State of New Jersey v. Mnuchin ( 2024 )

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK STATE OF NEW JERSEY, STATE OF NEW YORK, and STATE OF CONNECTICUT, Plaintiffs, MEMORANDUM OPINION & ORDER - against - 19 Civ. 6642 (PGG) STEVEN T. MNUCHIN, in his official 19 Civ. 6654 (PGG) capacity as Secretary of the United States Department of the Treasury, CHARLES P. RETTIG, in his official capacity as Commissioner of the Internal Revenue Service, UNITED STATES DEPARTMENT OF THE TREASURY, and INTERNAL REVENUE SERVICE, Defendants. VILLAGE OF SCARSDALE, NEW YORK, Plaintiff, -V.- . INTERNAL REVENUE SERVICE, CHARLES P. RETTIG, in his official capacity as Commissioner of Internal Revenue, UNITED STATES DEPARTMENT OF THE TREASURY, and STEVEN T. MNUCHIN, in his official capacity as Secretary of the Treasury, Defendants. PAUL G. GARDEPHE, U.S.D.J.: On December 22, 2017, Congress enacted legislation that capped deductions of state and local taxes (“SALT”) for married couples and single taxpayers at $10,000. 26 U.S.C. § 164(b)(6). This legislation effected a significant change in the federal income tax regime. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) { 24; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) 5) In response to this legislation limiting deductions of SALT at the federal level, New York, New Jersey, Connecticut the Village of Scarsdale (“Plaintiffs”) enacted legislation authorizing tax credit programs that allowed residents to make charitable contributions to their state or municipality and receive a tax credit in return. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) Ff 2, 28, 96-100; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) 9f§ 19-23) On June 13, 2019, the Treasury Department and the Internal Revenue Service (“IRS”) promulgated a new regulation (the “2019 Final Rule”) governing the availability of charitable contribution deductions for payments made to state and local governmental units where the taxpayer receives or expects to receive a state or local tax credit in return. 84 Fed. Reg. 27513 (June 13, 2019) (the “2019 Final Rule”). The new regulation involves an interpretation of the Internal Revenue Code of 1954 “IRC” or the “Code”) § 170, 26 U.S.C. § 170(a), which in part governs the deduction of charitable contributions on federal income tax returns. The 2019 Final Rule provides that “the amount of the taxpayer’s charitable contribution deduction under [S]ection 170(a) is reduced by the amount of any state or local tax credit that the taxpayer receives or expects to receive in consideration for the taxpayer’s payment or transfer.” 26 C.F.R. § 1.170A-1(h)(3)(i); see also 2019 Final Rule, 84 Fed. Reg. at 27514-15. In this action, Plaintiffs seek a declaration that the 2019 Final Rule is invalid under the Administrative Procedure Act, 5 U.S.C. § 706. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) at 31; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) at 16)! Plaintiffs contend that Defendants — Treasury, the 19 Civ. 6642 and 19 Civ. 6654 are related cases, and briefing in the two cases has proceeded in tandem. (See 19 Civ. 6642, Dkt. No. 40 (order setting common schedule for briefing); 19 Civ. 6654, Dkt. No. 25 (same)) Accordingly, this opinion addresses the motions filed in both cases. IRS, and their officers (the “Government”) — exceeded their statutory authority in promulgating the 2019 Final Rule, and that the issuance of the Rule was arbitrary and capricious. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) □□ 112-30; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) §{] 67-78) Defendants have moved to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, and under Rule 12(b)(6) for failure to state a claim. (19 Civ. 6642, Dkt. No. 59; 19 Civ. 6654, Dkt. No. 44) The parties have also cross-moved for summary judgment. (19 Civ. 6642, Dkt. Nos. 57, 59; 19 Civ. 6654, Dkt. Nos. 44, 46) For the reasons stated below, the Government’s motion to dismiss will be granted in part and denied in part, and its motion for summary judgment will be granted. Plaintiffs’ motion for summary judgment will be denied. BACKGROUND? 1. FACTS A. The 2017 Cap on SALT Deduction Prior to tax year 2018, Section 164 of the Internal Revenue Code permitted taxpayers who itemize deductions on their federal income tax returns to deduct “all state and local income and property taxes” from their income (the “SALT deduction”), subject to certain limitations. (See 19 Civ. 6642, Dkt. No. 8 (Cmplt.) § 23; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) § 24; 26 U.S.C. § 164(a)(1)-(3), (b)(5) (effective Dec. 18, 2015 to Dec. 21, 2017))° 2 Unless otherwise noted, the Court’s factual statement is drawn from the complaints. Well-pled facts in a complaint are presumed true for purposes of resolving a motion to dismiss. See Kassner v. 2nd Ave. Delicatessen, Inc., 496 F.3d 229, 237 (2d Cir. 2007). 3 The page numbers of documents referenced in this opinion correspond to the page numbers designated by this District’s Electronic Case Files (“ECF”) system. On December 22, 2017, Congress enacted legislation that capped the SALT deduction for married couples and single taxpayers at $10,000. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) 24; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) § 25-26); see also An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “2017 Tax Act”), Pub. L. No. 115-97, § 11042, 131 Stat. 2054, 2085-86 (2017) (codified as amended 26 U.S.C. § 164(a)-(b)).4 B. The State and Local Tax Credit Programs New York, New Jersey, Connecticut, and Scarsdale all have large numbers of residents whose SALT liability exceeds the $10,000 cap. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) □□□ 15-17, 27; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) { 13) To mitigate the effects of the 2017 Tax Act on their residents, Plaintiffs “amended their respective tax laws to enable taxpayers to make . contributions to state- or locality-affiliated charitable funds,” and in return, taxpayers would “receive a state or local tax credit for their contribution.” (19 Civ. 6642, Dkt. No. 8 (Cmplt.) □ 28: see also 19 Civ. 6654, Dkt. No. 1 (Cmplt.) ff 22-23) The credits could be used to offset individual state and local tax liability, and the residents could deduct the charitable contributions they made to state and municipal charitable funds on their federal income tax returns.” Plaintiffs’ new tax credit programs constituted an obvious effort to circumvent the $10,000 SALT deduction cap imposed by Congress in the 2017 Tax Act. In 2018, New York enacted legislation that offered a taxpayer who contributed to a “charitable gifts trust fund” a state income tax “credit” equal to 85 percent of his or her 4 The SALT deduction cap became effective in tax year 2018. 26 U.S.C. § 164(b)(6); (see 19 Civ. 6654, Dkt. No. 1 (Cmplt.) § 28) 5 Charitable contributions were, of course, not subject to the $10,000 SALT deduction cap enacted as part of the 2017 Tax Act. contribution. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) § 98); see N.Y. Tax Law § 606(ggg)(iii). The tax credit program was to be used to support the “public purposes” of healthcare or elementary and secondary education for New York residents. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) { 98); see N.Y. Tax Law § 606(ggg)(iii). The remaining 15 percent would “generate a net increase in revenue” for the state. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) 28) The New York legislation also authorized “the governing board of any county or New York city,” N.Y. Gen. Mun. Law § 6-t, or “town or village,” id. § 6-u, to establish similar programs and to offer real property tax credits equal to 95 percent of the taxpayer’s contribution. (See 19 Civ. 6642, Dkt. No. 8 (Cmplt.) 98; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) (J 19-21) On May 8, 2018, the Village of Scarsdale established a local tax credit program stating that “[a]ny owner of real property located within the Village who makes an unrestricted charitable monetary contribution to the Village’s charitable gifts reserve . . . may claim a credit against their Village property tax equal to 95 [percent] of the charitable gifts reserve fund donation.” Scarsdale Local Law §§ 269-35, 269-37. The remaining 5 percent of the contribution “remains freely available for Scarsdale to use as it sees fit for its residents.” (19 Civ. 6654, Dkt. No. 1 (Cmplt.) § 23) New Jersey and Connecticut enacted similar legislation to circumvent the SALT tax deduction cap set forth in the 2017 Tax Act. New Jersey authorized any “municipality, county, or school district” in the state to establish “charitable funds for specific public purposes of that local unit,” and to permit contributing taxpayers to take a property tax credit equal to 90 percent of the contribution. N.J. Stat. Ann. §§ 55:4-66.6, 66.7, 66.9; (see 19 Civ. 6642, Dkt. No. 8 (Cmplt.) § 99) Connecticut authorized municipalities to “designate” certain Section 501(c)@G) organizations as recipients of charitable contributions. Residential property owners who contributed to these organizations could receive a tax credit equal to the lesser of (1) “the amount of property tax owed,” or (2) 85 percent of the amount of their cash donation. Conn. Gen. Stat. § 12-129v; (see 19 Civ. 6642, Dkt. No. 8 (Cmplt.) § 100) In their Complaint, the States allege that “all of [their state and local tax credit programs] generally work as follows”: For a taxpayer who owes $20,000 in property taxes, only the first $10,000 remains deductible under the SALT deduction cap. For the remaining $10,000, a taxpayer might choose to donate $10,000 to a state or local charitable fund established under the charitable tax credit program. In New Jersey, to use one example, the taxpayer would receive a tax credit worth 90 percent of the donation — in this case, a $9,000 property tax credit. (In a state where the tax credit is worth 85 percent of the donation, she would simply receive an $8,500 property tax credit.) The taxpayer would then pay the remaining $1,000 in property tax liability to the local unit in question. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) § 101) The taxpayer would also deduct the entire $10,000 donation — undiminished by the value of the New Jersey tax credit — from his or her federal individual income tax, as a charitable contribution under IRC §170(a). (See id. | 104) C. The 2018 Proposed Rule On August 27, 2018 — in response to efforts by states and localities to circumvent the cap on SALT deductions — the Treasury and the IRS issued a notice of proposed rulemaking concerning “the question of whether amounts paid or property transferred in exchange for state or local tax credits are fully deductible as charitable contributions under [IRC § 170].” Contributions in Exchange for State or Local Tax Credits (the “2018 Proposed Rule”), 83 Fed. Reg. 43563, 43564 (August 27, 2018). IRC § 170(a) provides: There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary [of the Treasury]. 26 U.S.C. § 170(a). Subsection (b)(1)(A) of IRC § 170 states that a deduction “shall be allowed” for charitable contributions to “a governmental unit referred to in subsection (c)(1)” “to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer’s contribution base for the taxable year.” Id. § 170(b)(1)(A)(v), (ix). Subsection (c) lists the approved “governmental unit[s]” as “[a] State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.” Id. § 170(c)(1); (see 19 Civ. 6642, Dkt. No. 8 (Cmplt.) 31-33; 19 Civ. 6654, Dkt. No. 1 (Cmplt.) § 29) In proposing amendments to charitable contribution regulations issued pursuant to IRC § 170, the 2018 Proposed Rule acknowledges that “it has become increasingly common for states and localities to provide [SALT] credits in return for contributions by taxpayers.” 2018 Proposed Rule, 83 Fed. Reg. at 43564. Such programs provide “a potential means to circumvent the $10,000 limitation [on SALT deductions imposed in the 2017 Tax Act] by substituting an increased charitable contribution deduction for a disallowed state and local tax deduction.” Id. “The Treasury Department and the IRS believe that when a taxpayer receives or expects to receive a state or local tax credit in return for a payment or transfer to [a governmental unit or affiliated] entity listed in [S]ection 170(c), the receipt of this tax benefit constitutes [a return benefit]” — “a quid pro quo” — “that may preclude a full [charitable contribution] deduction under [Section 170(a).” Id. at 43565. As for state and local charitable contribution programs that offered a deduction on state and local taxes rather than a credit against state and local taxes, the 2018 Proposed Rule states that such a program does not constitute a quid pro quo unless the deduction the taxpayer would receive on his or her state return exceeds the amount of the donor’s contribution. The _ 2018 Proposed Rule’s reasoning is that “the benefit of a dollar-for-dollar deduction is limited to the taxpayer’s state and local marginal rate,” and thus “the risk of deductions being used to circumvent [the 2017 Tax Rule] is comparatively low.” Id. The 2018 Proposed Rule contains an exception permitting charitable contributions made in exchange for state or local tax credits to be deducted on a federal income tax return where the tax credit amounts to no more than 15 percent of the amount the taxpayer contributed to a state or local entity. Id. Treasury and the IRS provided for a period of public comment on the 2018 Proposed Rule. See id. at 43563. The agencies received more than 7,700 comments and 25 requests to speak at a November 5, 2018 public hearing. See 2019 Final Rule, 84 Fed. Reg. at 27514; (19 Civ. 6654, Dkt. No. 1 (Cmplt.) 40) About 70 percent of the comments recommended that the agencies “finalize the proposed regulations without change.” 2019 Final Rule, 84 Fed. Reg. at 27515. New York, New Jersey, and Connecticut submitted comments opposing the 2018 Proposed Rule (19 Civ. 6642, (Dkt. No. 8) (Cmplt.) { 52), and Scarsdale — as a member of the Coalition for the Charitable Contribution Deduction — submitted comments requesting that the 2018 Proposed Rule be withdrawn. (19 Civ. 6654, Dkt. No. 1 (Cmplt.) □□□ On December 28, 2018, in response to comments from businesses that make . charitable contributions, the IRS issued guidance providing a “safe harbor[] . . . for certain payments made by a C corporation or a specified passthrough entity to or for the use of [a governmental unit] described in [S]ection 170(c)” ifthe business “expects to receive a state or local tax credit in return for such payment.” Rev. Proc. 2019-12, 2019-04 ILR.B. 401 § 1. In other words, the agencies’ final rule would not apply to C corporations and certain pass-through QO entities, which would continue to be permitted to deduct as charitable contributions payments made to state or local tax authorities in exchange for a tax credit. See id. §§ 3.02, 4.03. The Treasury and the IRS also responded to comments “express[ing| concern .. . that the proposed regulations would create unfair consequences for certain individuals . . . who have total state and local tax liability for the year under $10,000” and “would have been able to deduct equivalent payments of state and local taxes offset by such credits.” Notice 2019-12, 2019-27 LR.B.; see also 2019 Final Rule, 84 Fed. Reg. at 27519. In June 11, 2019 guidance, the IRS states that the agencies’ final rule will not apply to such individuals. Notice 2019-12, 2019- 27 LR.B. D. The 2019 Final Rule On June 13, 2019, Treasury and the IRS issued the 2019 Final Rule, which is the subject of the instant lawsuit. The Final Rule become effective on August 12, 2019. 2019 Final Rule, 84 Fed. Reg. 27513. The 2019 Final Rule “generally retain[s] the proposed amendments set forth in the proposed regulations.” Id. at 27514. As to charitable contributions made to state or local governmental units in exchange for tax credits, the 2019 Final Rule provides that “the amount of the taxpayer’s charitable contribution deduction under [S]ection 170(a) is reduced by the amount of any state or local tax credit that the taxpayer receives or expects to receive in consideration for the taxpayer's payment or transfer.” 26 C.F.R. § 1.170A-1(h)(3)@); see also 2019 Final Rule, 84 Fed. Reg. at 27514-15. In promulgating this new rule, Treasury and the IRS interpret IRC §170 to provide a deduction for taxpayers’ gratuitous payments to qualifying entities, not for transfers that result in receipt of valuable economic benefits. In applying [S]ection 170 and the quid pro quo doctrine, the Treasury Department and the IRS do not believe it is appropriate to categorically exempt state or local tax benefits from the normal rules that apply to other benefits received .. . by a taxpayer in exchange for a contribution. The final regulations are consistent with longstanding principles under [S]ection 170 and sound tax policy. 2019 Final Rule, 84 Fed. Reg. at 27515. . The “quid pro quo doctrine” referenced in the 2019 Final Rule provides that — where a taxpayer receives a benefit in return for his, her or its donation — the taxpayer is only permitted to deduct the net value of the taxpayer’s donation as a “charitable contribution.” Id. at 27513-14. Applying that doctrine here, if a taxpayer contributes $10,000 to a New Jersey tax credit program and receives a $9,000 state tax credit in return, under the 2019 Final Rule, the amount of the taxpayer’s charitable contribution ($10,000) would — for purposes of the taxpayer’s federal income tax return — be reduced by the value of the benefit the taxpayer received (the $9,000 state tax credit). Accordingly, the taxpayer could only claim a $1,000 charitable contribution deduction on the taxpayer’s federal income tax return. See 26 C.F.R. § 1.170A-1(h)(3)(vii)(A). The 2019 Final Rule retains the distinction previously drawn between charitable contributions made in exchange for tax credits and charitable contributions that could be deducted on the taxpayer’s state or local tax return. While charitable contributions made in exchange for tax credits cannot be deducted on the taxpayer’s federal income tax return, “the taxpayer is not required to reduce [his] charitable deduction under [S]ection 170(a)” if the taxpayer expects that the state and local tax deduction that he receives as a result of his contribution does not exceed the value of that contribution. 26 C.F.R. § 1.170A-1(h)(3)Gi); 2019 Final Rule, 84 Fed. Reg. at 27515. Accordingly, where a taxpayer contributes $10,000 to a state or local government charitable program and is permitted to take a dollar-for-dollar deduction on his state and local tax return — as opposed to a credit — the taxpayer may claim the full amount as Nn a charitable contribution on his federal income tax return. See 26 C.F.R. § 1.170A- 1(h)(3)(vii)(C); 2019 Final Rule, 84 Fed. Reg. at 27519. “To provide consistent treatment for state or local tax deduction[]” programs and “state or local tax credit{] [programs] that provide a benefit that is generally equivalent to a deduction,” Treasury and IRS formulated the “de minimis exception,” under which it is not necessary to reduce a charitable contribution deduction premised on a state tax credit program where the tax credit does “not exceed 15 percent of the [value of a] taxpayer’s payment.” 2019 Final Rule, 84 Fed. Reg. at 27514, 27520; see 26 C.F.R. § 1.170A-1(h)(3)(vi). Under the 2019 Final Rule, the 15 percent figure is calculated by “the sum of the taxpayer’s state and local tax credits received.” 2019 Final Rule, 84 Fed. Reg. at 27515. This exception is “intended to reflect _.. the combined top marginal state and local tax rates, which the Treasury Department and the IRS understand currently do not exceed 15 percent.” Id. at 27520. For example, if a taxpayer who contributes $10,000 to a state or local tax program expects a $1,000 state tax credit (equal to 10 percent of his contribution), the taxpayer may claim the full amount as a charitable contribution deduction on his federal income tax return. See 26 C.F.R. § 1.170A-1(h)(3)(vii)(B). The 2019 Final Rule also adopts the two safe harbors for (1) “C corporation[s] or specified passthrough entit[ies]”; and (2) certain individuals who “itemize deductions for federal income tax purposes,” “make[] payment[s] to [certain entities under S]ection 170(c) in return for a [SALT] credit,” and “would have been able to deduct a payment of tax to the state or local _ government in the amount of the credit” because the individual has a “total [SALT] liability for the year under $10,000.” 2019 Final Rule, 84 Fed. Reg. at 27514; Notice 2019-12, 2019-27 I.R.B. . 11 Il. PROCEDURAL HISTORY On July 17, 2019, the Village of Scarsdale filed its Complaint against Treasury, the IRS, and certain officers of these agencies. Scarsdale argues that the 2019 Final Rule’s interpretation of “charitable contribution” in IRC § 170 is arbitrary and capricious, and contrary to law, in violation of the Administrative Procedure Act, 5 U.S.C. § 706. (19 Civ. 6654, Dkt. No. 1 (Cmplt.) §§ 67-78) That same day, New York, New Jersey, and Connecticut filed their Complaint against the same defendants, alleging the same violations of the APA as well as a claim under the Regulatory Flexibility Act, 5 U.S.C §§ 601-12. (19 Civ. 6642, Dkt. No. 8 (Cmplt.) §§ 112-30) The two cases were assigned to this Court as related. (19 Civ. 6654, July 19, 2019 Minute Entry) □ On July 1, 2020, Defendants moved to dismiss both complaints, arguing that (1) Plaintiffs lack standing; (2) Plaintiffs’ claims are barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a); and (3) the States have not stated a claim under the Regulatory Flexibility Act. The Government moves in the alternative for summary judgment, arguing that Plaintiffs have not demonstrated that (1) the IRS acted “in excess of [its] statutory jurisdiction,” 5 U.S.C. § 706(2)(C), in promulgating the 2019 Final Rule; and (2) the IRS’s interpretation of IRC § 170 is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law,” 5 U.S.C. § 706(2)(A). (19 Civ. 6642, Dkt. No. 60 (Govt. Br.); 19 Civ. 6654, Dkt. No. 45 (Govt. Br.))® That same day, Plaintiffs in both cases cross-moved for summary judgment, arguing that the 2019 Final Rule is unlawful because it (1) conflicts with IRC § 170 and 6 Because the Government’s briefing in the two actions is identical, the Court cites only to the Government’s briefing in 19 Civ. 6642, Dkt. Nos. 60 (Govt. Br.) and 61 (Govt. Reply). 19 therefore is “in excess of the IRS’s statutory authority”; and (2) relies on “irrational and impermissible distinctions” that are “arbitrary and capricious,” and “contrary to law.” (19 Civ. 6642, Dkt. No. 58 (Pltf. Br.); 19 Civ. 6654, Dkt. No. 47 (Pitf. Br.)) DISCUSSION I. LEGAL STANDARDS A. —_ Rule 12(b)(1) Motion to Dismiss A] federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in suit ({i.e.,] subject-matter jurisdiction).” Sinochem Int’] Co. Ltd. v. Malay. Int’ Shipping Corp., 549 U.S. 422, 430-31 (2007). “A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). Where subject matter jurisdiction is challenged, “[a] plaintiff has the burden of showing by a preponderance of the evidence that subject matter jurisdiction exists.” Lunney v. United States, 319 F.3d 550, 554 (2d Cir. 2003) (citing Makarova, 201 F.3d at 113). In considering a Rule 12(b)(1) motion, a court “must accept as true all material factual allegations in the complaint.” J.S. ex rel. N.S. v. Attica Cent, Sch., 386 F.3d 107, 110 (2d Cir. 2004). The court “may consider affidavits and other materials beyond the pleadings to resolve the jurisdictional issue, but . .. may not rely on conclusory or hearsay statements contained in the affidavits.” Id.; see also Morrison v. Nat] Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008), aff'd, 561 U.S. 247 (2010) (“In resolving a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) a district court may consider evidence outside the pleadings.”) (citing Makarova, 201 F.3d at 113). In resolving a Rule 12(b)(1) motion, a court may also consider “any matters of which judicial notice may be taken,” Hirsch v. Arthur Andersen & Co., 49 72 F.3d 1085, 1092 (2d Cir. 1995), including publicly available materials, Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991). B. Rule 12(b)(6) Motion to Dismiss “To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[T]he court is to accept as true all facts alleged in the complaint” and must “draw all reasonable inferences in favor of the plaintiff.” Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). “In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint.” DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010). For a document to be incorporated by reference, “the complaint must make ‘a clear, definite and substantial reference to the documents.’” Brown v. New York City Housing Auth., No. 13-CV-7599 (RJS), 2015 WL 4461558, at *2 (S.D.N.Y. July 20, 2015) (quoting Helprin v. Harcourt, Inc., 277 F. Supp. 2d 327, 330-31 (S.D.N.Y. 2003)). C. Rule 56 Summary Judgment Summary judgment is appropriate where the moving party “shows that there is no genuine dispute as to any material fact” and that it “is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is material only “‘if it might affect the outcome of the suit under the governing law,’” and a fact issue is genuine only “‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’” Red Tree Invs., LLC v. Petroleos de 1A Venezuela, S.A., 82 F.4th 161, 170 (2d Cir. 2023) (quoting Mitchell v. Shane, 350 F.3d 39, 47 (2d Cir. 2003)). In deciding a summary judgment motion, the Court “‘resolve[s] all ambiguities, and credit[s] all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment.” Spinelli v. City of New York, 579 F.3d 160, 166 (2d Cir. 2009) (quoting Brown v. Henderson, 257 F.3d 246, 251 (2d Cir. 2001)). However, “‘[a] party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment... . [M]Jere conclusory allegations or denials . . . cannot by themselves create a genuine issue of material fact where none would otherwise exist.’” Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (second alteration and omissions in original) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995)). Where, as here, a district court is tasked with reviewing agency action under the APA, the “entire case on review is a question of law,’ such that ‘judicial review of agency action is often accomplished by filing cross-motions for summary judgment.”” Gomez v. McHenry, No. 19 Civ. 7373 (JPO), 2020 WL 6381959, at *2 (S.D.N.Y. Oct. 30, 2020) (quoting Just Bagels Mfg., Inc. v. Mayorkas, 900 F. Supp. 2d 363, 372 (S.D.N.Y. 2012)); see also Residents for Sane Trash Sols., Inc. v. U.S. Army Corps of Engineers, 31 F. Supp. 3d 571, 586 (S.D.N.Y. 2014) (“Whether an agency action is supported by the administrative record and consistent with the APA standard of review’ is decided ‘as a matter of law.””) (quoting UPMC Mercy v. Sebelius, 793 F. Supp. 2d 62, 67 (D.D.C. 2011)). In deciding such a case, the district court assumes an appellate role and must “decide, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.” Gomez, 2020 WL 6381959, at *2 (quoting Zevallos v. Obama, 10 F. Supp. 3d 111, 117 (D.D.C. 2014)). I. ANALYSIS A. Motions to Dismiss In seeking dismissal of Plaintiffs’ actions, the Government argues that (1) Plaintiffs lack standing to pursue their claims; (2) the Anti-Injunction Act bars their actions; and (3) Plaintiff States’ claims that Treasury and the IRS violated the Regulatory Flexibility Act must be dismissed for failure to state a claim. (19 Civ. 6642, Dkt. No. 60 (Govt. Br.) at 26-42) 1. Whether Plaintiffs Have Pled An Injury In Fact Sufficient to Demonstrate Standing The Government argues that Plaintiffs cannot prove that they have suffered, or will suffer, an injury in fact that is fairly traceable to the 2019 Final Rule. a. Applicable Law To establish the “irreducible constitutional minimum’ of standing,” a “plaintiff must have (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.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). Here, the Government contends that Plaintiffs have not demonstrated either an injury in fact or causation. As to states, courts have found an injury in fact in three circumstances: (1) “proprietary suits in which the State sues much like a private party suffering a direct, tangible injury,” for example, a monetary loss, Connecticut v. Cahill, 217 F.3d 93, 97 (2d Cir. 2000); (2) “sovereignty suits requesting adjudication of boundary disputes or water rights,” id., or “the power to create and enforce a legal code,” Alfred L. Snapp & Son, Inc. v. Puerto Rico, ex rel., 16 Barez, 458 U.S. 592, 601 (1982); and (3) “parens patriae suits in which States litigate to protect ‘quasi-sovereign’ interests.’” Cahill, 217 F.3d at 97 (citing Snapp, 458 U.S. at 601-02). If directly impacted by the 2019 Final Rule, Plaintiff States and Plaintiff Scarsdale, “no less than private citizens, are entitled to invoke [their direct injury] in demonstrating their standing to sue.” State of New York v. Mnuchin, 408 F. Supp. 3d 399, 409 (S.D.N.Y. 2019); see Wyoming v. Oklahoma, 502 U.S. 437, 448-49 (1992) (finding standing based on “allegations of direct injury to the State [revenues]”). b. Plaintiffs’ Alleged Injury Here, the Plaintiff States have alleged that the 2019 Final Rule implicates all three categories of injury: e sovereign and proprietary interest in protecting a net increase in state revenue that would strengthen the Plaintiff States’ fiscal health and their capacity to carry out their sovereign functions” (19 Civ. 6642, Dkt. No. 8 (Cmplt.) 107); e “ag proprietary, sovereign, and quasi-sovereign interest in protecting the charitable revenue streams that flow to State institutions and other charitable organizations. . . . [Bly diminishing the value of charitable deductions, the Final Rule reduces the incentive to itemize, which in turn weakens the incentive to make charitable contributions,” (id. § 108); and e “an interest in protecting a net increase in revenue for their governmental | subdivisions, including counties, municipalities, and school districts,” (id. 4 109). Plaintiff Village of Scarsdale alleges that the 2019 Final Rule has caused it injury by “reducing the amount of revenue collected by the Village.” (19 Civ. 6654, Dkt. No. 47 (PItf. Br.) at 18; see id. (“[T]he Final Rule makes it more expensive for Scarsdale residents to contribute to the Scarsdale Fund, leading to a corresponding decline in contributions and, accordingly, Scarsdale’s overall revenue.”)) 17 New York v. Yellen, 15 F.4th 569 (2d Cir. 2021) is instructive regarding Plaintiffs’ claim that the 2019 Final Rule’s impact on their revenue is sufficient to demonstrate standing. In Yellen, New York, New Jersey, Connecticut, and Maryland sued the same parties that are defendants here, arguing that the 2017 Tax Act — which capped the SALT deduction — was “unconstitutional on its face or unconstitutionally coerces them to abandon their preferred fiscal policies.” Yellen, 15 F.4th at 572. The plaintiff states alleged that the SALT deduction cap in the 2017 Tax Act would “cause them to lose at least hundreds of millions of dollars of revenue from property taxes and real estate transfer taxes.” Id. at 576. Because the SALT deduction cap “prohibits taxpayers from deducting the full amount of their property taxes,” it “makes homeownership more expensive for taxpayers whose [SALT] liability exceeds $10,000.” Id. As aresult, the SALT deduction cap “reduces demand in the housing market” in the plaintiff states, decreases the value of real estate, and thus causes “specific losses in tax revenue derived from property and real estate transfer taxes.” Id. In Yellen, New York alleged that the 2017 Tax Act “would cause [its] real estate transfer tax revenue to decrease by $15.3 million in 2019 and $69.2 million in 2020.” Id. at 577. New Jersey forecast “that the 2017 Tax Act would cause [its] real estate transfer tax revenue to decrease by a total of $105.1 million in 2019 and 2020.” Id. The Yellen court concluded that the states’ “allegations that the [SALT deduction] cap will decrease the frequency and price at which taxable real estate transactions occur by measurably increasing the cost of those transactions reflect specific lost tax revenues and suffice to support standing.” Id. at 577. In reaching this result, the Yellen court found that the [p]laintiff [s]tates, which claim that the new tax burden will significantly decrease the tax revenue from residents, are not engaged in “pure speculation and 18 fantasy,” Lujan, 504 U.S. at 567. Far from “guesswork as to how independent decisionmakers” — their own residents — “will exercise their judgment,” Clapper v. Amnesty Int’| USA, 568 U.S. 398, 413 (2013), the chain of economic events that the [p]laintiff [s|tates have proffered in this case strikes us as realistic, and the challenged action’s effect on their residents’ decisions seems to us entirely “predictable,” Dep’t of Commerce v. New York, 139 S. Ct. 2551, 2566 (2019). Id. In sum, under Yellen, a state has standing to challenge a law when it establishes “