Silver v. Internal Revenue Serv.

• Decision Date: 07 November 2022
• Docket Number: Civil Action 20-1544 (CKK)
• Parties: MONTE SILVER, et al., Plaintiffs v. INTERNAL REVENUE SERVICE, et al. Defendants.
• Court: U.S. District Court — District of Columbia

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MONTE SILVER, et al., Plaintiffs v. INTERNAL REVENUE SERVICE, et al. Defendants.

Civil Action No. 20-1544 (CKK)

United States District Court, District of Columbia

November 7, 2022

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendants'^[1][9] Motion to Dismiss. Plaintiff Monte Silver and his Israeli tax firm Monte Silver, Ltd. (together, “Plaintiffs,” separately “Silver” and “Silver Ltd.”) claim that Defendants violated the Regulatory Flexibility Act, 5 U.S.C. § 601 et seq. by failing to issue a “final regulatory flexibility analysis” (“FRFA”) as required when promulgating particular tax regulations. Because the Court agrees it lacks jurisdiction over this matter, and upon consideration of the pleadings,^[2] the relevant legal authorities and the entire record, the Court shall GRANT Defendants' [9] Motion to Dismiss.

I. BACKGROUND

For the purposes of the motion before it, the Court accepts as true the well-pleaded allegations in Plaintiffs' complaint. The Court does “not accept as true, however, the plaintiff's legal conclusions or inferences that are unsupported by the facts alleged.” Ralls Corp. v. Comm. on Foreign Inv. in U.S., 758 F.3d 296, 315 (D.C. Cir. 2014). The Court recites only the background necessary for the Court's resolution of the pending Motion.

Before turning to the facts particular to this case, the Court must pause to note that Plaintiffs unsuccessfully maintained a very similar suit in this jurisdiction, Silver v. IRS, 19-cv-247 (APM) (D.D.C.) (Silver I). As here, Plaintiffs attempted to maintain a cause of action under the Regulatory Flexibility Act to vitiate a regulation effecting a provision of the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054 (2017) (“TCJA” or the “Act”). The Court in Silver I granted summary judgment in favor of the same defendants as here, concluding that Plaintiffs lacked Article III and statutory standing. Silver v. IRS, 569 F.Supp.3d 5, 8-10 (D.D.C. 2021) appeal docketed No. 21-5116 (D.C. Cir. 2021). In that case, Plaintiffs argued that the Court should set aside a one-time “transition tax” imposed by a regulation effecting the TCJA, a tax to which Plaintiffs were not subject and never paid. Id. at 10.

Here, Plaintiffs challenge regulations effecting the TCJA's provisions revising the “global intangible low-taxed income” (“GILTI”) of certain “controlled foreign corporations” (“CFC”). These tax provisions are complex, although their details are not particularly germane to this case. Suffice it to say, the TCJA changed the tax rate that a U.S. shareholder pays on the foreign earnings of a foreign corporation if those earnings are “repatriated” to the United States. See TCJA § 14101(a); 26 U.S.C. § 245A. In essence, the TCJA sets a GILTI rate that is a U.S. shareholder's pro-rate share of the aggregate profit of its CFC(s) in excess of a ten percent return on the U.S. shareholder's pro-rate share of the CFC's tangible assets. On June 21, 2019, Defendants IRS and Treasury promulgated regulations under the broad heading “Guidance Related to Section 951A (Global Intangible Low-Taxed Income), 84 Fed.Reg. 29288-01. Among other things, it provides instructions on how to calculate a GILTI amount, what domestic entities are subject to GILTI on foreign earnings, and also imposed certain reporting requirements. See 83 Fed.Reg. 51072, 51072-73 (Oct. 10, 2018) (proposed rules). Because these regulations define how GILTI is calculated, they determine, in part, the ultimate amount of tax paid. See, e.g., 26 C.F.R. § 1.951A-1(c) (effective Jan. 22, 2022).

Plaintiff Silver is a United States citizen residing in Israel. Compl. ¶ 4. Plaintiff Monte Silver, Ltd. is an Israeli corporation through which Silver provides legal services to, among others, United States citizens and companies. Plaintiff Silver is the sole shareholder on Silver, Ltd.. There is no allegation that either Plaintiff is a U.S. taxpayer or subject to GILTI taxes. Indeed, Plaintiff has conceded in his briefing that “Silver Ltd. cannot owe any GILTI taxes as the tax only applies to the U.S. shareholder.” Opp. at 10 (emphasis original). Plaintiffs further allege that they “have incurred and will continue to incur on-going compliance costs relating to GILTI into the future even though they owe no GILTI tax.” Id. (emphasis added). Again, Plaintiffs' sole claim is that the Court should set aside the GILTI regulations and remand to Treasury because Treasury did not conduct a FRFA pursuant to the FRA. Neither Plaintiff advances any other claim.

II. LEGAL STANDARD

A. Federal Rule of Civil Procedure 12(b)(1)

Under Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has subject matter jurisdiction. Georgiades v. Martin-Trigona, 729 F.2d 831, 833 n.4 (D.C. Cir. 1984) (“It is the burden of the party claiming subject matter jurisdiction to demonstrate that it exists.”). A court must accept as true all factual allegations contained in the complaint when reviewing a motion to dismiss pursuant to Rule 12(b)(1). Banneker Ventures, LLC v. Graham, 798 F.3d 1119, 1129 (D.C. Cir. 2015) (“As it must on motions to dismiss for failure to state a claim, a district court considering a motion to dismiss for lack of subject matter jurisdiction accepts the allegations of the complaint as true.”). “Where necessary to resolve a jurisdictional challenge under Rule 12(b)(1), ‘the court may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.'” Id. (quoting Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992)).

B. Federal Rule of Civil Procedure 12(b)(6)

Under Rule 12(b)(6), a party may move to dismiss a complaint on the grounds that it “fail[s] to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “[A] complaint [does not] suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). Rather, a complaint must contain sufficient factual allegations that, if accepted as true, “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

In deciding a Rule 12(b)(6) motion, a court may consider “the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint,” or “documents upon which the plaintiff's complaint necessarily relies even if the document is produced not by the plaintiff in the complaint but by the defendant in a motion to dismiss.” Ward v. D.C. Dep't of Youth Rehab. Servs., 768 F.Supp.2d 117, 119 (D.D.C. 2011) (citations omitted).

III. DISCUSSION

Defendants mount three main arguments in favor of dismissal: (1) lack of Article III standing; (2) lack of subject matter jurisdiction under the Anti-Injunction Act and the Declaratory Judgment Act; and (3) lack of statutory standing.^[3]First, unlike in Silver I, because Plaintiffs have pleaded that they face future injury, they have established Article III standing. However, the Court concludes that the Anti-Injunction Act bars this action because the Plaintiffs aim to interrupt a tax rule governing who pays what amount of tax. Because the Court lacks jurisdiction, the Court does not address statutory standing, an issue that goes to the sufficiency of Plaintiffs' claim and not to the Court's jurisdiction. See Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 & n.4 (2014).

A. Standing

“Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016). To establish standing, Plaintiff bears the burden of demonstrating that he “(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.” Id. “This set for criteria implements Article III by limiting judicial intervention to only those disputes between adverse parties that are ‘in a form . . . capable of judicial resolution.'” Fl. Audubon Soc'y v. Bentsen, 94 F.3d 658, 663 (D.C. Cir. 1996) (quoting Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 218 (1974)). At the pleading stage, this requires Plaintiff to “‘clearly . . . allege facts demonstrating' each element.” Id. (quoting Warth v. Seldin, 422 U.S. 490, 518 (1975)).

Where a plaintiff challenges a regulation on a theory of procedural injury, the standing “requirements are modified somewhat.” Nat'l Wildlife Fed. v. U.S. Army Corps of Eng'rs, 170 F.Supp.3d 6, 11 (D.D.C. 2016). The plaintiff must show “both (1) that their procedural right has been violated, and (2) that the violation of that right has resulted in an invasion of their concrete and particularized interest.” Ctr. for L and Educ. v. Dep't of Educ., 396 F.3d 1152, 1159 (D.C. Cir. 2005) (emphasis altered). Increased compliance costs as a result of a procedurally improper rule are sufficient to show such an injury. E.g., State Nat'l Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C Cir. 2015); Ass'n of Priv. Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 458 (D.C. Cir. 2012). Beyond injury, however, a plaintiff must further plead redressability, i.e., that “correcting the alleged procedural violation could still change the substantive outcome in the [plaintiff's] favor.” Narragansett Indian Tribal Historic Pres. Office v. FERC, 949 F.3d...