The Justice Department is seeking to immediately shut down a challenge to the validity of the transition tax regs, arguing that the regs’ complexity stems from the statute and the taxpayer lacks standing to sue.
In a memorandum in support of a motion to dismiss for lack of jurisdiction, the Justice Department on July 1 faulted Monte Silver’s complaint for failing to show how regulatory relief would lessen any burdens asserted by the taxpayer.
“Certainly, freedom from complex regulation is not itself a ‘legally protected interest,’” the memo states, while also arguing that Silver’s complaint leaves the cause of the injury unclear. “While Plaintiffs carp about the complexity of the regulations, they also repeatedly acknowledge that the underlying Internal Revenue Code sections 962 and 965 (“the tax statutes”) are themselves ‘very complex.’ . . . In fact, Plaintiffs never separate the burden imposed by the statutes from the alleged burden imposed by the regulations.”
The plaintiffs, an Israeli corporation and a U.S. citizen who is an Israeli resident and sole shareholder of the corporation, on January 30 filed suit against the IRS and Treasury in the U.S. District Court for the District of Columbia challenging the validity of the section 965 regs under the Regulatory Flexibility Act and the Administrative Procedure Act. The challenge asserts that Treasury “issued impenetrable regulations . . . that impose many unreasonably complicated burdens upon a vast number of small businesses and small business owners.”
The government memo also faults Silver’s allegations about procedural errors in finalizing the regs that require adequate explanations for Treasury decisions.
“The ‘procedural injury’ claim still suffers a fundamental flaw: Plaintiffs do not, and cannot, plausibly allege any lawful tweaks to the regulations that would mitigate the burden on them while also complying with the tax statutes, because — as the Complaint itself repeatedly suggests — the burdens are inherent in the statutes,” the memo states.
As expected, the government also filed its motion based on the Anti-Injunction Act (AIA).
Under the AIA, suits that would restrain the assessment or collection of tax are disallowed. The government memo cites Florida Bankers Association v. U.S. Department of Treasury, 799 F.3d 1065 (D.C. Cir. 2015), in support of its motion, in which the D.C. Circuit held that the AIA barred a regulatory challenge requiring U.S. banks to report interest earned by nonresident alien individuals or be subject to a penalty.
Given that the transition tax regs clarify calculations of section 965 liability and establish elections that affect the timing and payment of the tax, Silver’s request to remand the regs and stay their enforcement would constitute pre-enforcement judicial interference, the government argues. The brief asserts that this “is precisely the type of relief that the AIA and [Declaratory Judgement Act] forbid.”
In Silver v. IRS, No. 19-cv-247 (2019), the taxpayer is represented by Stuart J. Bassin of the Bassin Law Firm PLLC. The Justice Department’s lead attorney is Nishant Kumar.
