The government is not abandoning several of its defenses that would stop a challenge to the validity of its transition tax regs, even though the arguments were previously rejected by a district court.
The Justice Department filed its long-awaited answer in Silver v. IRS, No. 19-cv-247 (D.D.C. 2019), on February 7.
Monte Silver has challenged the validity of the final regs on the transition tax imposed on offshore accumulated earnings, citing the IRS‘s alleged failure to perform the required small-business impact evaluations necessary under the Regulatory Flexibility Act (RFA) and the Paperwork Reduction Act (PRA).
The government had sought dismissal of the suit on the grounds that Silver lacked standing or, alternatively, that the Anti-Injunction Act (AIA) barred the action. But Judge Amit Mehta of the U.S. District Court for the District of Columbia rejected that motion in December 2019 and allowed the case to proceed, much to the surprise of tax experts.
Under the AIA, suits that would restrain the assessment or collection of tax are disallowed.
The case could have significant ramifications not just for the transition tax regs, but for other IRS regs, which haven’t usually provided much in the way of analysis under the RFA or PRA.
In its answer, the government asserts five affirmative defenses, in addition to denying that the IRS was required to document its efforts to reduce the information collection burden on small businesses in its regs. Among the defenses are arguments reiterating that the AIA bars the suit and that Silver lacks standing because of a lack of injury or, even if injury existed, relief would not address the burden of calculating the tax.
“Defendants are mindful of the Court’s ruling on the Defendants’ Motion to Dismiss, but respectfully disagree with the Court’s conclusion as to the availability of other adequate remedies,” the answer states in response to allegations that the government violated the Administrative Procedure Act in promulgating its regs.
Patrick J. Smith of Ivins, Phillips & Barker Chtd. said he was not at all surprised that the government repeated its standing or AIA arguments, despite the court’s previous rejection of them.
“The government wants to leave no doubt of its position on these issues and undoubtedly is looking forward to getting this case to the D.C. Circuit, where I am sure they anticipate a more receptive audience to at least the AIA argument,” Smith said.
The government’s answer refuses to concede that Silver or his company are small entities that can make a claim under the RFA. It also says the district court lacks jurisdiction to review PRA violations. Finally, it argues that “there is no ground for declaratory and injunctive relief, because any alleged injury sustained by Plaintiffs will not and cannot recur in the future.”
Smith flagged that argument, centering on the one-time analysis of the applicability of section 965, as potentially the most interesting affirmative defense.
“It is clearly correct that past injury doesn’t confer standing. However, this argument is somewhat inconsistent with some of the things they have said in prior filings which suggested that the plaintiff might owe tax in the future under section 965 even though no tax was owed for the transition year,” Smith said. “Those statements in prior filings were clearly incorrect based on the fact, which they now acknowledge, that the section 965 tax is a one-time tax.”
Silver has argued that although he owes no tax under the provision, he must spend resources on transition tax compliance for future years.
In Silver, the Justice Department Tax Division is represented by Joseph A. Sergi, Laura M. Conner, and Nishant Kumar. Silver is represented by Stuart J. Bassin of the Bassin Law Firm PLLC.