updated 3:12 PM CET, Oct 28, 2020

U.S. District Court denies IRS effort to get it to dismiss legal Transition Tax challenge – on Xmas Eve

Monte Silver Monte Silver

A U.S. District Court in Washington, D.C. said on Tuesday that it "reject[ed]" claims by the Internal Revenue Service that Tel Aviv-headquartered U.S. tax attorney Monte Silver and his fellow plaintiffs  "lacked standing" to challenge a key component of President Trump's December 2017 tax reform legislation, as it applies to controlled foreign corporations. 

Silver called the ruling a "massive win" for him and other small business owners impacted by Trump's Tax Cuts and Jobs Act, because it meant that his potentially "precedent-setting case" can now go ahead. 

In a seven-page document dated Dec. 24, U.S. District Court Judge Amit P. Mehta noted that the court didn't need "at this stage" to "decide whether the greater relief the Plaintiffs [Silver et. al] seek – staying enforcement of the [Tax Cuts and Jobs Act] regulations 'until such time as [the] Defendants [IRS et. al] comply with their statutory duties' – would run afoul of the Anti-Injunction Act", unless or until "[the] plaintiffs prevail on the merits".

"For [these] reasons, Defendant's Motion to Dismiss is denied," Judge Mehta added.

"So, too, is Plaintiffs’ Motion to Expedite." 

“Standing” is a legal term which in the U.S. has to do with whether a litigant is entitled to to have the court in question decide the merits of a specific lawsuit. If a litigant is deemed to lack standing, the lawsuit must be dismissed.

As reported, Silver, who is an American citizen and the sole shareholder of Monte Silver Ltd., filed suit against the IRS and U.S. Treasury in January, arguing that the so-called Transition Tax regulations, contained in Trump's Tax Cuts and Jobs Act, failed to contain a "regulatory flexibility analysis" that is required by legislation known as the Regulatory Flexibility Act. The Regulatory Flexibility Act is a 1980 U.S. law that requires federal agencies to review regulations for their impact on small businesses.

(Judge Mehta refers to it above as the IRS's "statutory duties".)

The IRS responded to Silver's action on July 1 with its Motion to Dismiss. 

TCJA's impact on small businesses

The TCJA's Transition Tax has been said to hit individual owners of small businesses and partnerships located outside of the U.S., like Monte Silver, particularly hard, because many of them had been counting on their set-aside corporate profits to either expand their businesses in the short term, or to rely on later in life to fund their retirements.

"Rather than attempt to find potential solutions for small businesses with regard to the TCJA as required by law, Defendants [the IRS, the Treasury, IRS commissioner Charles Rettig and Treasury secretary Steven Mnuchin] issued impenetrable regulations on or about January 15, 2019 that impose many unreasonably complicated burdens upon a vast number of small businesses and small business owners" like his own company, Silver argued, in his 19-page court document, dated January 30.

Silver wasn't immediately available for comment on Tuesday evening.

However, he posted a brief announcement of the U.S. District Court's decision on his company's website immediately after it was announced. "Not one expert thought we had a chance", yet in the end, "the ruling was not even close! We clobbered them", his posting reads.  

To read the District Court's ruling, click here.