Key Meetings, Inc. v. United States of America

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 KEY MEETINGS, INC., Case No. 25-cv-06520-WHO 8 Plaintiff, ORDER GRANTING MOTION TO 9 v. DISMISS COUNT THREE 10 Re: Dkt. Nos. 36

11 UNITED STATES OF AMERICA,

12 Defendant. 13

14 Plaintiff Key Meetings, Inc. (“Key Meetings”) brings this lawsuit against the United States 15 (the “government”) alleging an entitlement to the Employee Retention Credit (“ERC”) for the first 16 through third quarters of 2021. The government moves to dismiss in part, arguing that Key 17 Meetings’ ERC claim for the third quarter of 2021 (“third quarter”) is statutorily barred under 18 Section 70605(d) of the One Big Beautiful Bill Act (“Section 70605(d)”), that established a new 19 and retroactive deadline for ERC requests of January 31, 2024. Key Meetings contends that 20 Section 70605(d) violates the Due Process Clause as a retroactive tax that is not rationally related 21 to a legitimate legislative purpose. But as another court recently concluded,1 I find that Section 22 70605(d)’s retroactive application does not violate the Due Process Clause and it bars Key 23 Meetings’ claim for the third quarter. The government’s motion to dismiss Count 3 of the 24 Amended Complaint is GRANTED. 25 BACKGROUND 26 Key Meetings is a corporate event planning company located in San Francisco, California. 27 1 First Amended Complaint (“FAC”) [Dkt. No. 33] ¶¶ 1-2. On or about August 28, 2024, Key 2 Meetings filed IRS Form 941-X seeking the ERC tax credit for the first, second, and third quarters 3 of 2021. Id. ¶¶ 6-7. At the time, Key Meetings was eligible for the ERC for all three quarters and 4 within the statute of limitations for filing the claim. Id. ¶¶ 48. 5 On July 4, 2025, Congress enacted the One Big Beautiful Bill Act (“OBBBA”), and 6 Section 70605(d) set a retroactive deadline for all third quarter of 2021 ERC claims of January 31, 7 2024. Id. ¶¶50-51. Key Meetings filed this case on August 1, 2025, seeking recovery of the ERC 8 tax credit in the amount of $175,000 for all three quarters: a refund of $63,000.00 for the first 9 quarter (“Count One”), $56,000 for the second quarter (“Count Two”), and $56,000 for the third 10 quarter (“Count Three”). FAC ¶¶ 93, 102, 112. It asserts that its claim for the third quarter cannot 11 be rejected under Section 70605(d) because that section violates the Due Process Clause. See id. 12 ¶¶ 53, 111. 13 The government moves to dismiss only Count Three, which seeks the third quarter 2021 14 refund because that claim is barred by Section 70605(d). See Partial Motion to Dismiss (“Mot.”) 15 [Dkt. No. 36]. Key Meetings opposes, arguing that Section 70605(d) is unconstitutional. See 16 Opposition to Partial Motion to Dismiss (“Oppo.”) [Dkt. No. 38]. 17 LEGAL STANDARD 18 Under Rule 12(b)(6), a district court must dismiss a complaint if it fails to state a claim 19 upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must 20 allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 21 Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the plaintiff pleads facts 22 that “allow the court to draw the reasonable inference that the defendant is liable for the 23 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). There must 24 be “more than a sheer possibility that a defendant has acted unlawfully.” Id. While courts do not 25 require “heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a 26 right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570. 27 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 1 plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court 2 is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of 3 fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 4 2008). 5 DISCUSSION 6 Section 70605(d) provides:

7 Notwithstanding section 6511 of the Internal Revenue Code of 1986, 8 no credit under section 3134 of the Internal Revenue Code of 1986 shall be allowed, and no refund with respect to any such credit shall 9 be made, after the date of the enactment of this Act, unless a claim for such credit or refund was filed by the taxpayer on or before January 10 31, 2024.

11 Pub. L. 119-21, § 70605(d), 139 Stat. 72 (2025). If this retroactive provision is constitutional, Key 12 Meetings’ refund filing on August 28, 2024, was too late and the claim for the third quarter must 13 be dismissed.2 14 The Supreme Court has explained that due process requires that all retroactive economic 15 legislation, including taxes, (i) have a legitimate legislative purpose and (ii) further that purpose by 16 rational means. United States v. Carlton, 512 U.S. 26, 30-31 (1994). In other words, 17 “[r]etrospective economic legislation need only survive rational basis review in order to pass 18 constitutional muster.” Gadda v. State Bar of Cal., 511 F.3d 933, 938 (9th Cir. 2007). While 19 legislation with retroactive impact faces an additional due process barrier compared to 20 conventional forward-looking measures, “…that burden is met simply by showing that the 21 retroactive application of the legislation is itself justified by a rational legislative purpose.” 22 Pension Ben. Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 730 (1984) (citation omitted). 23 The Ninth Circuit uses a “deferential” standard to evaluate due process challenges to 24 retroactive tax legislation, asking “whether [the] retroactive application itself serves a legitimate 25 purpose by rational means.” Moore v. United States, 36 F.4th 930, 938 (9th Cir. 2022). No 26 27 1 evidence about the legislature’s actual intent is required for a statute to pass rational basis scrutiny, 2 only that the legislature “could have concluded rationally” that the facts warranted a statutory 3 response. Williamson v. Lee Optical, 348 U.S. 483, 487-88 (1955); Vance v. Bradley, 440 U.S. 4 93, 111 (1979). 5 The government argues that the rational basis test is readily satisfied because Section 6 70605(d) is intended to combat the increase in fraudulent ERC claims beginning in 2024. The 7 United States also points to legislative history, including statements by Congresspeople and IRS 8 findings, showing that ERC claims filed after January 31, 2024, had a higher rate of fraud. Key 9 Meetings responds that the constitutionality of Section 70605(d) cannot or should not be 10 determined at the motion to dismiss stage based on legislative history, but even if considered on 11 the merits, Section 70605(d) fails rational basis review and its third quarter claim should survive. 12 I. RESOLUTION ON MOTION TO DISMISS 13 Key Meeting argues that the court should deny the Motion to Dismiss because Rule 14 12(b)(6) “does not permit the Court to resolve constitutional balancing questions or to accept 15 Defendant’s characterization of legislative purpose as a matter of law.” Oppo. at 7. Numerous 16 courts have resolved Due Process Clause challenges at the 12(b)(6) stage, however. See, e.g., 17 Juggler Dave, 181 Fed. Cl. at 61 (“The retroactive application of this section adheres to the due 18 process standard for retroactive tax statutes . . . The motion to dismiss under RCFC 12(b)(6) is 19 granted.”); Moore v. United States, 2020 WL 6799022, at *6 (W.D. Wash. Nov. 19, 2020), aff’d, 20 36 F.4th 930 (9th Cir. 2022), aff’d, 602 U.S. 572 (2024) (“the MRT does not violate due process 21 and, as a tax on income, it is constitutionally valid … For the foregoing reasons, the Government’s 22 motion to dismiss [under Rule 12(b)(6)] is granted.”) (citation modified); Quarty v. United States, 23 1997 WL 1038148, at *6 (D. Ariz. Sept. 9, 1997), aff’d, 170 F.3d 961 (9th Cir. 1999) (“given the 24 legitimate purposes of Congress . . . [p]laintiffs’ takings claim is without merit as a matter of law. 25 The Court will, therefore, dismiss this claim [under] Rule 12(b)(6) as well.”). 26 Key Meeting alternatively argues that the factual allegations in the Complaint, if accepted 27 as true, state a plausible claim for relief. It alleges that the time limit imposed by the OBBBA that 1 of fraud.” Oppo. at 12-13; Iqbal, 556 U.S. at 678-79. That is not a factual allegation, it is a legal 2 conclusion. See Lacano Invs., LLC v. Balash, 765 F.3d 1068, 1071 (9th Cir. 2014) (“While we do 3 accept all of the factual allegations in the complaint as true . . . we do not accept legal conclusions 4 in the complaint as true, even if ‘cast in the form of factual allegations.’”) (citation omitted). Key 5 Meetings’ bare legal assertions of arbitrariness do not prevent me from determining whether 6 Congress had a rational basis for imposing a retroactive cutoff for refund claims in Section 70605(d). 7 II. JUDICIAL NOTICE OF LEGISLATIVE HISTORY 8 In support of its argument that Section 70605(d) is a plausible and rational legislative 9 action, the government cites several legislative sources, including a congressional release, a 10 congressional report, and press releases from the IRS and a United States Senator. See Mot. at 8- 11 10. Key Meetings contends that the government impermissibly relies on material outside the 12 pleadings to establish adjudicative facts and asserts the facts contained in those documents are not 13 “judicially noticeable.” Oppo. at 14-15. Neither assertion is correct. As the Supreme Court 14 recognized in U.S. R.R. Ret. Bd. v. Fritz, it is “constitutionally irrelevant” whether the plausible 15 reasons identified for a statute are Congress’s actual reasons, especially where the statute draws 16 lines. 449 U.S. 166, 179 (1980). Here, the government is not required to establish the true rate of 17 fraudulent ERC claims or that Congress drew the deadline perfectly if it can identify a plausible 18 reason for Congress to have done so. Its argument does not rely on the legislative history 19 documents to establish adjudicative facts but to suggest plausible legislative purposes underlying 20 Section 70605(d). 21 The legislative history sources identified by the government are judicially noticeable to 22 establish that plausible legislative purpose. I may consider all material subject to judicial notice in 23 12(b)(6) motions, which includes “public records and government documents.” See United States 24 v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); Chavez v. Allstate Northbrook Indem. Co., 2025 WL 25 1757543, at *4 (S.D. Cal. June 25, 2025); see also Juggler Dave & Friends, LLC v. United States, 26 181 Fed. Cl. 52 (Fed. Cl. Mar. 25, 2026) (considering the same legislative history sources in 27 finding Section 70605(d) satisfies rational basis review). III. RATIONAL BASIS REVIEW 1 Turning to the merits of the parties’ arguments, Key Meetings contends that Section 2 70605(d) “does not bear a rational connection to” the legitimate legislative purpose of combating 3 fraud because the chosen cutoff date is arbitrary and excludes otherwise valid claims filed after 4 that date. Oppo. at 15-16. Key Meetings also identifies other statutory mechanisms that in its 5 view adequately address potentially fraudulent claims and thereby undercuts the necessity or 6 rationality of Section 70605(d). Id. at 17-18. 7 The resolution here is controlled by the Supreme Court’s decision in United States v. 8 Carlton, 512 U.S. 26 (1994). There, the Court held that a retroactive bar on estate tax deductions 9 did not violate due process. Id. at 35. It considered whether there was a due process violation 10 when Congress had implemented an estate tax deduction for an estate’s sale of employer stock 11 ownership plans and then later retroactively restricted the deduction to only stock ownership plans 12 directly owned by the decedent before death. Id. at 28-29. The Supreme Court concluded that the 13 retroactive legislation was rationally related to the legitimate legislative purpose of closing a 14 loophole in the original tax deduction legislation that allowed for “sham transactions.” Id. at 31- 15 32. 16 The government asserts that, as in Carlton, Section 70605(d) rationally relates to the 17 legitimate legislative purpose of preventing fraudulent ERC claims that were allowed under the 18 earlier ERC statute. Mot. at 12-13. Key Meetings attempts to distinguish Carlton by claiming 19 that there the government attempted to cure a drafting error, unlike here with Section 70605(d) 20 where there was no such error. Instead, here the government made a “deliberate policy choice” to 21 abandon the government’s prior obligations to administer the tax credit. Oppo. at 20. 22 This argument fails. Key Meetings does not dispute that Congress had a legitimate 23 legislative interest in addressing the increase in fraudulent ERC claims that started in 2023. 24 Oppo. at 15; see also Mot. at 12-13. Section 70605(d)’s January 31, 2024, cutoff date for new 25 ERC claims is a plausible and rational response to that concern because it bars claims Congress 26 believed were more likely to be fraudulent than others. See H.R. Rep. 118-353, pt 1, at 94 (2024) 27 (“[D]isallowing new and amended claims for refund or credit of the ERTC after the end of January 1 2024, serves to limit waste, fraud, and abuse in the tax system.”); Press Release, I.R.S., IR-2023- 2 169 (Sept. 14, 2023) (“rising concerns about a flood of improper Employee Retention Credit 3 claims . . . ”); see also Juggler Dave, 181 Fed. Cl. at 58-59 (finding rational basis for Section 4 70605(d) based on Congressional and IRS statements about ERC fraud risk). As this rate of fraud 5 was not anticipated by the original ERC statute, Congress acted to “cure” the newly revealed flaw 6 in that statute by restricting ERC eligibility retroactively. See Carlton, 512 U.S. at 32. 7 Key Meetings points to other provisions of the OBBBA which, in its view, more rationally 8 and effectively address ERC fraud, including extending the period during which the IRS can 9 review ERC claims for fraud and increasing the penalties against fraudulent “COVID-ERTC 10 promoter[s]” who many believe created the majority of identified ERC fraud. Oppo. at 17-18. 11 The Constitution does not require legislators to implement only the most efficient or effective 12 solutions to identified problems, only rational ones. Armour v. City of Indianapolis, Ind., 566 U.S. 13 673, 685 (2012). While Key Meetings argues that the alternative provisions might be more 14 “narrowly tailored” to target fraud and thus more rational than Section 70605(d)’s blanket bar, 15 Section 70605(d) remains a rational and permissible measure addressing ERC fraud concerns. See 16 id. 17 In Juggler Dave & Friends, LLC v. United States, the Court of Federal Claims considered 18 and rejected similar due process arguments against Section 70605(d). Juggler Dave, 181 Fed. Cl. 19 at 61. The court first concluded that Section 70605(d) did not impose a retroactive “wholly new 20 tax,” which would face higher due process scrutiny, because the time bar only altered the 21 eligibility criteria for the existing ERC claims. Id. at *4-5. The court then determined that 22 Section 70605(d) fulfills a legitimate and rational legislative purpose in combating fraud and 23 abuse in the ERC system and is “curative and remedial in nature” because it eliminates a fraud- 24 prone credit that is no longer justified following the end of the pandemic. Id. at *5. Finally, the 25 court rejected the plaintiff’s arguments that Section 70605(d) is insufficiently tailored to address 26 ERC fraud since the statute must only be a “rational means” to do so, not narrowly tailored as 27 under a higher level of scrutiny. Id. at *6. I find this analysis persuasive; Key Meetings did not 1 address it.3 2 IV. REASONABLE RELIANCE 3 Key Meetings also argues that it reasonably relied upon the then-current ERC filing 4 deadline when it submitted its third quarter ERC claim on August 28, 2024. Oppo. at 21. Key 5 Meetings contends it was harmed by this reliance by retaining staff it would have laid off without 6 its ERC eligibility. Id. While Section 70605(d)’s retroactive bar prevented the claim for quarter 7 three of 2021 filed in 2024, Key Meetings could have claimed that credit on its initial 2021 tax 8 return or at any time between 2021 and 2024. Mot. at 16. Key Meetings’ delay in filing for the 9 credit eliminated any reliance interest Key Meetings might have held in its ERC credit. See 10 Juggler Dave, 181 Fed. Cl. at 60 (holding that plaintiff had no reliance interest in ERC credit after 11 waiting two years to file); Honeywell, Inc. v. United States, 973 F.2d 638, 643 (8th Cir. 1992) (by 12 waiting to claim tax credits for hiring employees, Honeywell assumed the risk of losing those 13 credits due to a change in law). Even if Key Meetings had a reliance interest in the pre-Section 14 70605(d) deadline, “reliance alone is insufficient to establish a constitutional violation.” Carlton, 15 512 U.S. at 33. 16 V. EXCESSIVE RETROACTIVITY 17 Finally, Key Meetings argues that the Section 70605(d)’s 16-month retroactive period is 18 excessive and “severe” due to its complete bar on previously valid claims. Oppo. at 22. In 19 evaluating retroactive taxes, “length of the period retroactively affected [is] merely as a factor… in 20 the overall assessment of the constitutionality of the legislation.” Licari v. Comm'r, 946 F.2d 690, 21 695 (9th Cir. 1991) (quoting Canisius Coll. v. United States, 799 F.2d 18, 27 (2d Cir. 1986)). 22 3 Key Meetings raised a new argument during the hearing on this motion. It attempted to 23 distinguish Section 70605(d) from Carlton and other cases where retroactive tax statutes were upheld under rational basis review because Section 70605(d) imposed a purely procedural change 24 in deadlines, whereas the other cases all addressed substantive changes to tax eligibility. As an initial matter, this argument is waived because it was not raised in Key Meetings’ motion or reply. 25 Stockton v. Brown, 152 F.4th 1124, 1143 (9th Cir. 2025). Even if it had been properly raised, it fails. Carlton and the other cases applying rational basis review to retroactive tax statutes did not 26 themselves draw a distinction between substantive retroactive changes and procedural changes. And other courts have applied the same rational basis review to “purely” procedural changes. See 27 Juggler Dave, 181 Fed. Cl. at 57; Valero Mktg. & Supply Co. v. United States, No. 5:19-CV-328, ] Section 70605(d)’s 16-month retroactivity period is not an outlier; courts have upheld similarly 2 || long and longer retroactive periods for other tax provisions. See, e.g., Carlton, 512 U.S. at 32 (a 3 14-month retroactive tax); Licari, 946 F.2d at 693-95 (a 4-year retroactivity period for increased 4 || penalty rates on underreported taxes). Juggler Dave reached the same conclusion regarding 5 Section 70605(d)’s retroactive deadline, noting “there is no fixed limit on retroactivity.” Juggler 6 || Dave, 181 Fed. Cl. at 59. Section 70605(d)’s retroactivity period is not excessive and does not 7 || violate due process. 8 CONCLUSION 9 Section 70605(d)’s retroactive bar on ERC claims rationally implements the legitimate 10 || legislative purpose of combating fraud and does not violate the Due Process Clause. Key 11 Meetings submitted its third quarter ERC claim after the statutory deadline. Section 70605(d) bars 12 || recovery. Therefore, 1 GRANT the government’s motion and Count 3 of the Amended Complaint 13 is DISMISSED without leave to amend. IT IS SO ORDERED. 3 15 Dated: June 26, 2026

17 ® 18 illiam H. Orrick Senior United States District Judge 19 20 21 22 23 24 25 26 27 28