Silver v. Internal Revenue Service

• Court: District Court, District of Columbia
• Decided: November 7, 2022
• Docket: Civil Action No. 2020-1544
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

MONTE SILVER, et al., Plaintiffs v. Civil Action No. 20-1544 (CKK) INTERNAL REVENUE SERVICE, et al. Defendants.

MEMORANDUM OPINION (November 7, 2022)

This matter is before the Court on Defendants’ 1 [9] Motion to Dismiss. Plaintiff Monte

Silver and his Israeli tax firm Monte Silver, Ltd. (together, “Plaintiffs,” separately “Silver” and

“Silver, Ltd.”) claim that Defendants violated the Regulatory Flexibility Act, 5 U.S.C. § 601 et

seq. by failing to issue a “final regulatory flexibility analysis” (“FRFA”) as required when

promulgating particular tax regulations. Because the Court agrees it lacks jurisdiction over this

matter, and upon consideration of the pleadings, 2 the relevant legal authorities, and the entire

record, the Court shall GRANT Defendants’ [9] Motion to Dismiss.

1 Defendants are the United States Internal Revenue Service (“IRS”), the United States Department of the Treasury (“Treasury”), Charles P. Rettig in his official capacity as Commissioner of Internal Revenue, and Janet L. Yellen in her official capacity as United States Secretary of the Treasury. 2 The Court’s consideration has focused on the following documents: • Plaintiffs’ Complaint, ECF No. 1 (“Compl.”); • Defendants’ Memorandum in Support of Motion to Dismiss, ECF No. 9-1 (“Mot.”); • Plaintiffs’ Memorandum of Points and Authorities in Opposition to Defendants’ Motion to Dismiss for Lack of Jurisdiction, ECF No. 10 (“Pls.’ Opp.”); • Defendants’ Reply in Support of Motion to Dismiss, ECF No. 11 (“Repl.”); • Defendants’ Supplemental Brief, ECF No. 16 (“Defs.’ Supp. Br.”); and • Plaintiffs’ Supplemental Brief in Opposition to Defendants’ Motion to Dismiss, ECF No. 17 (“Pls.’ Supp. Br.”). In an exercise of its discretion, the Court finds that holding oral argument in this action would not be of assistance in rendering a decision. See LCvR 7(f).

1 I. BACKGROUND

For the purposes of the motion before it, the Court accepts as true the well-pleaded

allegations in Plaintiffs’ complaint. The Court does “not accept as true, however, the plaintiff’s

legal conclusions or inferences that are unsupported by the facts alleged.” Ralls Corp. v. Comm.

on Foreign Inv. in U.S., 758 F.3d 296, 315 (D.C. Cir. 2014). The Court recites only the

background necessary for the Court’s resolution of the pending Motion.

Before turning to the facts particular to this case, the Court must pause to note that

Plaintiffs unsuccessfully maintained a very similar suit in this jurisdiction, Silver v. IRS, 19-cv-

247 (APM) (D.D.C.) (Silver I). As here, Plaintiffs attempted to maintain a cause of action under

the Regulatory Flexibility Act to vitiate a regulation effecting a provision of the Tax Cuts and

Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054 (2017) (“TCJA” or the “Act”). The Court in Silver

I granted summary judgment in favor of the same defendants as here, concluding that Plaintiffs

lacked Article III and statutory standing. Silver v. IRS, 569 F. Supp. 3d 5, 8-10 (D.D.C. 2021)

appeal docketed No. 21-5116 (D.C. Cir. 2021). In that case, Plaintiffs argued that the Court

should set aside a one-time “transition tax” imposed by a regulation effecting the TCJA, a tax to

which Plaintiffs were not subject and never paid. Id. at 10.

Here, Plaintiffs challenge regulations effecting the TCJA’s provisions revising the “global

intangible low-taxed income” (“GILTI”) of certain “controlled foreign corporations” (“CFC”).

These tax provisions are complex, although their details are not particularly germane to this case.

Suffice it to say, the TCJA changed the tax rate that a U.S. shareholder pays on the foreign

earnings of a foreign corporation if those earnings are “repatriated” to the United States. See

TCJA § 14101(a); 26 U.S.C. § 245A. In essence, the TCJA sets a GILTI rate that is a U.S.

2 shareholder’s pro-rate share of the aggregate profit of its CFC(s) in excess of a ten percent return

on the U.S. shareholder’s pro-rate share of the CFC’s tangible assets. On June 21, 2019,

Defendants IRS and Treasury promulgated regulations under the broad heading “Guidance

Related to Section 951A (Global Intangible Low-Taxed Income), 84 Fed. Reg. 29288-01.

Among other things, it provides instructions on how to calculate a GILTI amount, what domestic

entities are subject to GILTI on foreign earnings, and also imposed certain reporting

requirements. See 83 Fed. Reg. 51072, 51072-73 (Oct. 10, 2018) (proposed rules). Because

these regulations define how GILTI is calculated, they determine, in part, the ultimate amount of

tax paid. See, e.g., 26 C.F.R. § 1.951A-1(c) (effective Jan. 22, 2022).

Plaintiff Silver is a United States citizen residing in Israel. Compl. ¶ 4. Plaintiff Monte

Silver, Ltd. is an Israeli corporation through which Silver provides legal services to, among

others, United States citizens and companies. Plaintiff Silver is the sole shareholder on Silver,

Ltd.. There is no allegation that either Plaintiff is a U.S. taxpayer or subject to GILTI taxes.

Indeed, Plaintiff has conceded in his briefing that “Silver Ltd. cannot owe any GILTI taxes as the

tax only applies to the U.S. shareholder.” Opp. at 10 (emphasis original). Plaintiffs further

allege that they “have incurred and will continue to incur on-going compliance costs relating to

GILTI into the future even though they owe no GILTI tax.” Id. (emphasis added). Again,

Plaintiffs’ sole claim is that the Court should set aside the GILTI regulations and remand to

Treasury because Treasury did not conduct a FRFA pursuant to the FRA. Neither Plaintiff

advances any other claim.

3 II. LEGAL STANDARD

A. Federal Rule of Civil Procedure 12(b)(1)

Under Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has

subject matter jurisdiction. Georgiades v. Martin-Trigona, 729 F.2d 831, 833 n.4 (D.C. Cir.

1984) (“It is the burden of the party claiming subject matter jurisdiction to demonstrate that it

exists.”). A court must accept as true all factual allegations contained in the complaint when

reviewing a motion to dismiss pursuant to Rule 12(b)(1). Banneker Ventures, LLC v. Graham,

798 F.3d 1119, 1129 (D.C. Cir. 2015) (“As it must on motions to dismiss for failure to state a

claim, a district court considering a motion to dismiss for lack of subject matter jurisdiction

accepts the allegations of the complaint as true.”). “Where necessary to resolve a jurisdictional

challenge under Rule 12(b)(1), ‘the court may consider the complaint supplemented by

undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus

the court’s resolution of disputed facts.’” Id. (quoting Herbert v. Nat’l Acad. of Scis., 974 F.2d

192, 197 (D.C. Cir. 1992)).

B. Federal Rule of Civil Procedure 12(b)(6)

Under Rule 12(b)(6), a party may move to dismiss a complaint on the grounds that it

“fail[s] to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). “[A]

complaint [does not] suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual

enhancement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 557 (2007)). Rather, a complaint must contain sufficient factual allegations that, if

accepted as true, “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570.

“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to

draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556

4 U.S. at 678. In deciding a Rule 12(b)(6) motion, a court may consider “the facts alleged in the

complaint, documents attached as exhibits or incorporated by reference in the complaint,” or

“documents upon which the plaintiff’s complaint necessarily relies even if the document is

produced not by the plaintiff in the complaint but by the defendant in a motion to dismiss.” Ward

v. D.C. Dep’t of Youth Rehab. Servs., 768 F. Supp. 2d 117, 119 (D.D.C. 2011) (citations omitted).

III. DISCUSSION

Defendants mount three main arguments in favor of dismissal: (1) lack of Article III

standing; (2) lack of subject matter jurisdiction under the Anti-Injunction Act and the Declaratory

Judgment Act; and (3) lack of statutory standing. 3 First, unlike in Silver I, because Plaintiffs

have pleaded that they face future injury, they have established Article III standing. However,

the Court concludes that the Anti-Injunction Act bars this action because the Plaintiffs aim to

interrupt a tax rule governing who pays what amount of tax. Because the Court lacks

jurisdiction, the Court does not address statutory standing, an issue that goes to the sufficiency of

Plaintiffs’ claim and not to the Court’s jurisdiction. See Lexmark Int’l, Inc. v. Static Control

Components, Inc., 572 U.S. 118, 128 & n.4 (2014).

A. Standing

“Standing to sue is a doctrine rooted in the traditional understanding of a case or

controversy.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). To establish standing,

Plaintiff bears the burden of demonstrating that he “(1) suffered an injury in fact, (2) that is fairly

traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a

favorable judicial decision.” Id. “This set for criteria implements Article III by limiting judicial

3 Initially, Defendants argued both that Plaintiffs lack standing to bring a claim under the RFA and the Paperwork Reduction Act. Plaintiffs have since conceded that they do not attempt to bring a claim under the PRA, so that argument is moot.

5 intervention to only those disputes between adverse parties that are ‘in a form . . . capable of

judicial resolution.’” Fl. Audubon Soc’y v. Bentsen, 94 F.3d 658, 663 (D.C. Cir. 1996) (quoting

Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 218 (1974)). At the pleading

stage, this requires Plaintiff to “‘clearly . . . allege facts demonstrating’ each element.” Id.

(quoting Warth v. Seldin, 422 U.S. 490, 518 (1975)).

Where a plaintiff challenges a regulation on a theory of procedural injury, the standing

“requirements are modified somewhat.” Nat’l Wildlife Fed. v. U.S. Army Corps of Eng’rs, 170

F. Supp. 3d 6, 11 (D.D.C. 2016). The plaintiff must show “both (1) that their procedural right

has been violated, and (2) that the violation of that right has resulted in an invasion of their

concrete and particularized interest.” Ctr. for L. and Educ. v. Dep’t of Educ., 396 F.3d 1152,

1159 (D.C. Cir. 2005) (emphasis altered). Increased compliance costs as a result of a

procedurally improper rule are sufficient to show such an injury. E.g., State Nat’l Bank of Big

Spring v. Lew, 795 F.3d 48, 53 (D.C Cir. 2015); Ass’n of Priv. Sector Colls. & Univs. v. Duncan,

681 F.3d 427, 458 (D.C. Cir. 2012). Beyond injury, however, a plaintiff must further plead

redressability, i.e., that “correcting the alleged procedural violation could still change the

substantive outcome in the [plaintiff’s] favor.” Narragansett Indian Tribal Historic Pres. Office

v. FERC, 949 F.3d 8, 13 (D.C. Cir. 2020) (emphasis omitted).

Defendants argue that Plaintiffs have not pleaded an injury that the Court could

conceivably redress, nor could Plaintiffs plead such an injury. Defendants insist that Plaintiffs

complain only that the underlying GILTI statute is onerous and confusing, and that a remand

would not rewrite the GILTI statute. Defs.’ Supp. Br. at 3. Defendants misunderstand Plaintiffs’

complaint.

6 Plaintiffs complain that they “have[] no idea how to comply [both] with GILTI [and] the

Final Regulations.” Compl. ¶ 37. They also argue that the instant regulations [are] “extremely

complicated and lengthy,” see id. ¶¶ 44-45, and that the lack of “any guide to assist small entities

in complying with the Final Regulations,” required under the RFA, has “adversely affected [and]

aggrieved” Plaintiffs. Id. ¶¶ 48, 50. Plaintiff Silver explains in a supplemental declaration that,

as a result, he and his “company . . . have been forced to spend funds, time[,] and effort to

comply with GILTI.” Declaration of Monte Silver, ECF No. 10-9, ¶ 12 (“Silver Decl.”). As

Plaintiffs argue on the merits, had Treasury issued a FRFA “to assist small entities in complying

with the Final Regulations,” Plaintiffs might spend less “funds, time, and effort to comply with

GILTI” in the future. Because, GILTI compliance occurs annually––unlike the one-time fee in

Silver I––the Court can fashion relief that could conceivably redress Plaintiffs’ claimed injury.

As such, the Court sees no Article III standing issues here.

B. AIA

Next, Defendants argue that the Anti-Injunction Act and Declaratory Judgment Act strip

the Court of subject matter jurisdiction. The Court agrees.

As the United States Court of Appeals explained in Cohen, the AIA excludes from the

jurisdiction of the federal courts any action “to restrain[] the assessment or collection of any tax.”

650 F.3d at 724 (quoting 26 U.S.C. § 7421(a)). “The AIA has ‘almost literal effect’: It prohibits

only those suits seeking to restrain the assessment or collection of taxes.” Id. (quoting Bob Jones

Univ. v. Simon, 416 U.S. 725, 737 (1974)). The AIA’s main aim is to “protect[] the

Government’s need to assess and collect taxes as expeditiously as possible with a minimum of

preenforcement judicial interference, ‘and to require that the legal right to the disputed sums be

determined in a suit for refund.” Bob Jones, 416 U.S. at 736-37 (quoting Enochs v. Williams

7 Packaging & Navigation Co., 370 U.S. 1, 7 (1962)). Interpreting Bob Jones, Cohen held that

action seeking to set aside a regulation promulgated by Treasury to procedural failures, e.g.,

failure to provide sufficient notice and comment, is not an action “seeking to restrain the

assessment or collection of taxes.” Id. at 727. In other words, under Cohen, the AIA bars an

action challenging a particular tax regulation only if it is concerned with “the trigger for levy and

collection efforts” or “the actual imposition of a tax against a plaintiff, and [] not third-parties

trying to contest the validity of a tax or to stop its collection.” Id. at 726.

Cohen’s approach has since been complicated somewhat by the Supreme Court’s decision

in CIC Servs., LLC v. IRS, 141 S. Ct. 1582 (2021), issued after the parties completed

supplemental briefing. There, the Court reiterated that “a person can typically challenge a

federal tax only after he pays it, by suing for a refund.” Id. at 1486. To determine whether an

action is precluded, a court must look to “the end or aim to which [the action] is directed.” Id. at

1589. In other words, the court must look to “the claims brought[,] injuries alleged . . . [a]nd[,]

most especially, . . . the relief requested.” Id. at 1590 (internal quotation marks omitted). On the

one hand, if, “look[ing] to the face of the taxpayer’s complaint,” the action seeks to set aside a

rule but not enjoin the collection of a tax related to the rule, then the action is not barred by the

AIA. Id. at 1590. On the other hand, “[i]f the dispute is about a tax rule,” in other words, a

revenue-raising rule, then “the sole recourse is to pay the tax and seek a refund.” Id. at 1593.

Applying this principle, the Court held that the AIA did not bar a suit challenging a regulatory

reporting requirement because the plaintiff sought only to enjoin a regulation that did not govern

the amount of tax collected or from whom. See id. at 1594.

Because neither Plaintiff appears to yet owe GILTI tax, this action presents rather more

unique circumstances. Certainly, the regulation at issue here actually imposes tax obligations; it

8 is not, for example, concerned only with “the IRS’s continued retention of [a taxpayer’s]

personal financial information” as a function of “information gathering.” See Harper v. Rettig,

46 F.4th 1, 8 (1st Cir. 2022) (applying CIC, concluding that AIA did not bar such a challenge).

At the same time, reading the complaint’s requested relief, it is, in actuality, “a challenge to the

assessment or collection of a tax itself.” See Franklin v. United States, 49 F.4th 429, 434 (5th

Cir. 2022) (applying CIC, AIA barred claim that penalty assessments were invalid under

Administrative Procedure Act because injunctive relief would effectively bar collection of

penalty tax). The complaint asks that the Court “[d]efer enforcement of the final rule against

Plaintiff and all other small entities until such time as the Court finds” the IRS has complied with

applicable procedural requirements. Compl. at 14. Pursuant to the TJCA, the IRS must, among

other things, promulgate “rules for the application of” some portions of the GILTI tax as defined

by statute. See 26 U.S.C. § 951A(f)(b). The IRS did precisely that in the challenged

regulations, further defining what entities are subject to GILTI and what amount must be paid. If

the Court “defers enforcement” of the challenged regulations, then it enjoins the IRS and

Treasury from collecting a tax in an amount and from entities that it has determined must pay the

requisite amounts.

Pursuant to Supreme Court precedent, the Court must effect the AIA to “permit the

United States to assess and collect taxes to be due without judicial intervention.” Enochs, 370

U.S. at 7. Particularly so here, where a challenge to a tax rule is not even brought by a plaintiff

due to pay the challenged tax. Because Plaintiffs have sued to block a rule governing who pays a

tax and in what amount, CIC mandates that the Court dismiss the complaint as barred by the

AIA.

9 IV. CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants’ [9] Motion to Dismiss and

DISMISSES Plaintiffs’ complaint for want of subject matter jurisdiction. An appropriate order

accompanies this Memorandum Opinion.

Dated: November 7, 2022 /s/ COLLEEN KOLLAR-KOTELLY United States District Judge