How Does the Regulatory Flexibility Act Impact Tax Regulations?

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In a decade in which the Administrative Procedure Act (APA) has become a mainstream topic for tax lawyers, the case of Silver v. United States, Case No. 1-19-cv-247-APM (D.D.C. 2019) decided on Christmas eve seeks to usher in for the next decade of administrative law the proper application of the Regulatory Flexibility Act (RFA) as it applies to tax regulations.  At issue in this case specifically are the regulations enacted to interpret new section 965 as enacted in the Tax Cuts and Jobs Act; however, the issue of the application of the RFA goes well beyond the specific regulations at issue in that case.

The government predictably moved to dismiss the case, asserting both a lack of standing on the part of the plaintiff and the application of the Anti Injunction Act (AIA).  The court’s decision allows the case to get past the initial procedural hurdles.  Plaintiff still must establish the RFA as a provision to which the IRS must pay much more attention.  Plaintiff’s argument raises an issue that reminds me of the early years of arguments about the APA following Kristin Hickman’s articles exposing the gap between the APA and the regulations as promulgated by the IRS/Treasury.


Mr. Silver is a tax lawyer and a reader of PT.  Although a US citizen, he has a law office in Israel from which he dispenses advice on US tax issues.  He brought the suit because the recently enacted regulations interpreting IRC 965 create a significant recordkeeping burden.  While he did not owe any tax in 2018 as a result of this law change, he still seeks to challenge the regulations because of the burden and cost of compliance.  He was one of many who commented on the regulations and the burden they would impose on small businesses such as his.  He argues that the IRS inappropriately failed to address this burden.  Because he challenges the regulations outside of a deficiency or refund proceeding but rather in a straight up suit designed to strike the application of the regulations, the IRS began its defense by arguing that Mr. Silver lacked standing to challenge the regulations and that in any event the court lacked jurisdiction given the reach of the Anti Injunction Act.

The D.C. district court has allowed the challenge to move forward, marking a major victory for Mr. Silver.  In allowing the case to move forward and finding that Silver had standing to challenge the regs, the court found:

Here, Plaintiffs allege what is known as a “procedural injury,” that is, an injury resulting from the violation of a procedural right created by statute. See Ctr. for Law & Educ. v. Dep’t of Educ., 396 F.3d 1152, 1157 (D.C. Cir. 2005). In such cases, the redressability and imminence requirements of standing are relaxed. See Wildearth Guardians v. Jewell, 738 F.3d 298, 305 (D.C. Cir. 2013). The plaintiff need not show that “but for the alleged procedural deficiency the agency would have reached a different substantive result.” Id. at 306. Rather, she need only establish that the agency violated a procedural right designed to protect her interests, and that it is plausible “‘that the procedural breach will cause the essential injury to the plaintiff’s own interest.’” Ctr. for Law & Educ., 396 F.3d at 1159 (quoting Fl. Audubon Soc. v. Bentsen, 94 F.3d 658, 664–65 (D.C. Cir. 1996) (en banc)). In other words, “the requirement of injury in fact is a hard floor of Article III jurisdiction that cannot be removed by statute.” Summers v. Earth Island Inst., 555 U.S. 488, 497 (2009). “A procedural injury claim therefore must be tethered to some concrete interest adversely affected by the procedural deprivation . . . .” WildEarth Guardians, 738 F.3d at 305.

Plaintiffs’ alleged injury is the cost associated with complying with the TJCA’s transition tax regulations, which include certain “collection of information” and “recordkeeping obligations.”

As part of its efforts to dismiss the suit based on standing, the IRS argued that Mr. Silver’s real complaint was with the statute itself and not with the regulation.  As such, he could not attack the statute by seeking to change the regulation.  The district court disagreed, holding:

Plaintiffs are not challenging any specific regulation that might or might not be traceable directly to the TCJA. Rather, 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. Plaintiffs alleged injuries are therefore traceable to Defendants’ alleged violation of these separate statutory requirements, not the TCJA. Causation is easily satisfied.

In perhaps the most surprising aspect of the opinion, the court allowed the plaintiffs to move forward with its RFA challenge despite the broad reach of the AIA as typified by the DC Circuit’s prior opinions in Florida Bankers and Maze. (Guest blogger Pat Smith discussed Florida Bankers in two parts here and here, and Les blogged the Maze opinion here.) Readers may recall that the AIA prevents suits for the purpose of restraining the assessment or collection of taxes. The DC Circuit has previously taken a hard view on cases challenging the validity of regulations, and IRS predictably raised an AIA defense to the RFA challenge. Here, the district court suggested that courts may be willing to put the IRS to the burden of additional procedural hoops even if perhaps the AIA might ultimately prevent the court from granting the relief on the merits that Silver seeks, that is, a stay on enforcement of the regs.

With respect to the AIA, the district court disagreed with the IRS, stating:

Although “[t]he IRS envisions a world in which no challenge to its actions is ever outside the closed loop of its taxing authority[,]” the Act’s prohibition does not sweep so broadly: “‘assessment’ is not synonymous with the entire plan of taxation, but rather with the trigger for levy and collection efforts, and ‘collection’ is the actual imposition of a tax against a plaintiff.” Id. (cleaned up). Accordingly, the D.C. Circuit has refused to “read the [Anti-Injunction Act] to reach all disputes tangentially related to taxes.” Id. at 726–27. Rather, the Circuit has instructed that whether the Anti-Injunction Act prohibits a suit depends on whether the action is fundamentally a “tax collection claim,” id. at 727 (quoting We the People Found., Inc. v. United States, 485 F.3d 140, 143 (D.C. Cir. 2007)), which the court must determine based upon “a careful inquiry into the remedy sought, the statutory basis for that remedy, and any implication the remedy may have on assessment and collection,” id….
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. The Anti-Injunction Act therefore presents no barrier to Plaintiffs’ claims.

We hope to have Mr. Silver and his attorney, Stu Bassin, who has written several prior PT guest posts, write for us in the near future to expand on this brief introduction to the case.  For those interested in the issue, a good place to start is a GAO report discussing the failure of some agencies to appropriately follow the RFA.  According to the complaint in this case, the IRS regularly fails to comply with the RFA requirements.  For those interested in the specifics of this case please see the amended complaint, the motion to dismiss, the IRS brief in support of its motion and plaintiff’s brief opposing the motion.

The ability to challenge a regulation and overcome the hurdle of the AIA has become a hot issue.  Les wrote about it here in the context of CIC Services.  He has also recently added a significant discussion of the scope of AIA in the Saltzman-Book treatise, IRS Practice and Procedure at ¶1.6.  That revision is set to be published in the treatise next month. We expect CIC Services to seek cert and offer the Supreme Court the opportunity to step in and clear the murky waters surrounding the application of the AIA to challenges regarding tax regulations.  Of course, Mr. 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.


  1. Keith [and Stu] – Thanks for starting the year with such an interesting and potentially far-reaching topic. I occasionally looked at the brief burden analysis discussions in the Preambles to various proposed IRS regs and wondered whether I should laugh or cry. It sometimes seemed as though the author of the “analysis” backed into the “no undue burden” conclusion in order to justify the pre-ordained result – i.e. that this was the reg that the agency wanted to issue, and the “Analysis” was crafted for the principal purpose of sustaining the proposed regulation. [A little bit along the lines of tax opinions crafted to support abusive tax shelters that had no realistic economic substance.] It didn’t appear as though the proposed regs were crafted with a bona fide view towards minimizing the burden. It will be interesting to see how this line of argument plays out in the courts.

    Ron Wiener
    Drucker & Scaccetti, PC, Philadelphia

  2. This is deeply fascinating. Finally there is some pushback
    It sickens me how Congress just passes law they don’t read, and the IRS thinks it can just make up regulations on top of that. Good luck Mr. Silver

  3. Hi Robert, Monte the Plaintiff here. 5 hours is the estimate in the 965 regs. Is that a joke or what?

    The Paperwork Reduction Act states that “With respect to the collection of information …each agency shall—(1)establish a process …that is sufficiently independent of program responsibility to evaluate fairly whether proposed collections of information should be approved under this subchapter, to—(A)review each collection of information before submission to the Director for review under this subchapter, including—(iv)a specific, objectively supported estimate of burden”…

    We drafted the amended compaint knowing that in DC Circuit the PRA does not grant a cause of action. We got around this by not stating a cause of action for PRA but rather by simply stating that in the remedy, the judge should force the IRS to comply with it

    The judge took this and ran, stating that the PRA is an independent separate law that he will enforce – specifically citing the above section 3605. This is much much better that I could have hoped for.

    My guess is that the IRS realizes the trouble it is in. If the judge seeks their strict compliance with RFA and PRA, the government will never get out of this

  4. Nando Breiter says

    I’m not an attorney. So I don’t really belong here. But I do own a very small business as an expat overseas, and so I have first hand experience of what it is like to confront IRS regulations that are aimed at multinational corporations – as the “CEO” of a simple one person business that grosses less than $100,000 annually, some years quite a bit less.

    The main difficulty is that I absolutely cannot even figure out what my obligations are. The 965 regulations are so utterly dense, I cannot understand even the first few paragraphs, let alone get through hundreds of pages like this. There are no simple to follow instructions for people like me. I cannot even figure out how to find someone genuinely qualified to help me, because I cannot judge who of the “budget” international tax advisers I call actually knows what they are doing. I called every one I could find, and they all suggested completely different ways that I should meet my section 965 tax obligations. None of them seemed to know more than I did. The only difference was their “I know what I’m doing” professional posture.

    I also called an international tax law firm, sort of by mistake, following a Google search. The problem in this case was their retainer fee was more than my company’s annual revenue. When I pointed this out to the lawyer I was speaking with, his literal response was “Take it or leave it.”

    As a last resort, I filled out my 2017 tax return as best I could myself. Whoever reviewed the return at the IRS completely misunderstood it. In their reply to me, there was a phone number for the “international section”. I called them up. There is always an hour’s wait. I’ve done that now 5 times. Everyone I’ve spoken to there, including an attorney for the IRS, has told me that THEY don’t understand the 965 regulations. What the attorney did tell me that anything that I find on the IRS website I can use to argue my case. So I wrote them a very simple letter explaining what it says in the footnote to the obscure FAQ about meeting the 965 requirements for 2017 before any instructions were published. It’s a miracle I even found that footnote!

    So now I get a letter every two months telling me the IRS needs more time to review my case. It’s been well over a year since I wrote that letter.

    Why do I bother? Because the IRS has the power to revoke my passport, which could destroy my ability to stay here with my family. I face hundreds of thousands of dollars of fines annually for non or incorrect compliance. And the IRS _has_ imposed a fine of hundreds of thousands of dollars against an expat with a similarly-sized business by the name of Dewey, not because he owed any tax, but because when he told the IRS he didn’t know how to correctly comply with regulations aimed at American owned businesses overseas, the IRS judged his lack of compliance as “willful”.

    His exact crime? He didn’t fill out the 5471 information form for a number of years. Nobody I can afford knows for sure how to do that correctly either.

    • Kenneth H. Ryesky says

      Quoting former Internal Revenue Commissioner Jerome Kurtz, a Wall Street Journal editorial (WSJ, 3 March 1987, page 32) noted, “A taxpaying public that doesn’t understand the law is a taxpaying public that can’t comply with the law.”

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