The Transition Tax is one of two major new international tax regimes created under the Tax Cuts & Jobs Act (TCJA) that became law in December 2017. The Transition tax imposed a one-time tax on over $2.5 trillion held in overseas subsidiaries of multinational companies such as Microsoft, Google and Apple. The Transition tax failed to create a carve out for small businesses. As a result, approximately 200,000 small to medium size businesses (i) found themselves and their tax professionals struggling to understand and comply with a complex law and hundreds of pages of impenetrable Treasury regulations, and (ii) paying tremendous compliance costs even though the vast majority of them never ended up owing any tax!
e-advocacy: involving community building, educating Congress and Treasury as to the problem, and defining & obtaining specific relief.
A. Treasury: Within two weeks of our launching an email campaign in March 2018, senior Treasury & IRS officials in charge of international taxation received hundreds of emails from business owners. Unaware of the problem, the officials agreed to meet on March 2018. Within 10 days of the meeting, Treasury granted the first form of relief. Within 3 months, Treasury Secretary Mnuchin himself approved a one year freeze on payments due from, and collection efforts against, small & medium size businesses.
B. Congress. Utilizing the same e-advocacy techniques, hundreds of small business owners reached out to members and staffers of the Senate Finance Committee and Ways & Means Committee, and party leadership - all on both sides of the aisle. Within 4 months, the Senate Finance Committee issued a draft bill exempting small and medium size businesses from the Transition tax.
When Treasury and Congress failed to provide businesses a full and complete exemption from the tax, we filed a lawsuit against Treasury for issuing the Transition tax regulations in violation of two federal statutes specifically designed to exempt smaller businesses from "one-size fits all" legislation. The lawsuit, based on two little-known laws, virtually never-before used in challenging federal agencies - the Regulatory Flexibility Act (RFA) and Paperwork Reduction Act (PRA) - overcame all the significant procedural challenges raised by Treasury. Not only did the court issue a one-way ruling dismissing these challenges in a complete surprise to all the high-powered experts, but in the ruling the court stated that "Treasury fundamentally misconstrues the case." We await a ruling on our motion for summary judgement, which we have repeatedly stated is a slam dunk. Our goal is clear: complete exemption for small and medium businesses from the Transition tax.
Bottom line (and we are always bottom line): Through effective and innovative use of (i) e-advocacy and (ii) practically never-before used federal statutes, we created an effective and feasible way to obtain complete relief from the Transition tax. We enable smaller businesses to secure concrete and permanent regulatory relief in the GILTI regulations.