have attempted to reduce the compliance burdens of new regulations on small companies, he said. The Administrative Procedure Act requires agencies to follow procedures when issuing regulations and to issue them in a way that is not arbitrary or capricious, he said.
Silver's other pending legal action has argued that final regulations for the transition tax provisions of the TCJA are too complicated and should not be enforced until Treasury analyzes their regulatory burden on small companies.
Administrative laws such as the Regulatory Flexibility Act are supposed to ensure that the federal government considers the resources and capabilities of small companies when it issues regulations, Silver told Law360 on Friday. Often, they are written for large companies and are difficult for businesses his size to comply with, he said.
Legal representatives of the U.S. Treasury Department declined to comment.
Silver is represented by Lawrence Marc Zell of Zell & Associates International Advocates LLC.
Legal representation for the government could not be determined.
The case is Monte Silver et al. v. Internal Revenue Service et al., case 1:20-cv-01544, in the U.S. District Court for the District of Columbia.