• Monte Silver, Tax lawyer

Transition-Tax ruling sets a significant precedent, allowing future expat lawsuits against Treasury

One of the little-known, precedent-setting, and vital aspects of our Transition & GILTI tax lawsuits is whether expats can even bring these kinds of lawsuits which challenge Treasury actions. And in his recent ruling, the judge in the Transition tax case ruled we can. The implication of this ruling on expats is significant, as expats can now challenge Treasury regulations related to FATCA, PFIC, etc.

The background:

Our lawsuit was brought under the Regulatory Flexibility Act (RFA). The RFA states that any small business “adversely affected or aggrieved” by an act of Treasury can file suit and seek relief.

Under the RFA, a small business is defined under the “Small Business Act”, which defines a small business as one that is “independently owned and operated and which is not dominant in its field of operation.” So far, expat businesses are not excluded.

However, the Small Business Act also allows the Small Business Administration (SBA) to “specify detailed definitions or standards” to further define what the term “small business” means.

And indeed, the SBA issued the following regulation:

§ 121.105 How does SBA define “business”

A small business is one “with a place of business located in the U.S., and which operates primarily within the United States or which makes a significant contribution to the U.S. economy.”

So unless an expat has a place of business in the US AND makes a significant contribution to the US economy, such expat would be prevented from filing a lawsuit under the RFA.

This was a major hurdle to our lawsuits which had to be overcome if expat businesses such as mine could even bring a lawsuit.

And yet, as the judge recently ruled, we accomplished just that. Or in the judge’s words, Regulation 121.105 … “only provides a further definition of “small business” for purposes of “eligibility for assistance from SBA”—which is not at issue here. Section 121.105 does not purport to supply additional definitional terms for “any other Act,” including the RFA. So, the court cannot conclude that because Silver Limited does not meet section 121.105 it does not qualify as a “small entity” for purposes of filing suit under the RFA.”

Or in simple English, the above regulation does not apply to RFA actions. And in simpler English, EXPATS CAN BRING LAWSUITS UNDER THE RFA. A HUGE PRCENDENT-SETTING VICTORY!!! This is especially so since Treasury issues many regulations relating to FATCA and PFIC, which expats can now challenge using the RFA.

I cannot overemphasize how much legal work and litigation-tactics stand behind this specific ruling. Tremendous amounts. After all, Treasury hotly contested this issue as it understood the implications. And the judge himself expressed his strong preference reservations about opening up the flood gates to lawsuits from non-US-based Americans. But the law is the law, we were super-prepared, and we won this battle.

A HUGE win, and one of several precedent-setting issues that our cases have established.

To read the ruling, see https://drive.google.com/file/d/1ZCqr9IcGIEdiBDeT4PWv_CJ2gollEVq7/view?usp=sharing

396 views1 comment