• Monte Silver, Tax lawyer

Retiring Chief IRS Counsel Says Treasury/IRS closely monitoring Silver Transition/GILTI lawsuits

Updated: Feb 9, 2021

By Amy Lee Rosen· January 26, 2021, 7:27 PM EST

The government likely will spend a lot of time in the future monitoring challenges and questions over regulations promulgated under the 2017 federal tax overhaul, former IRS Chief Counsel Michael Desmond said Tuesday.

Former IRS Chief Counsel Michael Desmond said the government is aware of some initial district court challenges to regulations issued under the TCJA. (Getty)

Desmond, who resigned as chief counsel on Jan. 20, said the government's ongoing work will be the next phase in actually implementing the Tax Cuts and Jobs Act . He was speaking during an online tax conference hosted by the University of Southern California Gould School of Law.

While many provisions in the TCJA did not have effective dates until 2018 and some regulations had even later effective dates, the Internal Revenue Service is beginning to see many filed tax returns that report the transition tax under Section 965 and other TCJA provisions, he said.

"Those will certainly be an ongoing issue for taxpayers and for the IRS on the administration and enforcement side," Desmond said. "There's certainly an effort underway to keep an ear to the ground within counsel and the IRS as to other taxpayers that may have questions or challenges to certain other regulatory provisions under the Tax Cuts and Jobs Act."

Desmond said the government is aware of some initial district court challenges to regulations issued under the TCJA, including provisions for the transition tax under Section 965 and the dividends-received deduction under Section 245A .

Attorney Monte Silver, a member of the California bar who lives in Israel, is challenging the so-called transition tax regulations under Section 965 in the D.C. federal court, arguing that they violate the Regulatory Flexibility Act and the Paperwork Reduction Act . The PRA requires agencies to certify and provide a record that they have considered steps to reduce compliance burdens resulting from new collection of information and record-keeping requirements.

In the U.S. District Court for the District of Colorado, Liberty Global Inc. filed a lawsuit that argued a deduction for dividend income under Section 245A should not have been disallowed by the government under temporary regulations issued in June 2019.

Section 245A allows companies to bring home foreign-sourced income from certain subsidiaries tax-free by claiming a 100% dividends-received deduction. Created as part of the tax overhaul's shift to a quasi-territorial tax system, the deduction was designed to let companies repatriate certain foreign earnings after paying a one-time mandatory transition tax.

Liberty Global said the Section 245A temporary regulations were issued without the opportunity for notice and comment under the Administrative Procedure Act and violate the general prohibition on retroactive rulemaking, according to the complaint.

"I suspect those are not the only cases that we will see … going forward," Desmond said.

In a separate complaint, Silver argued that final regulations from 2019 on global intangible low-taxed income under Section 951A violate the APA because the rules lack an analysis of their impact on small businesses as required by the Regulatory Flexibility Act. Treasury should have provided an initial and a final analysis on the impact the rules would have on small businesses, which are especially vulnerable to the burdens of complying with GILTI, Silver said in the complaint.

Keeping track to future challenges and questions for regulations will be an open project with colleagues at the Justice Department and at the IRS for a considerable period of time, Desmond said.

"Hopefully, that will play out in due course but that will be something that is going to, as I said, take a fair amount of time in the coming months and years," he said.

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