Simpao v. Government of Guam

• Court: District Court, D. Guam
• Decided: June 15, 2005
• Docket: 1:04-cv-00049
• Status: Unknown

Opinion

| FILED DISTRICT COURT OF GUAM

3 JUN 15 2005 : MARY L.M. MORAN | CLERK OF COURT 5 □ 6 DISTRICT COURT OF GUAM 7 TERRITORY OF GUAM 8 || MARY GRACE SIMPAO, CHRISTINA ) Civil Case No. 04-00049 10 | NAPUTI and JANICE CRUZ, on behalf of ) | themselves and a class of others similarly ) 1 | situated, ) ) 12 Plaintiffs, B Vs. ORDER 14 || GOVERNMENT OF GUAM, ) ) 15 | Defendant. 16 | 17 | This matter is before the Court on the Plaintiffs’ Partial Summary Judgment motion. See 18 | Docket No. 59. After hearing argument from counse! and reviewing the parties’ submissions, as 19 || well as relevant caselaw and authority, the Court hereby memorializes the bases for its rulings 20 | herein. □ 21 BACKGROUND 79 In the tax years prior to 1995, Guam taxpayers claimed the Earned Income Tax Credit

23 | (“EIC”) and the Government of Guam paid it.! However, in the years 1995 and 1996, the | Government of Guam stopped paying the EFC. In 1996 the Department of Revenue and Taxation 25, 26 'The BIC also referred to as the EITC was first enacted by the United States Congress in | 1975 and codified as Section 43 of the U.S. Internal Revenue Code of 1954. See U.S. Public 97 | Law 94-12, § 204. The EIC is a refundable Federal income tax credit for low-income working individuals and families. It allows an eligible individual to claim a tax credit against the amount 28 || of income tax liability, if any, on his or her annual income tax return.

1 | (“DRT”) issued a ruling (“Revenue Ruling No. 96-001”) regarding whether the EIC applied in 2 | Guam under the Guam Territorial Income Tax (“GTIT”). See Canto Decl., at Exhibit C, attachec 3 thereto. It concluded that it did not. The Attorney General of Guam issued his own opinion on 4 | the matter and agreed with the DRT’s ruling. J/d., Exhibit B (“Attorney General of Guam 5 || Memorandum Opinion DRT/DOA 96-001 (‘1996 AG Opinion’)), attached thereto. 6 In light of the DRT’s ruling and Attorney General’s opinion, the Government of Guam 7 | published that EIC was inapplicable in Guam on its tax return forms for the years 1995 and 1996 8 | and 1999 through 2003.” See Answer at 3. For example, the 1999 1040A tax form contained 9 || the language “Not Applicable” where Earned Income Credit was listed. See Canto Decl., 10 Exhibit L, attached thereto.’ For the years 1997 and 1998, such prohibitory language was not on 1] the Government of Guam’s tax forms. See /d., Exhibit E, attached thereto. 12 | For tax years 1995 and 1996, the Government of Guam did not pay refunds associated 13 with EICs. See Answer at § 18. In the years 1997 and 1998, qualified Guam taxpayers could 14 ff claim EIC on their tax returns. However, only some of the EIC claims were paid for the tax year 15 | 1997 and with the exception of one individual taxpayer, no EICs were paid for the tax year 1998. 16 | Id. at 7, 21 and 23. No EICs were paid for the tax years of 1999 through 2003. 17 | On January 12, 2005, the Governor of Guam issued an Executive Order indicating the 18 | Government would establish a procedure whereby EIC claims would become a part of a qualified 19 | taxpayer’s tax return. See Canto Decl., Exhibit F, attached thereto. Shortly after the Governor 20 | issued this order, the DRT published forms with which to make claims for the relevant tax years 21 | of 1995 though 2004. Jd, at Exhibit G, attached thereto. 22 | The plaintiffs have collectively filed individual income tax returns with the Government 23 of Guam during the tax years 1995 through 2003. See Canto Decl., at Exhibit L, attached thereto 24 || None of the plaintiffs received an EIC offsetting the taxes paid during those years. Additionally,

26 | , | Guam issues it own 1040 forms. | > The plaintiffs in some of the years in question actually used the federal form 1040 which 8 did not black out the EIC portion. | ,

I | none of the plaintiffs filed an administrative claim for a refund of overpaid taxes. The plaintiffs. 2 || Mary Grace Simpoa, Christiana Naputi and Janice Cruz,* on behalf of themselves and a class of 3 || other similarly situated, (“plaintiffs”) brought this action against the Government of Guam 4 || seeking declaratory relief regarding the applicability of the EIC to Guam taxpayers and refunds 5 | from tax overpayments. 6 DISCUSSION 7 The plaintiffs now move for partial summary judgment and seek the following relief: (1) 8 |] A declaration that, under the GTIT, the EIC applies to Guam and requires refunds of properly 9 | claimed EIC claims; (2) A declaration that, by filing income tax returns that contain no claim for 10 | the EIC, the plaintiffs have nonetheless exhausted their administrative remedies as required by 11 | the GTIT as a condition precedent to bringing suit; (3) A declaration and injunctive relief 12 | requiring the Government of Guam to provide notice to plaintiffs of their right to file EIC claims 13 | and creating procedures for filing such claims under the GTIT, or alternatively, a declaration that 14 the Government of Guam must refund EIC claims to plaintiffs upon filing proper amended tax 15 | returns containing an EIC claim under the GTIT; and (4) A declaration and injunctive relief that 16 || the Government of Guam must enforce certain local Guam laws concerning amounts that are 17 | alleged to be required to be set aside to pay the EIC. 18 | Summary judgment is appropriate when the evidence, read in the light most favorable to 19 | the nonmoving party, demonstrates that there is no genuine issue as to any material fact, and the 20 | moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c), The party . 21 opposing summary judgment cannot rest on conclusory allegations, but must set forth specific 22 | facts showing that there is a genuine issue for trial. Leer v. Murphy, 844 F.2d 628, 631 (9" Cir. 23 1988). Moreover, to defeat a summary judgment motion, the nonmoving party must come 24 | forward with evidence sufficient to establish the existence of any disputed element essential to 254|| that party's case, and for which that party will bear the burden of proof at trial. Celotex Corp. v. 26 | ———_______ 7 | ‘On April 14, 2005, when the summary judgment motion was filed, Janice Cruz, was not a named plaintiff. However, on April 18, 2005, plaintiffs filed a Second Amended Complaint 28 wherein, plaintiff Cruz was added.

: 1 Catrett, 477 U.S. 317, 322, 102 S.Ct. 2548 (1986). 2 | Before addressing the merits of the motion, the defendant makes a number of objections. 3 | The defendant first contends that the plaintiffs’ motion is premature. The motion is based on the 4 } Second Amended Complaint. However, the motion was filed on April 14, 2005 and the Second 5 | Amended Complaint was filed on April 18, 2005, four days after the motion. The defendant 6 | claims that in filing the motion, the plaintiffs misrepresented that the Second Amended 7 | Complaint contained no new facts, “apart from the addition of the plaintiff. All of the 8 | defendant’s answers therefore to the Second Amended Complaint are required to be identical to 9 its answers to the First Amended Complaint, save for those referring. to the newly added Plaintiff 10 | Janice Cruz.” See Motion, p.2. The defendant claims that this is not true. This Court agrees. In 11 | comparing the First Amended Complaint with the Second Amended Complaint, the Court notes 12 | that there are changes in the Second Amended Complaint that pertain to the original plaintiffs, 13 | Ms. Simpao and Ms. Naputi.’ Notwithstanding the changes to the Second Amended Complaint, 14 | the substance of the complaint remains the same. Moreover, the changes have no bearing on the 15 | relief sought in the motion requiring this Court to hold the motion in abeyance. 16 The defendant also argues that the Declaratory Judgment Act and Anti-Injunctive Relief 17 Act prohibit the relief sought. The Declaratory Judgment Act states that: □

18 | [ijn a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 19 | 7428 of the Internal Revenue Code of 1986 .. . any court of the United States ... may declare the rights and other legal relations of 20 | any interested party seeking declaration, whether or not further | relief is or could be sought. | 28 U.S.C. § 2201(a), The defendant argues that the Declaratory Judgment Act prohibits declaratory reef with respect to federal taxes. (Emphasis added.) However, in this instance, the plaintiffs argue that | GTIT is not a federal tax so therefore the Declaratory Judgment Act does not bar the relief

26 pe *The plaintiffs are admonished that they are to exercise care in making representations to the Court and are cautioned that any further misrepresentations may result in the imposition of 28 ¥ sanctions and/or other action deemed appropriate. 4 .

1 sought. This Court notes that this issue was discussed and ruled upon in the Court’s prior Order 2 | concerning the defendant’s motion to dismiss. Honorable Ronald S.W. Lew agreed with the 3 | plaintiffs and found that the Declaratory Judgment Act did apply. Likewise, the Court addressed 4 || the applicability of the Anti-Injunction Act in its prior Order. The Anti-Injunction Act generally 5 | prohibits suits “for the purpose of restraining the assessment or collection of any tax.” 26 oe 6 | US.C, § 7421{a). Judge Lew held that the Anti-Injunction Act did not bar the plaintiffs’ claims 7 || because the suit was not brought for the purpose of restraining the assessment or collection of 8 taxes, but was instead brought for the applicability and enforcement of the EIC. This Court finds 9 | Judge Lew’s rulings to be the law of the case and will not otherwise disturb them. See United

10 | States v. Lummi Indian Tribe, 235 F.3d 443, 452 (9th Cir.2000) (“Under the law of the case i1 | doctrine, ‘a court is generally precluded from reconsidering an issue previously decided by the , 12 same court, or a higher court in the identical case.’”’). 13 | Turning now to the real issue before the Court, does the EIC apply to Guam and if so, 14 what actions must the Government of Guam take in order to administer it. At the outset of its 15 | discussion, the Court notes that this issue has been unsettled for years.

16 | Apparently, the issue was first raised in 1989. The Attorney General concluded in 17 Memorandum Opinion No. DOA 89-0750 to the Director of Administration (“DOA”), that Guar 18 }| was obligated to pay the EIC in excess of the tax owing. See Canto Decl., at Exhibit A, attached 19 | thereto. The Attorney General stated that: 20 | Guam currently uses a mirror image of the Internal Revenue Codes as its basis for collecting income taxes. Some time ago, the 21 | Territory received the permission of Congress to enact its own tax code in the 1986 Tax Reform Act.’ By Executive Order, we have 22 established the Guam Tax Reform Commission to determine and recommend how we will delink from IRC. The Earned Income 23 Credit (EIC) and its applicability to Guam is one of the issues currently before the Commission. We have been informed that 24 Guam had previously received an annual reimbursement from the 25 | —_—_____—- 26 | *See Order, Docket No. 53. 97 | In 1986, Congress authorized Guam to “de-link” from the LR.C. and pass its own tax | laws that would go into effect “upon an exchange of notes” by the governments of Guam and the 28 || United States, Tax Reform Act of 1986, §§ 1271, 1277(b), Pub.L. No. 99-514, 100 Stat.2085.

1 federal government amounting to several million dollars, but that the practice was halted during the administration of President 2 | Carter. 3 | It appears that because we have the authority to delink from IRC, i and yet choose not to do so (if only by our action), that we are in 4 a position of being responsible for any shortfall resulting from following federal tax policies which are entirely discretionary upon 5 us. We might be able to attempt to seek reimbursement for the estimated or actual shortfall caused by Earned Income Credit. 6 | However, the response of Congress is likely to be that we merely have to rewrite our local tax code to remove this burden, 7 | A few years later, on or about January 4, 1996, the Attorney General revoked its earlier 8 . Memorandum Opinion DOA 89-0750 and adopted the DRT’s Revenue Ruling 96-001. 9 | See Canto Decl., at Exhibit B, attached thereto. The Attorney General decided that: (1) EIC was 10 } not applicable in Guam and should not be administered by DRT, and (2} DRT should not certify. tL | | to the DOA for the payment of any amounts owing as refundable EIC. Id. 12 | In response to the change in tax policy the Legislature enacted its own program (Guam 13 | Eamed Income Program) to ensure that Guam’s taxpayers would receive the FIC. See 11 Guam 14] | Code Ann. § 4108. The program mirrored the federal program under 26 U.S.C. § 32. However, 15 | ‘ | the program was never implemented and in 2000, the Legislature filed a declaratory judgment 1 | -action with Guam’s Supreme Court asking for its opinion as to whether Guam’s taxpayers were 17 | | entitled to the EIC, pursuant to Subtitle A of the IRC and applied to Guam by the operation of the 18 Organic Act, 48 U.S.C, § 1421 et seq. See In re Request of I Mina’Bente Sing’Kona 19 Liheslaturan Guahan Relative to the Application of the Earned Income Tax Credit Program to 20 1 | Guam Taxpayers (“The EIC question”), 2001 Guam 3, 2001 WL 113985 (Sup. Ct. Guam 2001). After providing a thorough description of the history of the EIC, the Guam Supreme Court held 22 | | that the EIC must be applied in mirrored fashion to Guam. This Court agrees. 23 | Guam’s tax code is based on the Internal Revenue Code. It is made applicable to Guam 24 | 95 | by the Organic Act and by the provisions of the Code itself, Organic Act §1421i(k}; Internal | Revenue Code § 7651. In effect, the Congress established a mirror system of taxation. 26 The Organic Act of Guam states: 27 | (a) Applicability of Federal laws; separate tax 28 |

Hy 1 | The income tax laws in force in the United States of America and those which may hereafter be enacted shail be held to be likewise 2 | in force in Guam: Provided, That notwithstanding any other provision of law, the Legislature of Guam may levy a separate tax 3 | on all taxpayers in an amount not to exceed 10 per centum of their annual income tax obligation to the Government of Guam. 4 | (b) Guam Territorial income tax 5 I The income-tax laws in force in Guam pursuant to subsection (a) 6 | of this section shall be deemed to impose separate Territorial income tax, payable to the government of Guam, which tax is 7 designated the “Guam Territorial income tax.” 8 | 48 U.S.C. § 1421i(a) and (6). 9 | Title 48 U.S.C. § 1421i(d) adds: 10 (1) The income tax laws in force in Guam pursuant to subsection (a) of this section include but are not limited to the following 11 provisions of the Interna] Revenue Code of 1986, where not manifestly inapplicable or incompatible with the intent of this 12 section: Subtitle A Ps U.S.C.A. § letseq.]...andall provisions of subtitle F (26 U.S.C.A. § 6001 et. seq.]... 3 Section 31 of the Organic Act specifically lists the mirroring provisions, including 14 ; Subtitle A of the LR.C. which creates and defines the EIC.* The EIC was enacted in 1975 to i ‘ | provide tax benefits to low-income workers in the hopes that these benefits would make working 164. | more attractive than welfare. Since that time, Guam taxpayers applied for and received EICs 17 18 | until 1995 when the Government of Guam had a shift in tax policy and decided that it was not |. responsible for the payment of the EIC. 19 | However, it would appear that the shift in policy was more attributable to a shortfall in 20 | 5 the public coffers than one in legal reasoning. In DRT’s Revenue Ruling No. 96-001, the 1] director stated that “[a] definitive ruling by the Director of DRT is necessary at this time because 5 | GovGuam has experienced large amounts of lost revenue and cash outlays under the EITC.” 3 See Canto Decl., at Exhibit C, attached thereto. Guam’s taxpayers should not be made to pay for 24 the financial woes of its sovereign. If Guam is unable to pay for the EIC, it alone, has the power 25 | ‘5 | to change its tax code by delinking from the IRC in accordance with the Tax Reform Act of - 2 27 *§Section 6401(a) of Subtitle F directs the taxing authority to refund the EIC to the taxpayer or credit the EIC overpayment against the taxpayer’s liabilities,

1 | 1986, or by enacting an additional tax to cover its expenses. See 48 U.S.C. § 1421i(a}. Short of 2 | those options, the Court finds that as a matter of law, Guam must pay the EIC. 3 | Moreover, the Court notes that the defendant seemingly has conceded that the EIC applie: 4 to Guam. The defendant stated in its Clarification of Defendant’s Opposition to Plaintiff's 5 | Motion for Partial Summary Judgment that “[t]he position of the Office of the Attorney General, 6 on behalf of the Government of Guam, with respect to the Earned Income Tax Credit (“EIC”) is 7 } Set forth in the Settlement Agreement entered into on June 14, 2004...” That Settlement 8 | Agreement was attached as Exhibit A to a Stipulated Order Granting Preliminary Approval of p g ary App 9 | Class Action Settlement. Some of the positions set forth in the Stipulated Order were as follows: 10 | 2. “BIC Class” means all persons who (a) filed Guam tax returns and (b) were and are entitled to be paid refundable earned income 11 | tax credits under the Guam Territorial Income Tax and the Earned | Income Program for any or all of the following tax years: 1996, 12 | 1998, 1999, 2000, 2001, 2002 and 2003. 13 3. The EIC Class members, otherwise eligible, are entitled to the Earned Income Tax Credit, pursuant to a provision in Subtitle A of 14 | the Internal Revenue Code and applied to Guam by operation of | the Organic Act, 48 U.S.C. § 1421 et seq. 15 | | 4. The Government of Guam is required to pay the Earned Income 16 Tax Credit to eligible taxpayers.” 17 || Additionally, the Government of Guam further stated “[t]he Government of Guam does not 18 |] oppose the Motion for Partial Summary Judgment to the extent it will determine whether the EIC 19 | applies to the People of Guam as a matter of law.” 20 Having decided that the EIC applies to Guam, the next question is whether the taxpayers 21 | exhausted their administrative remedies in claiming the EIC. According to 26 U.S.C, § 7422(a) « 22 | taxpayer is required to file a claim for a tax refund before filing suit.’ However, in this instance, 23 | 24 *See Clarification of Defendant’s Opposition to Plaintiff's Motion for Partial Summary 25 Judgment. Docket No. 81. 26 See Certified Copy of Stipulated Order Granting Preliminary Approval of Class Action Settlement With Attached Settlement Agreement in Santos Case, CIV04-00006, Docket No. 82, 27 | page 2. 28 | 126 U.S.C. § 7422 states: .

1 the plaintiffs argue that the filing of an income tax return acts as a claim for the BIC, since the 2 | Government of Guam affirmatively took steps to prohibit a taxpayer from actually filing an EIC 3 | claim. The Government of Guam represented to the taxpayers that the EIC was inapplicable or 4 | not available on Guam. See Canto Deci., Exhibit L, attached thereto. The DRT’s policy was to 5 # reject claims where individual taxpayers attempted to write EIC claims on their Guam tax forms, 6 | submit the U.S. versions of the forms (which did not block out the EIC box), submit the Form 7 | 1040 X” or submit letters or informal claims. See Camacho Decl., at 99. It was DRT’s policy 8 | to return such forms to the taxpayer and (sometimes) provide the taxpayer with a copy of the 9 | Revenue Ruling stating the EIC did not apply in Guam. This Court is concerned that the 10 | Government took actions that discouraged if not actually affirmatively prohibited the filing of a 11 | return with the request for the EIC. The Court therefore finds under the circumstances, the filing 12 | of the tax returns should be considered a claim satisfying the jurisdictional requirement under 26 13 U.S.C. § 6511." 14 | The plaintiffs next seek declaratory and injunctive relief requiring the Government of 15 | Guam to provide notice to plaintiffs of their right to file EIC claims and creating procedures for 16 filing such claims under the GTIT, or alternatively, a declaration that the Government of Guam 17 must refund EIC claims to plaintiffs upon filing proper amended tax returns containing an EIC 18 | 19 (a) No suit prior to filing claim for refund. . 20} No suit or proceeding shall be maintained in any court for the 21 | recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty i claimed to have been collected without authority, or of any sum 934 alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with 24 the Secretary, according to the provisions of law in that regard, and 25 _ the regulations of the Secretary established pursuance thereof. 16 "As used in the federal system, Form 1040 X is used for amended tax claims. 27 | 3 Although the Court has jurisdiction based on the filing of the claims, the Court will __ jf refrain at this time from addressing whether the statute of limitations would act as a bar to many 28 of the claims pursued in a refund suit. See 26 U.S.C. § 6532(a)(1).

1 | claim under the GTIT. The Government of Guam claims that this issue is moot and the request 2 | unnecessary as the Government of Guam is already accepting EIC claims and permitting the 3 | amendment of tax returns to facilitate such claims, to the extent permitted by federal and 4 | territorial law. See Camacho Decl., at Exhibit 2, attached thereto. 5 | In January 2005, the Governor of Guam issued Executive Order 2005-001, requiring DR1 6 to create supplemental EIC forms (“Guam Earned Income Credit Application”) and to accept the 7 submission of the EIC claims under territorial and, to the extent.applicable, federal law. 8 | See Camacho Decl., at Exhibit 1, attached thereto. It applies to tax years 1995-1996 and 1999- 9 2004, and into the future. id. There are no forms for the years 1997-1998 because DRT had 10 | already created a form for the those years and had accepted claims. The Order expressly states 11 | thaf tax returns may be amended as part of such a submission, although amendments are limited 12 | to three years as provided under federal law. Jd. Accompanying the forms is an EIC brochure 13 | prepared by DRT. /d. at Exhibit 4. Pursuant to the Executive Order, the EIC claims submitted 14 |] under this procedure shall constitute sufficient claims for the EIC under the GTIT if the EIC is 15 || held to apply to Guam. Jd, at Exhibit 1, ]2. As of April 26, 2005, DRT has received 15,475 16 }} claims for the EIC under the Executive Order. Jd. at 7 14 and Exhibit 5. 17 The plaintiffs state that they are concerned that the forms contain qualifying language that _ 18 | would allow the Government of Guam to ignore its obligation to pay the EIC. The offending 19 language is as follows: 20 | By providing this form neither the Department of Revenue & Taxation nor any other part of the Government of Guam or its officers are agreeing to make any 21 payment to any taxpayer or any offset in favor of any taxpayer or waiving any | . applicable law regarding submission of claims. | See Camacho Decl., at Exhibit 2. | The plaintiffs claim that since the Government of Guam is claiming there is no obligation | to pay the EIC on the forms, the request for declaratory relief is not moot. This Court has | reviewed the forms and notes that at the time they were created, the issue of the EIC had not been ° | decided. It seems to reason that in drafting the documents, the Government wanted to preserve | its rights should a Court subsequently rule that it had no legal obligation to pay the EIC. Despite 10

1. 1 | a history of non-payment by the Government, the Court finds the Government of Guam has take 2 | efforts to create forms that would allow it to process the claims in the event it is found 3 | responsible for paying the claims. 4 | _ Under the circumstances, the Court does not find the need to grant declaratory relief. 5 | Should the Government of Guam refuse to pay the claims after they have been found owing, the 6 plaintiffs are free to take steps to enforce the payments. The Court is reluctant to grant 7 | declaratory relief where there is only the possibility of future harm. ‘Hodgers-Durgin v, de la 8 | Vina 199 F.3d 1037, 1042 (9" Cir.,1999) (“The Supreme Court has repeatedly cautioned that, 9 | absent a threat of immediate and irreparable harm, the federal courts should not enjoin a state to 10 | conduct its business in a particular way.”). The Court notes that the plaintiffs’ complaint is also 11 | one for arefund. There is nothing preventing the plaintiffs from proceeding with this action. 12 | Accordingly, the Court denies the declaratory and injunctive relief as requested. 13 Lastly, the plaintiffs ask for injunctive relief requiring the Government of Guam to 14 || enforce certain local Guam law (11 Guam Code Amn. § 50101 et seq. and 11 Guam Code Ann. § 15 | 51101 et seq.) concerning amounts that are alleged to be required to be set aside to pay the EIC. 16 | In 1999, the Legislature amended the Income Tax Reserve Fund law (the “Reserve Fund”), to 17 | create a yearly reserve fund to reserve tax receipts for the payment of income tax refunds, the 18 child tax credit, and the BIC. 11 Guam Code Ann. § 50103. It also requires the DOA, DRT and 19 the Bureau of Budget & Management Research to establish a yearly formula for how much 20 | money should be reserved from income tax receipts. /d. This formula is to be used by DOA to 21 pay projected income tax refunds, child tax credits, and EIC. 11 Guam Code Ann. § 50104. 22 | In addition to the Reserve Fund, the Legislature enacted the Income Tax Refund Efficient 23 | Payment Trust Fund Act of 2002 {the “Trust Fund”). The Trust Fund is supposed to receive 24 | weekly, quarterly, and monthly deposits (depending on the source) of payroll and other income 25 || taxes. 11 Guam Code Ann. § 50102. The formula for such deposits is supposed to be the same - 26 || formula as the yearly account under the Reserve Fund, except that the money in the Trust Fund 27 | account is being reserved for the coming year and is supposed to be earning interest. Td. When 28 DOA is ready to release tax refunds, child tax credits, or the EIC, the money is to be transferred M1

| from the Trust Fund into the Reserve Fund, and to the taxpayers. id. 2 | The Government of Guam argues that the plaintiffs have no right to sue for the 3 | enforcement of the Reserve and Trust Fund laws. The Government of Guarn states that these 4 | laws are local budget laws designed to benefit the Legislature with regard to expenditures of 5 public funds, There is nothing in the laws themselves that create a generalized private cause of 6 | action, much less aright to seek injunctive relief. The plaintiffs therefore should be denied 7 | injunctive relief. See Touche Ross & Co. v. Readington, 442 U.S. 560, 568 (1979) (an implied 8 || cause of action can only be created under a statute if it is consistent with the intent of the _

9 || legislature.) 10 The Government of Guam also states that it is complying with the laws to the degree 11 | permitted by the intervening budget laws. In 2004, the Guam Legislature passed its budget for 12 }| fiscal year 2005, P.L. 27-106 (Bill 363), creating a tax refund reserve of $72 million. There was 13 | no provision therein for the EIC or other reserves. See Guam P.L. 27-106. Based upon the 14 | current financial figures available to the Government, $72 million is not sufficient to pay this 15 }] year’s estimated tax refunds and EIC. Decl. of Lourdes Perez, at J 4. 16 | According to the Director of the DOA, an injunction that requires the Government of 17 | Guam to immediately begin to set aside money for the EIC could cause a financial crisis.. Decl. 18 | of Lourdes Perez, at | 8. The Court is concerned about the consequences of ordering the 19 | Government of Guam to comply with these laws without a showing of actually how much money 20 would be required and the effects that would have on the operations of the Government. Under 21 || the circumstances, the Court finds the request premature in light of the fact that the class has not 22 been certified. There simply are not enough facts to indicate what sum of monies should actually 23 | be set aside. In addition, when the plaintiffs proceed with their refund suit, the Court can revisit 24 | the issue of how refunds are to be paid if found owing. Should the Government of Guam choose 25 | not to take action in paying its obligation, the Court can then take the appropriate action. 26 | Accordingly, the Court denies summary judgment as to this request. 27 28 | Hf | 12

ay □ CONCLUSION . 2 | In light of the foregoing, the Court grants partial summary judgment as to the issue of i . 3 | whether BIC applies to Guam and that, by filing income tax retums that contain no claim for the 4 || EIC, the plaintiffs have nonetheless exhausted their administrative remedies as required by the 5 || GTIT as a condition precedent to bringing suit. As to the other requests, the Court denies the 6 | relief sought. The plaintiffs are to take action to certify the class and proceed with this matter as 7 | a refund suit.'* □ 8 | SO ORDERED this _/5 day of June, 2005. | Dy f . > sh J] «| Y 1K) 11 RICARVIO S>MARVINEZ Designated Judge 12 | 13 | 14 | 15 | . ceOdce i hea cuy giver that “eae 16 | se eee deniaton CON TS 00s : 0). . . | ‘No separate notice of entry on the deciest will 17 | be insued by this Court. Mary L. M. Mores 18 | Clerk, District Court ef Guam JUN 15 2005 19] By. . . Date . 20 | ol 22 | 23 | Pe 24 | “The Court notes the conspicuous absence of the United States as a party in this action. | The Court questions whether there may be an equal protection argument in light of the fact-that 26 || Guam taxpayers are not entitled to the Advance EIC and an offset of their social security taxes | paid to the federal government. 27 | “The Honorable Ricardo □□ Martinez, United States District Judge for the Western District of | Washington, by designation.