Silver v. Internal Revenue Service

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
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MONTE SILVER, et al. )
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Plaintiffs, )
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v. ) Civil No. 19-cv-247 (APM)
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INTERNAL REVENUE SERVICE, et al. )
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Defendants. )
_________________________________________ )
MEMORANDUM OPINION AND ORDER
As part of the Tax Cut and Jobs Act of 2017 (“TCJA”), Congress enacted certain “transition
tax” provisions applicable to “controlled foreign corporations” owned by “United States persons.”
See generally Pub. L. 115-97, 131 Stat. 2054 (2017). On January 15, 2019, Defendants Internal
Revenue Service and United States Department of Treasury published final regulations to
effectuate these tax provisions.
Plaintiff Monte Silver is the sole shareholder of Monte Silver, Ltd., a company based in
Israel. Plaintiffs assert that they are subject to the TCJA’s transition tax provisions. They bring
this action to challenge Defendants’ alleged failure, in connection with promulgating the TCJA’s
final regulations, to carry out required small-business impact evaluations under the Regulatory
Flexibility Act and the Paperwork Reduction Act. Defendants now move to dismiss Plaintiffs’
Complaint. Defendants maintain that the court lacks subject-matter jurisdiction over this action
because (1) Plaintiffs lack standing, and (2) the Anti-Injunction Act and the tax exception to the
Declaratory Judgment Act prohibit this lawsuit. See generally Defs.’ Mot. to Dismiss for Lack of
Jurisdiction, ECF No. 21 [hereinafter Defs.’ Mot.].
For the reasons that follow, Defendants’ Motion is denied. Relatedly, Plaintiffs’ Motion
to Expedite, ECF No. 27, is denied as moot.
I.
A plaintiff in federal court bears the burden of showing that she meets the “irreducible
constitutional minimum” of Article III standing: (1) injury in fact, (2) causation, and
(3) redressability. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). To establish standing,
as here, at the motion to dismiss stage, the plaintiff “must state a plausible claim that [she has]
suffered an injury in fact fairly traceable to the actions of the defendant that is likely to be redressed
by a favorable decision on the merits.” Food & Water Watch, Inc. v. Vilsack, 808 F.3d 905, 913
(D.C. Cir. 2015) (quoting Humane Soc’y of the U.S. v. Vilsack, 797 F.3d 4, 8 (D.C. Cir. 2015)).
The court must accept the well-pleaded allegations of the complaint as true and draw all inferences
in favor of the plaintiff. Arpaio v. Obama, 797 F.3d 11, 19 (D.C. Cir. 2015).
Here, Plaintiffs allege what is known as a “procedural injury,” that is, an injury resulting
from the violation of a procedural right created by statute. See Ctr. for Law & Educ. v. Dep’t of
Educ., 396 F.3d 1152, 1157 (D.C. Cir. 2005). In such cases, the redressability and imminence
requirements of standing are relaxed. See Wildearth Guardians v. Jewell, 738 F.3d 298, 305
(D.C. Cir. 2013). The plaintiff need not show that “but for the alleged procedural deficiency the
agency would have reached a different substantive result.” Id. at 306. Rather, she need only
establish that the agency violated a procedural right designed to protect her interests, and that it is
plausible “‘that the procedural breach will cause the essential injury to the plaintiff’s own
interest.’” Ctr. for Law & Educ., 396 F.3d at 1159 (quoting Fl. Audubon Soc. v. Bentsen, 94 F.3d
658, 664–65 (D.C. Cir. 1996) (en banc)). In other words, “the requirement of injury in fact is a
hard floor of Article III jurisdiction that cannot be removed by statute.” Summers v. Earth Island
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Inst., 555 U.S. 488, 497 (2009). “A procedural injury claim therefore must be tethered to some
concrete interest adversely affected by the procedural deprivation . . . .” WildEarth Guardians,
738 F.3d at 305.
Plaintiffs’ alleged injury is the cost associated with complying with the TJCA’s transition
tax regulations, which include certain “collection of information” and “recordkeeping
obligations.” Am. Compl., ECF No. 5 [hereinafter Am. Compl.], ¶ 54. Plaintiffs complain that
the regulations have “imposed significant burdens on Plaintiffs and other small businesses,”
including “forc[ing] small businesses to spend enormous amounts of time in futile efforts just to
try and understand what [the regulations] mean[],” and “forc[ing] small businesses to expend
significant funds to try and comply” with the regulations. Id. ¶¶ 33–34. Plaintiff Silver declares:
“[I]n trying to comply with the statute and regulations . . . I have been forced to spend significant
funds. Worse still, I will be forced to expend money on Transition tax-related compliance for
years to come, even though I did not report any Transition tax liability.” Decl. of Monte Silver,
ECF No. 23-2, ¶ 18. These asserted facts plausibly establish a concrete injury to support standing.
See State Nat. Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C. Cir. 2015) (holding that regulated
bank had standing where “monitoring program” devised to comply with regulations “cause[d] it
to incur costs”); Ass’n of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 458 (D.C. Cir.
2012) (finding that regulated schools were “harmed because they will face even greater compliance
costs” and thus had standing).
Notwithstanding Plaintiffs’ straightforward injury and the relaxed redressability standard,
Defendants still dispute standing on the element of causation. They assert that Plaintiffs’ quarrel
is with the TCJA rather than the regulations, and thus any alleged injury stems from the TCJA
itself and not the agencies’ newly adopted regulations. Defs.’ Mot. at 8–11. But this argument
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fundamentally misconstrues Plaintiffs’ claims. Plaintiffs are not challenging any specific
regulation that might or might not be traceable directly to the TCJA. Rather, Plaintiffs allege that
the agencies neglected to undertake procedural measures designed to protect small business from
the burden of unwieldy and cost-intensive regulations—namely, the publishing of an initial and a
final regulatory flexibility analysis, 5 U.S.C. §§ 601, 603(a), and a certification that the regulation
has reduced compliance burdens on small businesses, 44 U.S.C. § 3506. Plaintiffs alleged injuries
are therefore traceable to Defendants’ alleged violation of these separate statutory requirements,
not the TCJA. Causation is easily satisfied. See Fl. Audubon Soc., 94 F.3d at 664 (stating that a
“plaintiff alleging a procedural violation [must show] a causal connection between the government
action that supposedly required the disregarded procedure and some reasonably increased risk of
injury to its particularized interest”).
Accordingly, the court rejects Defendants’ assertion that Plaintiffs lack standing to advance
their claims.
II.
Defendants fare no better with their argument that the court lacks subject-matter
jurisdiction under the Anti-Injunction Act and the tax exception to the Declaratory Judgment Act.
Defendants contend that Plaintiffs’ suit is barred because it challenges regulations implementing
Sections 965, 962, and 951 of the Internal Revenue Code, and invalidating those regulations would
directly prevent the collection of taxes. Defs.’ Mot. at 1, 14. Plaintiffs respond that the Anti-
Injunction Act prohibits only those suits seeking to restrain the assessment and collection phases
of the taxation process—not challenges to the antecedent procedural steps that are the subject of
this lawsuit. Moreover, they argue, the Anti-Injunction Act does not apply where, as here,
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Plaintiffs have no other avenue to litigate their claims because they do not owe a transition tax
liability. Pls.’ Opp’n to Mot. to Dismiss, ECF No. 23, at 15–19.
The Anti-Injunction Act bars judicial review of lawsuits filed “for the purpose of
restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a). Similarly, the
Declaratory Judgment Act excludes from its purview actions “with respect to Federal taxes.”
28 U.S.C. § 2201(a). The D.C. Circuit has explained that the Anti-Injunction Act and the tax
provision of the Declaratory Judgment Act are “coterminous.” Cohen v. United States, 650 F.3d
717, 730–31 (D.C. Cir. 2011) (en banc). Therefore, for simplicity, the court focuses on the Anti-
Injunction Act.
The principal purpose of the Anti-Injunction Act is “the protection of the Government’s
need to assess and collect taxes as expeditiously as possible with a minimum of preenforcement
judicial interference, ‘and to require that the legal right to the disputed sums be determined in a
suit for refund.’” Bob Jones Univ. v. Simon, 416 U.S. 725, 736–37 (1974) (quoting Enochs v.
Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962)). But, as the D.C. Circuit has explained,
the Act does not bar any and all lawsuits that might ultimately impact the amount of revenue in
the U.S. treasury. See Cohen, 650 F.3d at 726 (citing Hibbs v. Winn, 542 U.S. 88, 102 (2004)).
Although “[t]he IRS envisions a world in which no challenge to its actions is ever outside the
closed loop of its taxing authority[,]” the Act’s prohibition does not sweep so broadly:
“‘assessment’ is not synonymous with the entire plan of taxation, but rather with the trigger for
levy and collection efforts, and ‘collection’ is the actual imposition of a tax against a plaintiff.”
Id. (cleaned up). Accordingly, the D.C. Circuit has refused to “read[ ] the [Anti-Injunction Act]
to reach all disputes tangentially related to taxes.” Id. at 726–27. Rather, the Circuit has instructed
that whether the Anti-Injunction Act prohibits a suit depends on whether the action is
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fundamentally a “tax collection claim,” id. at 727 (quoting We the People Found., Inc. v. United
States, 485 F.3d 140, 143 (D.C. Cir. 2007)), which the court must determine based upon “a careful
inquiry into the remedy sought, the statutory basis for that remedy, and any implication the remedy
may have on assessment and collection,” id.
Cohen is illustrative. There, taxpayers challenged a special procedure the IRS had
established for refunding an unlawfully collected tax on the ground that the IRS had failed to
comply with the Administrative Procedure Act’s notice-and-comment requirements. Id. at 721.
The suit thus “challeng[ed] the adequacy of IRS procedures,” not the collection of any tax revenue.
Id. at 733. Even if the taxpayers won, the court explained, “it does not follow that they are entitled
to a tax refund. . . . The IRS may still adopt a new version of the same [procedure] after fixing any
substantive and procedural defects.” Id. at 728. The Anti-Injunction Act therefore presented no
bar to the action.
So, too, here. Plaintiffs do not seek a refund or to impede revenue collection. Instead, they
challenge the IRS’s adopting of regulations without conducting statutorily mandated reviews
designed to lessen the regulatory burden on small businesses. As relief, they ask the court simply
to compel the agencies to do what the law requires—Regulatory Flexibility Act and Paperwork
Reduction Act analyses. Tax revenues and their collection are unaffected by such relief. 1
The Anti-Injunction Act therefore presents no barrier to Plaintiffs’ claims. Cf. Z Street v.
Kroskinen, 791 F.3d 24, 31–32 (D.C. Cir. 2015) (holding that the Anti-Injunction Act did not bar
a lawsuit challenging an allegedly unconstitutional delay in processing 501(c)(3) applications
because the injury was the delay itself).
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The court need not decide at this stage whether the greater relief Plaintiffs seek—staying enforcement of the
regulations “until such time as Defendants comply with their statutory duties,” Am. Compl. at 19—would run afoul
of the Anti-Injunction Act. The court need address that issue only if Plaintiffs prevail on the merits.
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III.
For the foregoing reasons, Defendants’ Motion to Dismiss is denied. So, too, is Plaintiffs’
Motion to Expedite.
______________________
Dated: December 24, 2019 Amit P. Mehta
United States District Judge
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