Mr. Monte Silver is legally tackling in a U.S. Court the United States Transition Tax by arguing that he has suffered from a “procedural injury”.
The DC Court Judge generally explains the lawsuit: “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.”
From the Court ruling:
‘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…”
“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.”
Defendant IRS moved to dismiss the lawsuit claiming in part that Mr. Silver lacked “standing”.
On Christmas eve, 2019 the U.S. DC District Court disagreed, rejected IRS motion to dismiss —- and the lawsuit continues.
JapanT says: “Yes there is a Santa Claus!”
See the DC Court ruling (some text above) and the article in the press on the ruling.
Yes, there is a Santa Clause!
I seem to remember that Treasury Sec Mnuchin said something like you can’t be a small business and a foreign corporation at the same time. I guess he’s getting an education.
I hope at the very least this results in an exemption for small businesses.
I happen to know that the US government were made well aware of the damage this regulation would do to US citizens businesses abroad because I know one of the people person that told them.
His concerns and requests for exemptions were ignored because it would create too many loopholes for the genuine targets of the legislation, that’s how they responded. A little collateral damage that makes the US government money from people with no voice to complain was deemed acceptable.
They knew what would happen, it was no surprise to them when the complaints started coming in.
Sounds like Monte wants to go after FATCA next. From his FB group, “American small businesses for tax fairness”:
“ Cbt is not something for the courts. FATCA is. We will win one and go from there”
If I know anything about Monte, he plays to win.
@BB: I hope you’re right. The fact that Monte has gotten the court to confirm that he has standing to pursue the case sets a huge precedent. I believe that he was skeptical about the failed FATCA case on the grounds of lacking standing, and he was proven correct. He clearly knows what he’s doing.
Re the US IRS continued demonstration of its tolerance for apparently unlimited acceptable collateral damage to those who attempt to be US extraterritorial CBT compliant from ‘abroad’ – it reminded me of reading this claim;
“…..the debate between CBT and RBT often overemphasizes the subjective circumstances of particular individuals, and underemphasizes the broader impact of the alternative regimes on social cohesion within the United States. When coupled with the significant residence neutrality concerns that may arise under an RBT regime and the resulting potential to create a permanent class of wealthy U.S. citizens living abroad who would not be subject to taxation, these social cohesion concerns suggest that the United States should continue to exercise citizenship-based taxing jurisdiction. However, the Article acknowledges that such a CBT regime can only be defended in practice if the IRS and Congress are willing to address the significant practical compliance concerns faced by many citizens living abroad. ”
Kirsch, Michael S., Citizens Abroad and Social Cohesion at Home: Refocusing a Cross-Border Tax Policy Debate (October 5, 2015). 36 Virginia Tax Review 205 (2017). Available at SSRN: https://ssrn.com/abstract=2669543 or http://dx.doi.org/10.2139/ssrn.2669543
Still waiting for the IRS (and Congress) to demonstrate that they’re “…… willing to address the significant practical compliance concerns faced by many citizens living abroad. “.
Apparently no collateral damage is too much for the IRS as long as it is borne solely by individuals and small businesses not residing in the US – even when those individuals and small businesses are attempting in good faith to be and remain compliant. The IRS and Congress continue to create ever higher barriers to that compliance – including refusing to even look at those barriers BEFORE enacting tax laws.
If the IRS and Congress refuse to consider the impact of the laws they enact and enforce on those outside US borders, and further institutionalize and entrench the inequities and unjust burdens they create for those they claim jurisdiction over outside the US – who are already fully compliant taxpayers where they actually reside – then they cannot justify US extraterritorial CBT.
US extraterritorial CBT = a separate and unequal class of UScitizenry with more burden + less benefit.
More burden+less benefit=unfair.
This is one you might like to add to your extensive collection of technical articles. It’s by our friend Andrew Grossman who, if you remember, did a couple of great video chats with John Richardson.
So far all I’ve searched for is “long-term residents” and I discovered Sinator Schumer wanted to ban entrance to the USA for “targeted former citizens and permanent residents” (S.3205 in 2012). Thankfully, that bill withered on the vine. Apparently anyone who leaves the USA has an invisible target secretly embedded in their forehead which the likes of Schumer enjoy taking pots shots at, whenever ignorance and malevolence moves them to do so. BTW, it would take a lifetime to read every link Andrew has included in his essay but it looks like a very valuable collection of resources for anyone researching the FATCA follies.
This looks to be an updated edition of Andrew Grossman’s extensive bibliographic essay.
Here’s a useful link showing IRS data on returns from abroad:
For 2016, the “other areas” returns total 764,580. That, per Grossman’s definition, includes any of the following: “military postal addresses, U.S. outlying territories subject mainly to “mirror taxes”, and foreign countries”. (2011 IRS data shows 450k claims of FTC and FEIE so that’s roughly consistent.) What this shows, again, is a compliance rate likely well below 10 percent even two years after FATCA.
There are a few notes here and there in the essay about the difficulties of enforcing compliance, and notably no record of any attempts at enforcement against non-compliant US persons with no ties to the US. I find this sentence amusing: “Those who have truly no U.S. connection other than accidental citizenship: no assets, income or heirs in the United States and, if they have offspring those heirs are not U.S. citizens, may have an optimum strategy quite different from others who do have such personal and financial connections.”
And of course his amusing, slightly wistful conclusion: “The most vexing problem for any philosopher-jurist has to be not just the hardship and inequity and the apparent “gotcha” mentality of IRS enforcers regretted even by the Agency’s own Taxpayer Advocate, but that a law so widely and obviously scorned and ignored abroad may reduce respect for the tax and its enforcement system as a whole as well as the extravagant concept of “allegiance”. Ultimately “Tax law is political”: Anthony C. Infanti and Bridget J. Crawford, eds,, Critical Tax Theory: An Introduction (2009).”
Monte Silver says, “Not one expert thought we had a chance”. But he won! WE won! The nay-sayers are now on notice that there IS HOPE for our cause. Happy New Year, everyone!
Well Mr. Kirsch, Michael S., glad that the rule of law, you know the law that protects the rights of citizens, has no importance to you.
I still want to know how a homelander can stash money earning in the US abroad without paying tax on it. Until I came to Japan, all my income tax was deducted by the employer. I know you opt to have more or less withheld but I do not recall being able to opt for 0 withholding. Even still, as employers in the US supply this data to the IRS, the IRS knows how much one earned regardless of where they deposit it and can asses taxes based upon that. No need for FATCA.
I am thinking that it is really about tax avoidance rather than tax evasion. They are jealous of any amount of money going to another tax jurisdiction other than the US Treasury and want it for themselves. They just can not abide the fact that my taxes go to Japan and not the US. The amount does not matter.
Just the fact that the US court finally acknowledged “standing” is a break through, isn’t it. You never know while chipping away at a block when the hit will come that splits it open. I hope Gwen and Kazia’s legal challenge gets the funding it needs to continue. Perhaps Monte Silver’s success will be an incentive. Happy New Year to you and EVERYONE!
I suspect that Judge Mehta did a little research and found the TT as applied to non-resident US citizens on their fully foreign operated corporations quite abhorrent. Just a guess though.
Judge’s decision ‘clobbered Treasury/IRS’ Monte Silver tells Steve Mnuchin, other Treasury officials
December 28, 2019
In his Dec. 26 email, to which he attached a copy of the seven-page decision, Silver told Mnuchin and his Treasury Department colleagues that Judge Mehta’s ruling “opens the door to a copycat GILTI lawsuit, and countess other RFA [Regulatory Flexiblity Act] actions against Treasury and other agencies”.
Treasury and IRS have also been reminded that they need to show compliance as well with the Paperwork Reduction Act, a law that was enacted in 1980 to reduce the paperwork burden imposed by federal agencies on private businesses and citizens.
That is one of several things that has really burned me up over all this. We citizens and US persons must comply with contradictory rules, regulations and laws at the threat of huge fines. Yet, the agencies administering them have not been complying with the laws that govern them at not risk to the agencies nor the individuals who fail to follow the law.
Another that has been seen again and again is standing being denied on the basis that a tax can not be challenged before it has been paid even when the tax was not be challenged, as in the FATCA challenges by individual tax payers and the Florida and Texas Banker’s Associations.
This ruling is a breath of fresh air. May much come about because of it.
Here’s an excellent blog post discussing Monte Silver’s recent court win: https://procedurallytaxing.com/how-does-the-regulatory-flexibility-act-impact-tax-regulations/
The post concludes: “Silver’s case goes beyond raising the AIA challenge and throws down a significant challenge to the IRS practice of promulgating regulations as it relates to compliance with the RFA. With the initial success here, it will not be surprising to see this issue raised much more frequently as parties challenge regulations.”