Tax360: Harvard submits Amicus in Transition case

By Dylan Moroses · May 18, 2020, 6:57 PM EDT


IRS regulations governing the transition tax on foreign earnings are too onerous for small businesses and shouldn’t be enforced until an analysis of their compliance burden can be completed, a taxpayer advocacy group told a D.C. federal court Monday. The Center for Taxpayer Rights argued in an amicus brief that the Internal Revenue Service and U.S. Department of the Treasury violated the 1980 Regulatory Flexibility Act by exempting rules on the so-called transition tax from an analysis that would determine whether they would harm small businesses. The center filed the brief in support of an attorney’s bid to suspend enforcement of the tax.

The attorney, Monte Silver, operates an Israeli law practice organized as a corporation for U.S. tax purposes. Silver sued the IRS last year in the U.S. District Court for the District of Columbia to stop enforcement of the transition tax, arguing that the tax agency violated several administrative laws when it issued what he called impenetrable final regulations. In its brief, the center said Treasury and the IRS have made a habit of claiming their rules are exempt from the RFA’s requirements that agencies consider alternatives or exemptions to reduce regulations’ burden on small businesses. “By not seriously considering the impact of regulations on small businesses, Treasury and the IRS consistently circumvent the stated will of Congress and impose heavy financial costs on many businesses and American households, especially those who have the least resources to comply with massive IRS paperwork requirements,” the center said. The transition tax under Internal Revenue Code Section 965 was enacted by the 2017 Tax Cuts and Jobs Act and levied a one-time toll charge on the overseas profits of U.S. companies.

According to the center, “Treasury certified, without analysis, that the regulations would not have a significant economic impact on a substantial number of small entities.” However, the center said, the regulations would affect roughly 20,000 multinational U.S. corporations, some of them smaller businesses that may not have the resources to comply with the reporting requirements. Silver argued this month that the agency wrongly concluded that the burden of calculating the tax would not hurt small businesses.

The court must defer enforcement of its rules until the IRS considers their impact on small companies as required by the RFA and makes changes to bring the regulations into compliance, he said. The IRS has argued that Silver can’t sue until the agency has assessed the transition tax against him, saying that the attorney’s own calculations showed he did not owe the tax. He hasn’t suffered a harm that the courts can remedy, it said in a filing last August. Silver’s lawsuit is also prohibited by the Anti-Injunction Act because it would interfere with the collection of taxes, the U.S. said. Legal representatives of Silver, the U.S. government and the center didn’t immediately respond to requests for comment. Silver is represented by Lawrence Marc Zell of Zell Aron & Co.

The U.S. government is represented by Nishant Kumar and Joseph A. Sergi of the U.S. Department of Justice, Tax Division. The Center for Taxpayer Rights is represented by Dana Montalto of the Legal Services Center of Harvard Law School. The case is Monte Silver and Monte Silver Ltd. v. the Internal Revenue Service et al., case number 1:19-cv-00247, in the U.S. District Court for the District of Columbia. –Additional reporting by David Hansen. Editing by Robert Rudinger.


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