Monte Silver’s Lawsuit Opposing The Procedural Aspect of #GILTI Regs Lives On

In summary – Monte Silver’s lawsuit against GILTI lives on!

On April 19, 2024 the U.S. Court Of Appeals released a decision which included:

Plaintiffs had objected before the district court that the Anti-Injunction Act did not apply in light of South Carolina v. Regan, 465 U.S. 367 (1984), because they had no other way to litigate their claims. The defendants argued that the Act barred the suit without exception. The district court, in its Memorandum Opinion, did not address these contentions. On appeal, plaintiffs renew their South Carolina argument. Defendants respond with an argument differing somewhat from their presentation to the district court. That South Carolina argument may require factual development.

We therefore vacate and remand the case for further proceedings consistent with this judgment, which also may encompass additional issues beyond those presented in this appeal. In so ruling, we express no opinion on whether the Anti-Injunction Act would apply regardless of South Carolina v. Regan.

In lawyer talk this means that Mr. Silver’s lawsuit against the GILTI regulations has been returned to the District Court for a reconsideration of the issues. This does NOT mean that Mr. Silver was successful in striking down the GILTI regs. It does mean that he was successful in opposing the “dismissal” of the lawsuit by the District Court.

To put it simply:

Monte lives on to fight another day!!

Summarizing in Twitter Speak:

Those who want more commentary, read on …

Background and discussion

On April 11, 2024 the House Ways And Means Committee held a hearing (apparently) to preach the virtues of the 2017 TCJA generally and to argue for making some of its tax cuts permanent. Those interested can view the hearing here. The hearing focused ENTIRELY on benefits (example the 199A deduction) to resident Americans. The hearing lasted approximately 4.5 hours. There was not a single reference to to (1) U.S. citizens living outside the United States and therefore (2) the incredible damage that the TCJA inflicted on U.S. citizens living outside the United States. At a bare minimum the TCJA was damaging to U.S. citizens abroad in two distinct ways.

First – a denial of benefits: The TCJA denied U.S. citizens abroad some of the benefits given to resident Americans. An important example is U.S. citizens living outside the United States, running small businesses (that were not CFCs) in their country of residence were denied the 199A deduction.

Second – outright damage: The carnage inflicted by the 965 Transition Tax and the 951A GILTI tax is well known in the community of Americans abroad. The Treasury Department continues their “willful blindness” (arguing at one point that there was no such thing as a small CFC owned by a U.S. citizen abroad).

Monte Silver – A Hero Of Our Times

Monte Silver is an Israel based U.S. citizen lawyer. He (according to the court documents) is the controlling shareholder of a small Israel corporation which qualifies as a CFC (“Controlled Foreign Corporation”). The CFC is his law firm. As a result he was caught in the “cross hairs” of both the 965 Transition Tax (punishing his past) and the 951A GILTI tax (disabling his future). Litigation is a marathon and not a sprint. Since 2018 Mr. Silver has been prosecuting legal challenges against BOTH the transition tax and GILTI. Previous blog posts discussing the lawsuits are here.

Interestingly, Mr. Silver’s litigation has NOT been focused on the “substance” of the transition tax and GILTI. Rather it has been on the fact that Treasury (in making regulations) has not complied with the procedural requirements imposed on it by the Regulatory Flexibility Act. His litigation has also raised questions of “standing” generally and the Anti-Injunction Act specifically. In recent years he has received superb legal counsel from Marc Zell and Noam Schreiber.

Transition Tax and GILTI litigation generally

U.S. citizens abroad damaged by the transition tax and GILTI laws imposed by the 2017 TCJA can challenge the legislation in two ways:

I. Attacking the substance of the laws – The Moore Case

The Moore case was argued on December 5, 2023. Rarely has a case generated more interest. The briefs (including a large number of amicus briefs) are available on the Supreme Court site here.

II. Attacking the way that the laws were implemented through regulation (Monte Silver’s “Regulatory Flexibility Act” challenges)

Generally Mr. Silver argued that the Regulatory Flexibility Act imposes procedural requirements that Treasury must meet in making regulations that it is otherwise authorized to make.

Of course the U.S. government would prefer to NEVER have to defend either the substance of the law or the regulations on the merits. In order to prevent a hearing on the merits, the government will always argue:

(i) the plaintiffs lack standing; and/or

(ii) the lawsuit is barred by the “Prohibition of suits To restrain assessment or collection” (section 7421 of the Internal Revenue Code) which prohibits many lawsuits against tax legislation.

To date, the Government has been generally successful in raising “standing” and the “Prohibition of suits To restrain assessment or collection” as reasons why the case should not be heard on the merits.

The next steps …

It appears that issues of standing and the “Prohibition of suits To restrain assessment or collection” are to be reconsidered by the District Court. Hopefully these hurdles will be cleared and the case will be heard on the merits.

As they say in the Marines:

“The difficult we do today! The impossible takes a bit longer!”

Monte Silver, Noam Schreiber and Marc Zell are doing incredible work for the community of Americans abroad!

John Richardson – Follow me on @Expatriationlaw

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