Starr International Company v. United States , 910 F.3d 527 ( 2018 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 13, 2018 Decided December 7, 2018
No. 17-5238
STARR INTERNATIONAL COMPANY, INC.,
APPELLANT
v.
UNITED STATES OF AMERICA, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:14-cv-01593)
Rajiv Madan argued the cause for appellant. With him on
the briefs were Christopher P. Bowers, Nathan P. Wacker, and
Caroline Van Zile.
Richard Caldarone, Attorney, U.S. Department of Justice,
argued the cause for appellees. With him on the brief were
Travis A. Greaves, Deputy Assistant Attorney General, and
Gilbert S. Rothenberg and Richard Farber, Attorneys. Judith
A. Hagley, Attorney, entered an appearance.
Before: HENDERSON and MILLETT, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
2
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: Dividends paid by U.S.
corporations and received by foreign shareholders are
generally subject to a 30 percent withholding tax. See 26 U.S.C.
§§ 881(a)(1), 1442(a). Bilateral tax treaties between the United
States and other nations reduce this tax rate to encourage cross-
border investments and allow taxpayers to avoid double
taxation. This case concerns an attempt by Swiss-domiciled
Starr International Company, Inc. (“Starr”) to avail itself of a
bilateral tax treaty between the United States and Switzerland
to reduce its tax rate on U.S.-source dividend income.
See generally Convention Between the United States of
America and the Swiss Confederation for the Avoidance of
Double Taxation with Respect to Taxes on Income,
Switz.-U.S., Oct. 2, 1996, S. Treaty Doc. No. 105-8 (1997)
(“U.S.-Swiss Treaty” or “Treaty”).
Starr is a privately held parent company to various
international insurance and financial businesses. After
establishing residence in Switzerland in 2006, Starr sought to
pay a reduced tax rate under the U.S.-Swiss Treaty. Because
Starr did not automatically qualify for treaty benefits, it relied
on Article 22(6) of the Treaty, a provision that allows for
discretionary tax relief. Article 22(6) states:
A person that is not [otherwise] entitled to the benefits of
this Convention . . . may, nevertheless, be granted the
benefits of the Convention if the competent authority of
the State in which the income arises so determines after
consultation with the competent authority of the other
Contracting State.
3
U.S.-Swiss Treaty art. 22(6). A Swiss taxpayer will be denied
relief under Article 22(6) if the U.S. Competent Authority
determines that obtaining benefits under the Treaty was one
of the taxpayer’s “principal purposes” in establishing itself
in Switzerland. Dep’t of the Treasury, Technical Explanation
of the Convention Between the United States of America and
the Swiss Confederation for the Avoidance of Double
Taxation with Respect to Taxes on Income (“Technical
Explanation”) 72.
Starr sought discretionary relief from the U.S. Competent
Authority – the Internal Revenue Service (“IRS”) Deputy
Commissioner for the Large Business and International
Division – for the 2007 tax year. The IRS denied Starr’s request
after concluding that obtaining treaty benefits was a principal
purpose of Starr’s move to Switzerland. Objecting to this
determination, Starr filed a claim for a refund of approximately
$38 million in taxes improperly withheld. Starr then brought
suit for a tax refund in the District Court, alleging that the IRS
erred in denying Starr benefits under the U.S.-Swiss Treaty.
The District Court dismissed Starr’s tax refund claim on the
ground that it raised a nonjusticiable political question. See
Starr Int’l Co., Inc. v. United States (“Starr II”), No. 14-cv-
01593 (CRC), 2016 WL 410989, at *2 (D.D.C. Feb. 2, 2016).
Starr then amended its complaint to bring a claim under the
Administrative Procedure Act (“APA”), challenging the IRS’s
denial of treaty benefits as arbitrary and capricious. The
District Court granted the Government’s motion for summary
judgment on Starr’s APA claim. Starr Int’l Co., Inc. v. United
States (“Starr III”), 275 F. Supp. 3d 228, 251 (D.D.C. 2017). It
held that the IRS had reasonably interpreted and applied the
U.S.-Swiss Treaty in denying Starr’s request. Id.
4
Starr now appeals both decisions of the District Court. It
claims the IRS misinterpreted and misapplied Article 22(6) and
the Technical Explanation’s “principal purpose” test. Starr
therefore asks this court to issue a judgment granting the
requested tax refund, which it maintains does not raise a
political question.
For the reasons stated below, we reverse the decision of the
District Court dismissing Starr’s tax refund claim as raising a
nonjusticiable political question and remand for further
proceedings. Because we hold that Starr can proceed with its
tax refund claim, we also hold that Starr does not have a cause
of action under the APA. We therefore vacate the District
Court’s decision granting summary judgment against Starr on
its APA claim, and remand with instructions to dismiss that
claim.
I. BACKGROUND
A. The U.S.-Swiss Treaty
Section 881(a) of the Internal Revenue Code imposes a
30 percent tax on the U.S.-source income, such as dividend
income, of foreign corporations. 26 U.S.C. § 881(a)(1). To
collect this tax, the IRS requires U.S. corporations issuing
dividends to withhold the tax from the foreign taxpayers and
remit it directly to the IRS. See 26 U.S.C. § 1442(a). Dividend
income may be subject to a lower tax rate if the taxpayer is a
resident of a country with which the United States has an
income tax treaty. As relevant here, the U.S.-Swiss Treaty
reduces the tax on U.S.-source dividend income for Swiss
residents from 30 percent to either 5 or 15 percent, depending
5
on the Swiss entity’s percentage of ownership in the U.S.
corporation. See U.S.-Swiss Treaty art. 10.
By reducing tax rates, bilateral tax agreements like the
U.S.-Swiss Treaty serve several purposes, including removing
impediments to trade and cross-border investment. See Tax
Convention with Switzerland, S. Exec. Rep. No. 105-10, at 1
(1997). They mitigate double taxation of income earned by
residents of one country from sources within the other country,
in addition to preventing tax evasion by facilitating information
sharing between the tax authorities of the treaty countries.
See id. at 1–2. Treaty “Limitation on Benefits” provisions
establish the criteria taxpayers must meet in order to obtain
benefits. These provisions are designed to filter out “treaty
shoppers,” or residents of third states who use legal entities
established in a contracting state in order to obtain the benefits
of a tax treaty. Technical Explanation 59.
Article 22 is the “Limitation on Benefits” section of the
U.S.-Swiss Treaty. It begins with a series of objective,
mechanical tests designed to identify those treaty-country
residents who merit benefits because of legitimate, non-tax
motives for their claimed state of residency. See U.S.-Swiss
Treaty art. 22(1)–(3); see also Technical Explanation 59. For
example, individuals residing in Switzerland, certain Swiss
family foundations, and companies engaged in business in
Switzerland that meet specified criteria are automatically
eligible for benefits. U.S.-Swiss Treaty art. 22(1)(a), (c), (g).
The “assumption” underlying these tests is that a taxpayer
who satisfies them “probably has a real business purpose for
the structure it has adopted, or has a sufficiently strong nexus
to the other Contracting State” to warrant benefits, and such
“business purpose or connection outweighs any purpose
to obtain the benefits of the Convention.” Technical
Explanation 59.
6
The Treaty drafters recognized that certain entities with
legitimate reasons for residing in a contracting state might fail
the rigid mechanical tests of Article 22, which “cannot account
for every case in which the taxpayer was not treaty shopping.”
Technical Explanation 60. Accordingly, paragraph 6 of
Article 22 leaves open the possibility of discretionary relief for
persons who are not otherwise entitled to benefits “if the
competent authority of the State in which the income arises so
determines after consultation with the competent authority of
the other Contracting State.” U.S.-Swiss Treaty art. 22(6).
Paragraph 6, like the mechanical tests, aims “to identify
investors whose residence in the other State can be explained
by factors other than a purpose to derive treaty benefits.”
Technical Explanation 60. Therefore, in deciding whether a
taxpayer qualifies for relief under Article 22(6), the competent
authority of the treaty country in which the taxpayer’s income
arises
will base a determination under this paragraph on
whether the establishment, acquisition, or maintenance
of the person seeking benefits under the Convention,
or the conduct of such person’s operations, has or had
as one of its principal purposes the obtaining of
benefits under the Convention. Thus, persons that
establish operations in one of the States with a
principal purpose of obtaining the benefits of the
Convention ordinarily will not be granted relief under
paragraph 6.
Id. at 72. This “principal purpose” test provides the standard
for evaluating whether a taxpayer is entitled to relief under
Article 22(6).
7
B. Factual and Procedural Background
Starr, a parent company to a number of international
financial and insurance businesses, was once the largest
shareholder of American International Group, Inc. (“AIG”).
Starr continued to hold significant investments in AIG common
stock, its principal asset, at all times relevant to this case. In
2004, Starr relocated to Ireland from Bermuda, where it had
long resided. In Ireland, Starr paid a reduced rate of
withholding tax on dividends under a bilateral income tax
treaty between the United States and Ireland. In 2006, Starr
established itself in Switzerland and subsequently sought to
reduce its dividend tax rate by obtaining benefits under the
U.S.-Swiss Treaty. Because Starr did not automatically qualify
for benefits under the mechanical tests of Article 22, it
requested discretionary relief under paragraph 6.
After a prolonged review process from 2007 to 2010, the
U.S. Competent Authority issued a final determination letter
denying Starr’s request. The Competent Authority found it
“impossible . . . to conclude that obtaining treaty benefits was
not at least one of the principal purposes for moving [Starr’s]
management, and therefore its residency, to Switzerland.” Joint
Appendix (“J.A.”) 256. The letter pointed to “facts and
circumstances regarding [Starr’s] original structure and
subsequent restructurings” that the Competent Authority found
“troubling,” including Starr’s (1) legal organization and initial
incorporation in Panama, (2) relocation to Ireland and
enjoyment of tax treaty benefits shortly before the payment of
AIG dividends, (3) brief residence in Ireland before moving to
Switzerland, and (4) control by predominately U.S.
individuals. J.A. 255–56.
Starr filed a claim for a tax refund with the IRS for the 2007
tax year, seeking approximately $38 million based on the
8
Treaty’s reduced tax rates. When the IRS took no action on
Starr’s refund claim, Starr brought a tax refund suit in the
District Court under § 7422(a) of the Internal Revenue Code to
recover the taxes it alleges were wrongly withheld. Complaint
¶¶ 3, 53–56, J.A. 312, 322; see also 26 U.S.C. § 7422(a)
(providing a cause of action for a “suit or proceeding . . . for
the recovery of [an] internal revenue tax alleged to have been
erroneously or illegally assessed or collected”). Starr asserts
that the Government erred in denying benefits under the U.S.-
Swiss Treaty because it was not treaty shopping when it
relocated to Switzerland, and because the U.S. Competent
Authority failed to consult with its Swiss counterpart before
denying Starr’s request. Complaint ¶¶ 49–50, J.A. 320–21.
The District Court initially granted the Government’s
motion to dismiss Starr’s claim that the Government violated
the Treaty by failing to consult with the Swiss Competent
Authority, but allowed Starr’s tax refund claim to proceed.
Starr Int’l Co., Inc. v. United States (“Starr I”), 139 F. Supp.
3d 214, 231 (D.D.C. 2015), vacated, Starr II, 2016 WL
410989. The court found that the U.S.-Swiss Treaty and
guidance from the Technical Explanation, including the
“principal purpose” test, provide a judicially-manageable
standard for review of whether Starr is entitled to relief under
Article 22(6). Id. at 229. It granted Starr’s motion to strike the
Government’s justiciability defenses, finding that the
Government’s decision was not committed to agency
discretion by law, id. at 228, and that interpreting the terms of
the Treaty would not implicate the political question doctrine,
id. at 231.
The District Court subsequently vacated its decision in
Starr I after the Government moved for reconsideration.
Starr II, 2016 WL 410989, at *6. The court reaffirmed its prior
holding that a manageable standard exists for assessing
9
whether Starr met the relevant criteria for obtaining treaty
benefits. Id. at *1. It also reiterated that interpreting the Treaty
“in a manner necessary to determine whether Starr met the
applicable criteria would not offend the political-question
doctrine.” Id. However, the court dismissed Starr’s tax refund
claim under 26 U.S.C. § 7422(a) as raising a nonjusticiable
political question. Id. at *2. As the District Court saw it,
ordering the IRS to pay Starr the requested $38 million refund
would impinge upon the Executive Branch’s exercise of
diplomacy in its consultation with the Swiss competent
authority, as required under Article 22(6). Id. As consultation
had not yet occurred, the court believed that, if it were to find
that Starr was entitled to treaty benefits, ordering the IRS to
issue Starr a specific monetary refund would “render
consultation meaningless or dictate its outcome.” Id. Because
the District Court assumed it could not redress Starr’s harm
without answering a political question, it held that Starr lacked
standing to pursue its tax refund claim. Id. at *4. The court thus
allowed Starr to amend its complaint to bring a claim under the
APA. Id. at *6.
Starr then challenged the Government’s denial of treaty
benefits as “arbitrary, capricious, an abuse of discretion, and
otherwise not in accordance with law.” First Amended
Complaint ¶ 3, J.A. 347; see also 5 U.S.C. § 706(2)(A). In a
lengthy opinion, the District Court granted the Government’s
motion for summary judgment and denied Starr’s cross-
motion. Starr III, 275 F. Supp. 3d at 251. The court held that
the Government reasonably interpreted and applied the U.S.-
Swiss Treaty and the Technical Explanation in denying Starr a
tax refund. See id.
Starr appeals both the decision in Starr II granting the
Government’s motion to dismiss the tax refund claim as a
nonjusticiable political question, as well as the decision in
10
Starr III granting the Government’s motion for summary
judgment and denying Starr’s cross-motion on the APA claim.
II. ANALYSIS
A. Standard of Review
We review de novo whether this case presents a
nonjusticiable political question. See Ralls Corp. v. Comm. on
Foreign Inv. in U.S., 758 F.3d 296, 314 (D.C. Cir. 2014). In
light of our decision, as explained below, that Starr does not
have a cause of action under the APA, see 5 U.S.C. § 704, we
decline to review the District Court’s decision on Starr’s APA
claim.
B. The Political Question Doctrine Has No Application
in this Case
The District Court dismissed Starr’s tax refund claim under
26 U.S.C. § 7422(a) as raising a nonjusticiable political
question. We hold that the District Court erred regarding the
applicability of the political question doctrine.
The Supreme Court laid out its oft-cited formulation of the
political question doctrine in Baker v. Carr:
Prominent on the surface of any case held to involve a
political question is found a textually demonstrable
constitutional commitment of the issue to a coordinate
political department; or a lack of judicially
discoverable and manageable standards for resolving
it; or the impossibility of deciding without an initial
policy determination of a kind clearly for nonjudicial
discretion; or the impossibility of a court’s undertaking
independent resolution without expressing lack of the
11
respect due coordinate branches of government; or an
unusual need for unquestioning adherence to a political
decision already made; or the potentiality of
embarrassment from multifarious pronouncements by
various departments on one question.
369 U.S. 186, 217 (1962). Under Baker v. Carr and its progeny,
a court may not dismiss a claim as nonjusticiable “[u]nless one
of these formulations is inextricable from the case at bar.”
bin Ali Jaber v. United States, 861 F.3d 241, 245 (D.C. Cir.
2017) (quoting Baker v. Carr, 369 U.S. at 217).
Furthermore, the Supreme Court has made it clear that
application of the political question doctrine is a limited and
narrow exception to federal court jurisdiction. For example, in
United States v. Munoz-Flores, 495 U.S. 385 (1990), the
Supreme Court considered whether a special assessment statute
was a revenue raising bill within the meaning of the Origination
Clause. Id. at 387. In rejecting the Government’s argument that
the case presented a nonjusticiable political question, the Court
aptly noted:
Surely a judicial system capable of determining when
punishment is “cruel and unusual,” when bail is
“[e]xcessive,” when searches are “unreasonable,” and
when congressional action is “necessary and proper”
for executing an enumerated power is capable of
making the more prosaic judgments demanded by
adjudication of Origination Clause challenges.
Id. at 396.
Thus, “it is error to suppose that every case or controversy
which touches foreign relations lies beyond judicial
cognizance,” Baker v. Carr, 369 U.S. at 211, and it is axiomatic
12
that “courts have the authority to construe treaties,” Japan
Whaling Ass’n v. Am. Cetacean Soc’y, 478 U.S. 221, 230
(1986). A court cannot “avoid [its] responsibility” to enforce a
specific statutory right “merely ‘because the issues have
political implications.’” Zivotofsky ex rel. Zivotofsky v. Clinton,
566 U.S. 189, 196 (2012) (quoting INS v. Chadha, 462 U.S.
919, 943 (1983)).
None of the Baker v. Carr factors are present in Starr’s tax
refund claim. Starr’s eligibility for discretionary relief under
Article 22(6) presents a straightforward case of treaty
interpretation. And Article 22(6) and the Technical
Explanation provide meaningful standards that enable a court
to determine whether the IRS’s determination was erroneous.
Therefore, Starr’s claim that the IRS misinterpreted federal law
in denying the company a refund is plainly a matter for a court
to decide.
The Supreme Court’s decisions in Japan Whaling and
Zivotofsky are particularly instructive. In Japan Whaling, the
Court rejected the argument that the political question doctrine
barred judicial resolution of an action to repudiate an executive
agreement between the United States and Japan and to require
the U.S. Secretary of Commerce to certify Japan as violating
an international convention. Japan Whaling, 478 U.S. at 229–
30. The challenge to the Secretary’s decision not to certify
Japan for harvesting whales in excess of international quotas
“present[ed] a purely legal question of statutory interpretation.”
Id. at 230. The Court had to “determine the nature and scope of
the duty imposed upon the Secretary by the [statute], a decision
which call[ed] for applying no more than the traditional rules
of statutory construction, and then applying this analysis to the
particular set of facts presented.” Id. Cognizant of the
decision’s potential implications for foreign relations and the
“premier role which both Congress and the Executive play in
13
[that] field,” the Court nonetheless concluded that “under the
Constitution, one of the Judiciary’s characteristic roles is to
interpret statutes, and we cannot shirk this responsibility
merely because our decision may have significant political
overtones.” Id.
The decision in Zivotofsky is the Supreme Court’s most
recent reminder that the judiciary must resolve disputes over
specific statutory rights when properly called upon to do so.
Zivotofsky concerned a statute that directed the Secretary of
State, upon request, to issue to a U.S. citizen born in Jerusalem
a birth certificate or passport identifying Israel as the place of
birth. 566 U.S. at 191–92. Diplomatic officials later refused a
request to list “Jerusalem, Israel,” as an individual’s place of
birth out of concern that the statute would impermissibly
interfere with the Executive’s foreign relations powers. Id. at
192–93. The Court held that the question of the statute’s
constitutionality was justiciable. Id. at 194, 201. The Court was
not being asked to determine whether Jerusalem is the capital
of Israel but instead to decide whether an individual had a
statutory right to have Israel designated as his place of birth on
his passport. Id. at 195. “[Zivotofsky] recognizes that, in foreign
policy cases, courts must first ascertain if ‘[t]he federal courts
are . . . being asked to supplant a foreign policy decision of the
political branches with the courts’ own unmoored
determination’ or, instead, merely tasked with, for instance, the
‘familiar judicial exercise’ of determining how a statute should
be interpreted or whether it is constitutional.” bin Ali Jaber,
861 F.3d at 248 (quoting Zivotofsky, 566 U.S. at 196).
Starr’s tax refund claim is squarely an example of the latter
case. Starr’s claim requires a court to “determine the nature and
scope of the duty imposed” on the U.S. Competent Authority
under Article 22(6), “a decision which calls for applying no
more than the traditional rules of statutory construction” with
14
respect to the U.S.-Swiss Treaty, “and then applying this
analysis to the particular set of facts” of Starr’s case. Japan
Whaling, 478 U.S. at 230; see also Hourani v. Mirtchev, 796
F.3d 1, 8 (D.C. Cir. 2015) (declining to find a case
nonjusticiable under the political question doctrine where “the
standards needed to resolve” the claims at issue were “the
workaday tools for decision-making that courts routinely
employ,” even though the court’s judgment “might implicate
the actions of a foreign government”). And it is hardly an
oddity for courts to adjudicate tax claims based on international
tax agreements, which is all that is required here. See, e.g.,
Eshel v. Comm’r, 831 F.3d 512 (D.C. Cir. 2016); Nat’l
Westminster Bank, PLC v. United States, 512 F.3d 1347 (Fed.
Cir. 2008); Del Commercial Props., Inc. v. Comm’r, 251 F.3d
210 (D.C. Cir. 2001); Xerox Corp. v. United States, 41 F.3d
647 (Fed. Cir. 1994).
The District Court held that Starr’s refund action was
nonjusticiable because granting a refund would “impinge upon
the Executive’s prerogative to engage in [the consultation]
process” with Switzerland. Starr II, 2016 WL 410989, at *2.
Explaining that it could not “dictate the contents of any
diplomatic communications in which the executive branch
engages,” the court assumed that a decision about Starr’s
eligibility for relief under Article 22(6) would impermissibly
“establish the outcome of any negotiation or consultation
between an executive-branch official and representatives of a
foreign country.” Id. at *4. The court focused on its perceived
“inability and lack of competence” to “step into the shoes of
the IRS and its Swiss counterparts and effectively preordain the
outcome of any consultation between the two.” Id. at **3–4.
This understanding of Starr’s tax refund claim and the political
question doctrine was incorrect.
15
A District Court decision will have no impact on the
consultation between the U.S. and Swiss Competent
Authorities. Starr asks for a judicial determination as to
whether the Government erred in denying Starr treaty benefits.
As explained below, if the District Court finds the IRS’s
position indefensible, it can stay the case pending consultation
between the Competent Authorities, as consultation is required
before a refund can be granted. See U.S.-Swiss Treaty art.
22(6). The IRS then can return to court and present any new
evidence from consultation. Our holding does not grant Starr
the right to review the consultation. Rather, consultation is
merely one element of the IRS’s deliberative process. The
Government may use information that arises out of
consultation as support for its ultimate decision, but Starr duly
concedes that it has no right to challenge the consultation itself.
And a foreign authority’s views do not control any
determination by the U.S. Competent Authority under
Article 22(6). See Oral Argument at 39:14–39:35, 45:13–
45:35, No. 17-5238 (D.C. Cir. argued Sept. 13, 2018).
Because the District Court concluded that it could not
redress Starr’s harm without deciding a political question, it
found that Starr lacked standing. Starr II, 2016 WL 410989,
at *4. However, the question as to whether the IRS properly
found Starr ineligible for treaty benefits under Article 22(6)
does not raise a political question. Therefore, Starr’s standing
is not in dispute because a tax refund of the requested $38
million would plainly redress Starr’s injury. We therefore
reverse and remand the District Court’s judgment so that Starr
may proceed with its tax refund claim under 26 U.S.C.
§ 7422(a).
16
C. Starr Does Not Have a Cause of Action Under
the APA
Because the District Court assumed that Starr could not
seek redress under 26 U.S.C. § 7422(a), it allowed Starr to
challenge the Government’s denial of treaty benefits under the
APA, although it found no merit in that claim. We hold that the
District Court was mistaken in assuming that Starr could
pursue a cause of action under the APA.
The APA supports a cause of action only when “there is no
other adequate remedy in a court.” 5 U.S.C. § 704. Because
26 U.S.C. § 7422(a) is the appropriate vehicle for Starr’s claim
for relief, Starr does not have a cause of action under the APA.
See Perry Capital LLC v. Mnuchin, 864 F.3d 591, 620–21
(D.C. Cir. 2017) (explaining that the adequate remedy bar of
§ 704 determines whether there is a cause of action under the
APA); Cohen v. United States, 650 F.3d 717, 731 (D.C. Cir.
2011) (en banc) (holding that APA review of a challenge to tax
refund procedures would be available only if 26 U.S.C. §
7422(a) did not provide an adequate remedy).
D. Starr’s Tax Refund Claim was Properly Brought
Under 26 U.S.C. § 7422(a)
Section 7422(a) of the Internal Revenue Code provides a
cause of action for the “recovery” of a “tax alleged to have been
erroneously or illegally assessed or collected,” 26 U.S.C.
§ 7422(a), which is precisely the relief Starr seeks. Taxpayers
are generally required to challenge the validity of a tax
assessment in a refund proceeding, as opposed to suits seeking
equitable or declaratory relief. See, e.g., Bob Jones Univ. v.
Simon, 416 U.S. 725, 746 (1974) (holding that suits for refunds
offer taxpayers a full opportunity to litigate the legality of IRS
17
decisions); Enochs v. Williams Packing & Nav. Co., 370 U.S.
1, 7 (1962) (interpreting the Anti-Injunction Act, 26 U.S.C.
§ 7421(a), to “require that the legal right to . . . disputed sums
be determined in a suit for refund”); Fla. Bankers Ass’n v. U.S.
Dep’t of Treasury, 799 F.3d 1065, 1066 (D.C. Cir. 2015)
(affirming that challenges to tax statutes and regulations are to
be brought in refund suits after a tax has been paid or in
deficiency proceedings).
The Government cites Cohen, 650 F.3d 717, in support of
its claim that Starr’s case should be decided under the APA.
We disagree. In Cohen, we stated unequivocally that “taxpayer
challenges to the validity of an individual tax” are
“paradigmatic refund suits.” 650 F.3d at 733. And we stressed
the fundamental difference between those cases and
“challenge[s] to an IRS regulation, action, or procedure
unrelated to the individual assessment or collection of taxes.”
Id. Cohen involved a class-action challenge to a refund
mechanism that the IRS had established after illegally
collecting an excise tax on phone calls. Id. at 720–21. We
allowed the APA action to proceed because, “[i]n the tax
context, the only APA suits subject to review would be those
cases pertaining to final agency action unrelated to tax
assessment and collection.” Id. at 733. The plaintiffs in Cohen
sought prospective, non-monetary relief, so an APA action was
appropriate.
Unlike in Cohen, Starr challenges the validity of an
individual tax, not IRS procedures, and requests retroactive
monetary relief. We therefore remand the case to the District
Court to allow Starr to pursue its claim for a tax refund. One of
four possible scenarios will likely play out, though the parties
and the District Court may consider other ways to proceed:
18
1. The U.S. Competent Authority could decide to proceed
with consultation and might subsequently determine that Starr
is entitled to benefits under the U.S.-Swiss Treaty. If the IRS
awards Starr the monetary amount it seeks, the case will
presumably be moot.
2. The U.S. Competent Authority might consult with its
Swiss counterpart and maintain its current position that Starr is
not entitled to Treaty benefits. Engaging in consultation before
further proceedings in the District Court could expedite
resolution of this case and give the Government any additional
information that might come from consultation. If the District
Court finds that the IRS should have deemed Starr eligible for
benefits under Article 22(6), then the court may award Starr the
money it seeks, consultation having already occurred as
required under the Treaty.
3. The IRS might choose to maintain its current position
without engaging in consultation at this time. If the District
Court finds the IRS’s position indefensible, it can stay the case
pending consultation between the U.S. and Swiss Competent
Authorities, as no refund can be granted without consultation.
The IRS can return to court and have the opportunity to present
any new evidence that may have come to light during
consultation. This posture would not afford Starr the right to
seek review of the consultation, which is simply part of the
IRS’s deliberative process. But if the IRS returns to the District
Court and cites information obtained during the consultation
process as the reason for denying tax benefits, that decision
would be reviewable.
4. If the refund action goes forward and the District Court
finds the evidence supports the IRS’s decision to deny benefits,
then judgment may be granted in the Government’s favor.
19
In the last three scenarios above, appellate review may be
sought by an aggrieved party, as appropriate. In reviewing any
IRS decision to deny Starr benefits under the U.S.-Swiss
Treaty, the District Court will use established principles of
treaty interpretation in evaluating the IRS’s application of
Article 22(6). “The interpretation of a treaty . . . begins with its
text.” Medellin v. Texas, 552 U.S. 491, 506 (2008). The “clear
import” of a treaty’s text “controls unless application of the
words of the treaty according to their obvious meaning effects
a result inconsistent with the intent or expectations of its
signatories.” Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S.
176, 180 (1982) (citation and internal quotation marks
omitted). If a treaty’s text leaves any ambiguity, a court should
“consult[] sources illuminating the ‘shared expectations of the
contracting parties,’ such as ‘the negotiating and drafting
history’ and ‘the postratification understanding of the
contracting parties.’” Eshel, 831 F.3d at 519–20 (quoting
Zicherman v. Korean Air Lines Co., 516 U.S. 217, 223, 226
(1996)). “Although not conclusive, the meaning attributed to
treaty provisions by the Government agencies charged with
their negotiation and enforcement is entitled to great weight.”
Sumitomo, 457 U.S. at 184–85.
Finally, Starr urges this court to hold that the IRS
misinterpreted and misapplied Article 22(6) and the principal
purpose test of the Technical Explanation. We recognize that
the District Court addressed these issues when it reviewed the
IRS’s determination in the context of Starr’s APA claim.
However, because we remand this case to the District Court to
proceed as a tax refund claim, we leave it to the District Court
in the first instance to consider Starr’s arguments in the context
of the tax refund action.
20
III. CONCLUSION
For the foregoing reasons, we reverse the decision of the
District Court dismissing Starr’s tax refund claim and remand
for further proceedings. We vacate the District Court’s decision
granting the Government’s motion for summary judgment and
denying Starr’s cross-motion with respect to Starr’s APA
claim, and we remand with instructions to dismiss that claim.
So ordered.