[00:00:01] Speaker 06:
Case number 14-5036, Florida Bankers Association at L. Appellants v. United States Department of the Treasury at L. Mr. Weiner for the appellees.

[00:00:49] Speaker 01:
Good morning, Your Honor.

[00:00:52] Speaker 01:
Your Honor, this Court sits to review rules that are arbitrary, and the IRS's decision to promulgate a mass data collection program in this instance is arbitrary, is counterproductive, and it doesn't make sense.

[00:01:06] Speaker 01:
What it does is it expands by seventy-fold, seventy-fold a program that has never been shown to yield one cent.

[00:01:15] Speaker 01:
in revenue to the United States.

[00:01:17] Speaker 01:
It purports to catch, to catch, designed to catch United States tax sheets by forcing financial institutions to define and identify the interest paid to non-resident aliens.

[00:01:30] Speaker 01:
The problem with that is the rule is easily circumvented.

[00:01:33] Speaker 01:
It was based on very thin evidence of U.S.

[00:01:35] Speaker 01:
tax sheets.

[00:01:36] Speaker 01:
Can I ask you about the Indian Junction Act?

[00:01:39] Speaker 01:
You certainly can.

[00:01:39] Speaker 01:
I know that's a subject that's of interest to you.

[00:01:41] Speaker 01:
It is, still.

[00:01:43] Speaker 05:
In Judge Henderson.

[00:01:45] Speaker 05:
Yes.

[00:01:46] Speaker 05:
So in NFIB, the Supreme Court said penalties in subchapter 68B are thus treated as taxes under Title 26, which includes the Anti-Injunction Act.

[00:01:55] Speaker 05:
Why isn't that the end of the case?

[00:01:56] Speaker 01:
Because this is the Supreme Court ultimately ruled, that wasn't a tax.

[00:02:00] Speaker 01:
That was a penalty.

[00:02:01] Speaker 05:
That was in a different chapter.

[00:02:03] Speaker 01:
That's the reason.

[00:02:04] Speaker 01:
Your Honor, it's the same result.

[00:02:06] Speaker 01:
As the court held in Seven Skies, as the court also held in Cohen, it was not a tax.

[00:02:14] Speaker 01:
Now, in your dissent in Cohen,

[00:02:16] Speaker 05:
I'm just talking about NFIB, but the reason that the Supreme Court relied on to decline to apply the Anti-Injunction Act was that the penalty was located in Chapter 48 rather than Subchapter 68.

[00:02:30] Speaker 05:
And they said if it had been located in Subchapter 68, the Anti-Injunction Act would have applied, as I read the case, and barred the suit from being heard at that time.

[00:02:40] Speaker 05:
Here we have a penalty that is in Subchapter 68B.

[00:02:44] Speaker 01:
But it's a penalty if it's not really designed to collect a tax you honor.

[00:02:48] Speaker 01:
That's the problem with it.

[00:02:49] Speaker 05:
In Cohen versus... So you're going on a purpose.

[00:02:52] Speaker 01:
That's right.

[00:02:53] Speaker 01:
In Cohen, the case that you and Judge Henderson aptly dissented, and I think you were right on that, quite frankly, that clearly wasn't... No, it was clearly an exercise tax.

[00:03:00] Speaker 01:
This isn't an exercise tax.

[00:03:02] Speaker 01:
This is a penalty.

[00:03:03] Speaker 04:
But that... Cohen wasn't an anti-injectionist.

[00:03:07] Speaker 01:
No, but the question basically came down to the same litmus test.

[00:03:15] Speaker 01:
Could this court, could a district court enjoin an IRS rule?

[00:03:20] Speaker 01:
And the position was ultimately taken by this court on Anban, sitting in an other court, such as the 10th Circuit case that we cited, is this.

[00:03:30] Speaker 01:
Where you have a statute that is primarily not designed to get as a tax,

[00:03:36] Speaker 01:
but instead is designed as an administrative regulation that the court can sit, the court can issue a declaratory judgment, the Anti-Injunction Act does not apply.

[00:03:46] Speaker 01:
Nobody's trying to stop the government from collecting the tax.

[00:03:49] Speaker 01:
Nobody's trying to stop the tax man from assessing it.

[00:03:52] Speaker 05:
I think I know what your answer is going to be to this, but the Supreme Court and Bob Jones and American United and Alexander, and going back to the Bailey cases, had really rejected that bifurcated approach to the Anti-Injunction Act.

[00:04:04] Speaker 05:
In other words, when you're challenging a regulatory tax, you can somehow say you're challenging the regulatory aspect rather than the tax aspect.

[00:04:11] Speaker 01:
Well, that's right.

[00:04:11] Speaker 01:
We're talking about a regulation here.

[00:04:13] Speaker 01:
It wasn't a tax, Your Honor.

[00:04:14] Speaker 01:
This is not a tax.

[00:04:16] Speaker 01:
Again, it is a penalty.

[00:04:18] Speaker 01:
What the Anti-Injunction Act was designed to do, the cases are made quite clear, is to stop litigants from preventing the United States tax authorities from collecting taxes or assessing taxes.

[00:04:29] Speaker 01:
If we're not doing that, we're simply saying that the rule they announce is arbitrary and capricious.

[00:04:33] Speaker 01:
The court has jurisdiction to consider that.

[00:04:36] Speaker 01:
The Anti-Injunction Act doesn't apply.

[00:04:38] Speaker 01:
One of the reasons this, I'm sorry.

[00:04:40] Speaker 05:
When would a penalty in sub-chapter 68 be then be subject to the Anti-Injunction Act?

[00:04:47] Speaker 01:
I don't think so, Your Honor.

[00:04:49] Speaker 01:
I think the fact that it's fortuitously placed there, I don't think should stop, should bar this court from hearing the case under the Anti-Injunction Act.

[00:04:57] Speaker 05:
The only thing that concerns me about that is the Supreme Court seemed to say, as a blanket matter in NFIB, that if the penalty were located in subchapter 68B, that's the end of it.

[00:05:08] Speaker 01:
I read that more as dictum than as a square hole, Your Honor.

[00:05:11] Speaker 01:
I think that the way they came down on that was that the way the statute was interpreted was it was ultimately a regulatory program, not a taxing program.

[00:05:21] Speaker 01:
This isn't a taxing program.

[00:05:23] Speaker 01:
This is a program that's designed, ostensibly designed to

[00:05:27] Speaker 05:
I'll let you go on, but the Supreme Court specifically did not rely on that in NFIB.

[00:05:32] Speaker 05:
That had been argued to them, but they specifically did not rely on that ground.

[00:05:35] Speaker 05:
I know in Seven Sky it was present, but the government disagreed with that, and the Supreme Court did not rely on that.

[00:05:42] Speaker 05:
But you can go on.

[00:05:44] Speaker 01:
Essentially, Your Honor, what the court did, I'm sorry, what the IRS did was they brushed aside comments as to the flow of capital from the United States.

[00:05:52] Speaker 01:
There's a one-line sentence in the adopted rule which says, well, a rationally situated nonresident alien will make decisions based on essentially reading tax treaties.

[00:06:05] Speaker 01:
That just doesn't make any sense.

[00:06:07] Speaker 01:
What they said also was, this will deter United States tax cheaters.

[00:06:13] Speaker 01:
Let me give you some suggested reasons why it won't deter United States taxpayers.

[00:06:18] Speaker 01:
First, the Canadian experience on which this is based has not been shown to have yielded anything.

[00:06:23] Speaker 01:
Secondly, there's a statute called FATCA that requires banks to document U.S.

[00:06:28] Speaker 01:
depositors and report U.S.

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taxpayers' income.

[00:06:31] Speaker 01:
Thirdly, let's assume that anybody here was a tax cheat wannabe.

[00:06:36] Speaker 01:
The problem with this regulation is it only applies to individuals.

[00:06:40] Speaker 01:
The IRS ignored comments from people such as Senator Levin, who was one of the prime sponsors behind this proposal, that if you're going to have an NRA reporting rule, you should extend it to corporations and other entities.

[00:06:54] Speaker 01:
There's nothing like that in this final rule.

[00:06:56] Speaker 01:
It only extends to individuals.

[00:07:08] Speaker 04:
only the interest?

[00:07:11] Speaker 01:
What's reported, Your Honor, is the amount of interest if it's more than $50 a year is my understanding.

[00:07:17] Speaker 04:
But what happens here... But the amount of the deposit is not reported.

[00:07:22] Speaker 01:
No, that's correct.

[00:07:23] Speaker 04:
Right.

[00:07:24] Speaker 04:
And before this regulation, the banks didn't report anything in terms of interest earned

[00:07:35] Speaker 04:
Counts held by non-resident aliens?

[00:07:37] Speaker 04:
That's correct.

[00:07:38] Speaker 04:
They reported nothing.

[00:07:39] Speaker 04:
But they had to know.

[00:07:41] Speaker 04:
that the account was owned by a, or it was a deposit by a non-resident alien.

[00:07:46] Speaker 04:
Otherwise, they would have had to file whatever is a W-4 or whatever with the IRS, right?

[00:07:51] Speaker 04:
So the banks already have these records.

[00:07:54] Speaker 01:
No, I don't think that's accurate, Your Honor, at all.

[00:07:56] Speaker 01:
What the commenters stated was that to report this sort of data was going to require tens of thousands of hours of records of work.

[00:08:05] Speaker 01:
That came from the Florida International Bankers Association.

[00:08:08] Speaker 04:
Why is that?

[00:08:10] Speaker 04:
knows that it doesn't report this information to the taxpayer or the individual depositor and the IRS, it has to know that already.

[00:08:25] Speaker 04:
Forget about this regulation.

[00:08:27] Speaker 01:
Well, but to report it, to put in computer programs, to train staff employees to handle this, to talk to NRAs who have questions about this, it takes man hours.

[00:08:38] Speaker 01:
For example, the ABA, the American Bankers Association, submitted eight pages in its directorate comments explaining the extra burden of this.

[00:08:46] Speaker 01:
The real vice of this is not so much the cost to the banks, although that's a factor.

[00:08:51] Speaker 01:
The real vice is twofold.

[00:08:53] Speaker 01:
If you're a tax cheat wannabe, what are you going to do under this regulation?

[00:08:57] Speaker 01:
You're going to form a corporation or you're going to go to a non-treaty country.

[00:09:00] Speaker 01:
This only extends 70 to 70 countries.

[00:09:03] Speaker 01:
In addition, NRAs are not required to submit the taxpayer identification number or Social Security numbers.

[00:09:10] Speaker 01:
So again, you want to be a tax cheat wannabe and pretend to be an American who want to pretend to be an NRA, there's nothing requiring overseas that requires Social Security numbers or tax identification numbers.

[00:09:23] Speaker 01:
And I'm not through with that.

[00:09:24] Speaker 01:
If you want to be a tax cheat wannabe, you can do such things at a fairly simple, as you can invest in tangible assets and not have to worry about any of it.

[00:09:34] Speaker 01:
It's under-inclusive.

[00:09:36] Speaker 01:
It doesn't go to where Senator Levin pointed out.

[00:09:39] Speaker 01:
And tax analysts, one of their primary commenters pointed out, it doesn't go through the source of a reported problem.

[00:09:47] Speaker 01:
And what was that problem?

[00:09:48] Speaker 01:
That's the real secret here.

[00:09:51] Speaker 01:
The problem was the Wiley brothers.

[00:09:53] Speaker 01:
The administrative record, Judge Henderson, two people, two Texas brothers who were misused NRA status, unfortunately were the connivance, according to Senate 11, of banks.

[00:10:06] Speaker 01:
Two people justify this sort of a regulation.

[00:10:09] Speaker 01:
Now, let's talk about the cost of the regulation.

[00:10:11] Speaker 04:
Well, you're only talking, I thought there was more to it than simply catching American citizens who claim to be non-resident aliens.

[00:10:21] Speaker 04:
What about the implementation of FATCA?

[00:10:26] Speaker 01:
FATCA, our position was and remains that this is simply duplicative of FATCA.

[00:10:31] Speaker 01:
FATCA, Your Honor, requires banks to tell the United States... Foreign banks?

[00:10:37] Speaker 01:
That's right.

[00:10:38] Speaker 04:
Yeah.

[00:10:39] Speaker 01:
But also, if the United States citizens' income of interest is reported by banks to the Treasury, the difficulty... No, no, no, wait.

[00:10:49] Speaker 04:
The fact that... Has that gone into effect yet?

[00:10:52] Speaker 01:
Yes, it came into effect two years ago, Your Honor.

[00:10:55] Speaker 04:
I thought that it was delayed until sometime this year.

[00:11:00] Speaker 04:
No, I think it came into effect two years ago, Fatke.

[00:11:03] Speaker 04:
Well, I'm not sure about that.

[00:11:06] Speaker 04:
When it was passed is one thing, when it was implemented is another.

[00:11:10] Speaker 04:
But FATCA requires foreign banks to report to the Treasury Department the deposits held by U.S.

[00:11:21] Speaker 04:
citizens.

[00:11:22] Speaker 04:
That's right.

[00:11:23] Speaker 04:
And the argument that the IRS makes in the

[00:11:27] Speaker 04:
rulemaking is that in order to get the cooperation of foreign governments, which we need, that we have to reciprocate and report to the foreign government or whatever official that the income on accounts that their citizens have in the United States.

[00:11:48] Speaker 04:
Is that about it?

[00:11:50] Speaker 01:
That's correct, and it's an overstatement.

[00:11:54] Speaker 01:
The reason it's an overstatement is because they already have the ability to get information.

[00:11:59] Speaker 01:
They have had that information, ability for years.

[00:12:02] Speaker 01:
This matter, they have the ability to go to foreign tax authorities and say we want to exchange information.

[00:12:09] Speaker 01:
This is the mass program.

[00:12:10] Speaker 01:
This is the mass sharing of information where there are no procedures in place other than trust us.

[00:12:15] Speaker 01:
We'll protect confidentiality.

[00:12:18] Speaker 04:
The United States authorities can do that.

[00:12:21] Speaker 04:
They can go to a foreign bank.

[00:12:26] Speaker 04:
they have to go to the government, because it's a criminal offense for a bank to release tax or a deposit of information.

[00:12:34] Speaker 04:
So they have to go to the Swiss government, and the Swiss government says, you know, we're not going to give you any information unless you give us information about Swiss citizens in your country.

[00:12:43] Speaker 04:
And so where does the IRS get that information but for this regulation?

[00:12:48] Speaker 01:
Your Honor, the way the IRS gets this information is by negotiations with – by negotiating with government or by subpoenaing – or by subpoenaing banks and – well, maybe – perhaps not in Switzerland, but they were successful in 2009.

[00:13:00] Speaker 01:
They had no trouble in 2009 getting information from UBS.

[00:13:04] Speaker 01:
That's all part of the record.

[00:13:05] Speaker 01:
The difficulty here – the difficulty in addition to the fact that it doesn't really solve any, quote, problem of U.S.

[00:13:12] Speaker 01:
tax sheets is the disintermediation and the effects on the economy.

[00:13:16] Speaker 01:
They ignored data in their own record that predicted a $26 billion outflow out of $400 billion of NRA deposits in the United States.

[00:13:26] Speaker 01:
That's not an insignificant amount of money.

[00:13:29] Speaker 01:
In fact, they also ignored data in the record that suggested as much as an $88 billion outflow from the smaller program that they proposed back in 2004.

[00:13:37] Speaker 01:
See, they've gone all over the place with this, with the idea of we need to have this global cooperation.

[00:13:43] Speaker 01:
They used that in 2001.

[00:13:45] Speaker 01:
And that was going to be stability for all countries.

[00:13:48] Speaker 01:
Then they dropped back and they said, OK, well, we'll do 15.

[00:13:51] Speaker 01:
And then that went nowhere.

[00:13:53] Speaker 01:
And suddenly, lo and behold, it became 70.

[00:13:56] Speaker 01:
It's just an empty slogan, Judge.

[00:13:58] Speaker 01:
They probably didn't do a cost-benefit analysis.

[00:14:01] Speaker 01:
They did nothing, although they were asked to assess

[00:14:03] Speaker 01:
What is the effect on the economy?

[00:14:05] Speaker 01:
Every member of the Florida House of Representatives that the Congressional delegation wrote, the Texas Senators wrote, the American Bankers Association, Florida Bankers Association, several others that I'll be happy to refer you to, said, do a cost benefit analysis.

[00:14:19] Speaker 01:
If you're going to do this, we understand your concerns.

[00:14:22] Speaker 01:
If you're going to do a cost benefit, if you're going to, before you jump, you should make some reasonable assessment of what you want.

[00:14:28] Speaker 04:
Let me ask you, the 6103K4

[00:14:33] Speaker 04:
of the Internal Revenue Code authorizes the release of information of this sort so long as there's either a convention or a bilateral agreement, correct?

[00:14:44] Speaker 01:
That's correct.

[00:14:47] Speaker 04:
You mentioned the Florida delegation.

[00:14:49] Speaker 04:
Representative Posey wrote a letter.

[00:14:51] Speaker 04:
to the Treasury Department.

[00:14:53] Speaker 04:
Are you familiar with that letter?

[00:14:54] Speaker 01:
It's in the record, I believe.

[00:14:55] Speaker 04:
And ask for the authority.

[00:14:58] Speaker 04:
What authority does the United States have to enter into bilateral agreements?

[00:15:03] Speaker 04:
You're not challenging that, are you?

[00:15:05] Speaker 01:
You're not claiming they have no authority.

[00:15:09] Speaker 01:
I see I'm almost at the end of my time.

[00:15:11] Speaker 00:
We'll give you some time to reply.

[00:15:22] Speaker 02:
Good morning, Your Honors, and may I please the Court, Andy Weiner, for the United States Department of Treasury?

[00:15:27] Speaker 00:
Can I ask you, Mr. Weiner, does the bank have to, I have that form, but I don't have it up here with me, does the bank under this reg have to report that it has no non-resident alien deposits, or does it just fill out this form if it does have?

[00:15:49] Speaker 03:
Under the regulations that are the subject of this rulemaking, I don't believe that there is a rule that you have to certify that you have no non-resident alien depositors.

[00:16:02] Speaker 03:
However, I cannot say definitively whether there is something else out there.

[00:16:07] Speaker 00:
Do we know how many banks in this country don't have non-resident alien accounts?

[00:16:14] Speaker 03:
No.

[00:16:15] Speaker 03:
No, Your Honor.

[00:16:16] Speaker 03:
I mean, that's one of the things that I believe was litigated more below and somewhat abandoned in this Court, which was below the associations and made the argument that, you know, the government doesn't know the way of the land.

[00:16:28] Speaker 03:
And what our response to that

[00:16:33] Speaker 03:
That argument was, well, the reason why we're instituting these reporting requirements is to collect such information as what you're asking about and what the taxpayers were saying below, that we don't know exact figures in terms of non-resident alien deposits.

[00:16:53] Speaker 03:
And our response was, well, we need this reporting regime in order to collect that information, and it's unfair to

[00:17:03] Speaker 04:
to attack the regulatory regime when it's trying to get that very information.

[00:17:20] Speaker 03:
No, the banks do not.

[00:17:22] Speaker 03:
In response to your question in the opening, when the town is open, the banks require the depositor fill out a W-8, which would declare the residency of a non-resident alien.

[00:17:40] Speaker 03:
Or there's a mandatory withholding requirement.

[00:17:44] Speaker 03:
And so when that W-8 is submitted, it is maintained by the banks.

[00:17:48] Speaker 03:
It's, for example, like when you employ a nanny or a housekeeper and you have them fill out an I-9 that establishes that they are legal to be employed in this country.

[00:18:02] Speaker 03:
The I-9 is retained by the person who requests that information, which in this case would be the bank.

[00:18:07] Speaker 04:
If the United States and the Treasury Department, if the only information they get is some identification number and the individual earned $200 on a deposit in interest, that doesn't do you any good, does it?

[00:18:25] Speaker 04:
You have to know the nationality because otherwise, take a bilateral agreement

[00:18:32] Speaker 04:
You wouldn't be giving Nigerian non-resident aliens earnings and interests.

[00:18:38] Speaker 04:
You would only be sharing Swiss citizens' interests.

[00:18:43] Speaker 04:
And so you have to know.

[00:18:44] Speaker 03:
Correct.

[00:18:45] Speaker 03:
And I don't – So how does the bank – or how does the United States know that?

[00:18:49] Speaker 03:
To clarify, this reporting requirement, I was just speaking to in general, but this reporting requirement requires that the banks report the identities and the nationalities of the depositors and how much interest they incurred if that interest exceeded $10 in the aggregate.

[00:19:10] Speaker 04:
Make that determination.

[00:19:12] Speaker 03:
Based on the W-8 information when the account, when the depositor opens the account, and then obviously the bank knows how much interest that the, that it paid to the depositor over the course of a year.

[00:19:24] Speaker 03:
And so there you've got, you've got all the information that the banks, the banks already have all the information they need to comply.

[00:19:31] Speaker 04:
The banks also have... There's no obligation on the banks to do an investigation about whether the individual is telling the truth about the individual's citizenship.

[00:19:40] Speaker 03:
The rulemaking addresses that issue.

[00:19:44] Speaker 03:
The banks are entitled to rely on the W-8s that are completed, except in the instance in which they have a reasonable belief to know that those are not true.

[00:19:54] Speaker 03:
So they have an obligation to follow up on information that they know that's being presented that's false.

[00:20:02] Speaker 03:
But they don't have an obligation.

[00:20:03] Speaker 03:
They are entitled to rely on the W-8s.

[00:20:06] Speaker 03:
But to back up for one second, I wanted to pick up on Judge Kavanaugh's point that we don't think that this case should have ever reached the point, while we agree with the district court's ultimate determinations that the association's challenged based on the Administrative Procedure Act.

[00:20:24] Speaker 03:
and the Regulatory Flexibility Act is correct in rejecting those challenges, we think that the case should never have gotten that far because of the Anti-Injunction Act, which prohibits cases, which prohibits suits to restrain the assessment or collection of tax.

[00:20:43] Speaker 04:
What do you do with our decision in food service?

[00:20:46] Speaker 03:
Food services, I think, is in perfect accord with our position here.

[00:20:50] Speaker 03:
In food services, you had three regulations at issue.

[00:20:53] Speaker 03:
The one regulation, two of them, were barred by the Anti-Injunction Act as going forward.

[00:20:59] Speaker 03:
And they were subject to a penalty that was provided under sub-chapter 68B.

[00:21:06] Speaker 03:
In the third instance, where the regulations... Which was reporting of tips.

[00:21:11] Speaker 03:
The aggregate reporting of tips, Your Honor.

[00:21:13] Speaker 03:
Yes.

[00:21:14] Speaker 03:
And in the aggregate reporting of tips, first of all, it was subject to a penalty that was not under Chapter 68B.

[00:21:20] Speaker 03:
And so it was not, by statutory requirement, a tax for all purposes under the Code, including the anti-injunction act.

[00:21:28] Speaker 04:
Did the Court even mention that?

[00:21:29] Speaker 04:
No.

[00:21:30] Speaker 03:
The court's reasoning was that because you're reporting aggregate tips for a congressionally mandated study of tip compliance, then it wasn't for the purpose of collecting tax because the aggregate figures wouldn't help the IRS at all in figuring out who was underreporting their taxable income.

[00:21:55] Speaker 04:
That's true here, Tom.

[00:21:57] Speaker 03:
No, it isn't, Your Honor.

[00:21:58] Speaker 04:
Because it's non-resident alien.

[00:22:01] Speaker 04:
You don't collect taxes.

[00:22:03] Speaker 03:
Yes, but we're not relying on that, Your Honor.

[00:22:07] Speaker 03:
What we're relying on is the fact that the reporting requirement is subject to a penalty under sub-chapter 68B, which is defined as a tax.

[00:22:16] Speaker 03:
And so therefore, by restraining this information reporting requirement,

[00:22:22] Speaker 03:
the government would be restraining, sorry, the court, excuse me, would be restraining the IRS from collecting a tax under sub-chapter 68A.

[00:22:34] Speaker 03:
And in food services, as we say, there are two regulatory requirements which the... With the penalties of $100?

[00:22:44] Speaker 04:
$100.

[00:22:45] Speaker 03:
A year?

[00:22:46] Speaker 03:
Yes, per reporting requirement.

[00:22:52] Speaker 05:
And so... Is someone acting lawfully if they choose not to comply and to pay the penalty?

[00:23:03] Speaker 03:
That's how the bank, if the banks wanted to challenge this reporting requirement... No, no.

[00:23:10] Speaker 05:
Suppose they don't want to challenge it, they just say, we'll just not comply and we'd rather pay the tax.

[00:23:16] Speaker 05:
Are they acting lawfully?

[00:23:18] Speaker 05:
This was a question in NFIB as well that was asked.

[00:23:25] Speaker 05:
And to help you, the answer in NFIB was you can lawfully decline to purchase health insurance and just pay the tax.

[00:23:32] Speaker 05:
I'm curious if the same is true here.

[00:23:35] Speaker 03:
Well, just to admittedly think a little bit out loud here.

[00:23:41] Speaker 03:
Because the subchapter 68B penalties are defined as taxes for all purposes, they're clearly not a sanction which you're arguably in the realm of and arguably the Anti-Injunction Act wouldn't apply to things outside of the tax regime that would be considered sanctions, like for example, a penalty for

[00:24:08] Speaker 05:
Civil penalties that are not, yeah.

[00:24:10] Speaker 03:
Yeah.

[00:24:10] Speaker 03:
And so there, I think that you would have a more, you would have a genuine question as to whether it would be unlawful if it fell outside subchapter 68.

[00:24:21] Speaker 03:
But within subchapter 68, where it is considered a tax for all purposes,

[00:24:26] Speaker 03:
I wouldn't characterize it as illegal or unlawful not to pay your tax so long as you reported.

[00:24:37] Speaker 03:
And then it would be assessed against you.

[00:24:41] Speaker 03:
You would have to deal with the consequences of that.

[00:24:43] Speaker 03:
You would have to deal with any penalties.

[00:24:44] Speaker 03:
You would have to deal with the interest provisions that would apply.

[00:24:48] Speaker 03:
But as to whether it would be

[00:24:54] Speaker 05:
You're paying the tax.

[00:24:56] Speaker 05:
You're paying the tax.

[00:24:57] Speaker 05:
You're just not reporting the information.

[00:24:59] Speaker 05:
You say, I don't want to report the information.

[00:25:02] Speaker 05:
I'm going to pay the tax.

[00:25:03] Speaker 03:
Right.

[00:25:03] Speaker 03:
Well, I mean, I guess the way that you would get there, no.

[00:25:06] Speaker 03:
Because the way that you get there is by not reporting the information.

[00:25:09] Speaker 03:
I don't think that you can.

[00:25:10] Speaker 03:
It's not like, for example, with the shared responsibility payment, where you kind of have an either or.

[00:25:15] Speaker 03:
Here, you would not report the information and then the IRS would assess the taxes.

[00:25:23] Speaker 05:
I think that answer hurts you on the Anti-Injunction Act.

[00:25:27] Speaker 05:
I'm not sure it crushes you because you still have the language of NFIB.

[00:25:32] Speaker 03:
Right.

[00:25:35] Speaker 03:
Well, I think that the NFIB is compelling.

[00:25:39] Speaker 03:
I think that there are other reasons that go beyond NFIB, which is, for example, there are cases, NFIB is admittedly addictive because the court

[00:25:51] Speaker 03:
circumnavigated this issue and reached the merits of it.

[00:25:56] Speaker 05:
Well, you can call it dicta.

[00:25:57] Speaker 05:
I don't think it's dicta.

[00:25:57] Speaker 05:
It's the specific reason they relied on for not holding the mandate subject to the Anti-Injunction Act.

[00:26:03] Speaker 03:
Right.

[00:26:04] Speaker 03:
Well, I guess, I mean, in the sense of it's a case in which the Anti-Injunction Act wasn't applied.

[00:26:10] Speaker 03:
But there are other cases in which it was, some of which are cited in our brief.

[00:26:15] Speaker 03:
For example, mobile Republicans in the 11th Circuit in which

[00:26:20] Speaker 03:
the in which the organization a

[00:26:25] Speaker 03:
a 501C4, I believe it was, is required to report its donors or was going to be subject to tax on the amounts that was contributed to the organization.

[00:26:39] Speaker 03:
If you look at Crouch, which is a district court decision in the Ninth Circuit, that specifically deals with the sub-chapter 68B penalty that is assessed based on the failure to file, the failure to meet a reporting obligation.

[00:26:52] Speaker 03:
So that case, I believe, is squarely on all fours, both factually and legally with this case.

[00:26:58] Speaker 03:
And so I think that there is the fact that the penalty here is under subchapter 68B, which is defined as a tax, I think makes this easier than a lot of cases out there.

[00:27:16] Speaker 03:
Because you don't have to question whether it's a tax or something that's not really a tax.

[00:27:22] Speaker 03:
It just happens to fall under the Internal Revenue Code.

[00:27:25] Speaker 04:
So the issues that are raised by the plaintiffs in this case would be raised in a refund suit?

[00:27:32] Speaker 03:
Correct, Your Honor.

[00:27:33] Speaker 04:
Pay the tax and then seek a refund.

[00:27:36] Speaker 03:
Yeah, if the banks want to challenge this requirement, what they have to do and what the Anti-Injunction Act has provided since the 1860s is to not impede the collection of the tax, is to pursue your relief in a refund context.

[00:27:52] Speaker 03:
Yes, Your Honor.

[00:27:53] Speaker 00:
Can I ask you if the intent of this is to get other countries to tell us what American citizens have in their foreign accounts so that we can tax that?

[00:28:12] Speaker 00:
And setting that aside, whether

[00:28:15] Speaker 00:
That's going to happen or not.

[00:28:18] Speaker 00:
Don't you already have the information you need to give those countries?

[00:28:23] Speaker 00:
And here's my question.

[00:28:25] Speaker 00:
Is it a 1099 the bank files for interest?

[00:28:30] Speaker 00:
Is that the right number?

[00:28:31] Speaker 03:
For US taxpayers.

[00:28:34] Speaker 03:
Right.

[00:28:35] Speaker 00:
OK.

[00:28:36] Speaker 00:
Let's say I'm a bank, and I have 10 American citizens, and I file 1099s for those 10 people.

[00:28:45] Speaker 00:
reporting the interest earned.

[00:28:49] Speaker 00:
Do I also file as a bank, it seems to me I must, some sort of omnibus reporting that says, but

[00:29:04] Speaker 00:
we paid, I mean, or these 10 Americans earned $100 each on their interest.

[00:29:10] Speaker 00:
But we also, I mean, our omnibus return says we've paid earned interest of $10,000.

[00:29:24] Speaker 00:
Couldn't the IRS

[00:29:27] Speaker 00:
know from that that that whatever the balance is 9,500 was from the non-resident alien or I'm just

[00:29:38] Speaker 00:
It seems to me you have so much information already that you would have this information and be able to tell Italy or Russia or China, here's the amount of money we have of your citizens.

[00:29:55] Speaker 00:
And how about telling us what you have?

[00:30:01] Speaker 03:
Respectfully, no, Your Honor.

[00:30:04] Speaker 03:
While I do not disagree with necessarily the premise of your question, that you could add up all the 1099s.

[00:30:12] Speaker 03:
You could look at the bank's returns for the year.

[00:30:16] Speaker 03:
To be honest with you, I'm not too familiar with tax returns by banks.

[00:30:22] Speaker 03:
But perhaps there's a expense allocation for interest-paid deposit or accounts.

[00:30:28] Speaker 03:
But those would be, if you then compare those things,

[00:30:31] Speaker 03:
And you'd have a lump sum.

[00:30:33] Speaker 03:
You wouldn't know the nationalities.

[00:30:36] Speaker 03:
You wouldn't know whether they are individuals or corporations.

[00:30:39] Speaker 03:
Corporations are not subject to this requirement.

[00:30:42] Speaker 03:
And so you wouldn't have any information there that would actually be useful for another country.

[00:30:48] Speaker 03:
If another country, what we are seeking from other countries and what we are

[00:30:53] Speaker 03:
what this regulatory requirement helps to provide in exchange in order to create a mutual

[00:31:02] Speaker 03:
reporting requirement that goes beyond our shores is to identify who it is, who is receiving interest, and what nationality they are.

[00:31:13] Speaker 03:
And so without those two key pieces of information, then I don't know.

[00:31:18] Speaker 03:
For instance, the United States wouldn't be able to, if we got that information, if Italy said that there's $2 billion worth of interest that was earned by US citizens, I'm not exactly sure how that would translate to something

[00:31:32] Speaker 04:
My understanding was that there's not perfect reciprocity.

[00:31:40] Speaker 04:
If your regulation doesn't go

[00:31:56] Speaker 04:
And that is not information that's being disclosed pursuant to these regulations or any other statute by the amount of the deposit by a non-resident alien.

[00:32:08] Speaker 04:
Now, you might say, well, if we know what the prevailing interest rate is and we can do the calculations, you can't because you don't know how long the deposit was there for a year.

[00:32:20] Speaker 03:
Correct.

[00:32:24] Speaker 03:
Well first of all I just wanted to say that you're correct that we are not reporting

[00:32:31] Speaker 03:
the amount the non-residents, aliens have in their account.

[00:32:35] Speaker 03:
This reporting requirement is strictly the interest.

[00:32:38] Speaker 03:
That doesn't necessarily speak to the mutual exchange of information based on the tax information exchange agreement that we have either bilaterally or through a treaty with another country.

[00:32:54] Speaker 03:
The requests that are made are done individually.

[00:32:58] Speaker 03:
And so, for instance, when the United States receives a request,

[00:33:01] Speaker 03:
We not only determine that it's information that the requesting country uses for tax purposes.

[00:33:11] Speaker 03:
If the other country doesn't tax interest, then that's not information that we in the general course are going to be providing.

[00:33:17] Speaker 04:
Maybe I haven't made my point clear.

[00:33:20] Speaker 04:
I thought the United States typically, first of all, United States citizens anywhere in the world are required to report the name of the bank and the amount of the deposit they have.

[00:33:34] Speaker 04:
Isn't that correct?

[00:33:35] Speaker 03:
I believe so, Your Honor.

[00:33:37] Speaker 03:
I mean, it's not in this record.

[00:33:39] Speaker 04:
And so the United States, when it seeks information from a foreign bank through the government,

[00:33:46] Speaker 04:
is seeking that information.

[00:33:49] Speaker 04:
The United States wants to know whether this particular US taxpayer has accurately reported the amount of the deposit that that taxpayer has in the foreign bank.

[00:34:00] Speaker 04:
So, but the United States is not going to be able to give that information to, say, Nigeria, because the only information you have is the amount of, if these regs are upheld, is the amount of the interest.

[00:34:17] Speaker 04:
So it's not a mutual?

[00:34:21] Speaker 03:
It's mutual in the sense, it's mutual as to interest.

[00:34:26] Speaker 03:
But you're right, Your Honor.

[00:34:27] Speaker 03:
This isn't trying to, we're not trying to, first of all, as was mentioned before, we're not trying to capture the universe.

[00:34:36] Speaker 03:
It's only countries that we have treaty obligations with or agreements, exchange agreements with.

[00:34:42] Speaker 03:
And it's not all the information that the United States would necessarily be personally interested in.

[00:34:47] Speaker 04:
It just deals with it.

[00:34:48] Speaker 04:
I need to ask you a question not related to that.

[00:34:52] Speaker 04:
The plaintiffs here, one of their main arguments is that these regulations are causing capital flight.

[00:35:00] Speaker 04:
And I wonder about that in terms of the old problem of causation and correlation.

[00:35:09] Speaker 04:
The flight occurred at a time when interest rates in the United States that banks were paying dropped almost to zero.

[00:35:18] Speaker 04:
Is there any evidence that it's this regulation or the prospect of this regulation that caused

[00:35:26] Speaker 04:
the capital flight that the planets are talking about?

[00:35:31] Speaker 03:
No, Your Honor.

[00:35:31] Speaker 03:
It's our position that there is no evidence in the record that would substantiate capital flight.

[00:35:37] Speaker 04:
In terms of what I believe is... You can assume there was capital flight.

[00:35:40] Speaker 04:
I mean, even if you assume that that occurred,

[00:35:43] Speaker 04:
The question I have is whether that was caused by the prospector of these regulations.

[00:35:49] Speaker 03:
Correct.

[00:35:49] Speaker 03:
There's absolutely no evidence that they were caused by the regulations.

[00:35:53] Speaker 03:
I believe that the... And the district judge said that, didn't he?

[00:35:58] Speaker 03:
Correct.

[00:35:59] Speaker 03:
I believe... I see that my time is actually well over, but if I could respond... Go ahead.

[00:36:06] Speaker 03:
There are two quick points that I just wanted to make, Your Honor.

[00:36:09] Speaker 03:
One, with respect to the specific data I think you were referring to, where you see a dip in individual interest accounts a year after the regulatory regime went into effect.

[00:36:21] Speaker 03:
So there you've got a problem that you're kind of looking at the wrong period.

[00:36:25] Speaker 03:
You're also looking at interest-bearing accounts.

[00:36:30] Speaker 03:
People who are trying to evade taxes might be shifting from an interest-bearing account to a non-interest-bearing account to avoid the reporting requirement.

[00:36:37] Speaker 03:
And so, and the other thing is, it kind of gets to, I think, the more fundamental issue is that we are only sharing information with countries that use that information to tax their citizens.

[00:36:51] Speaker 03:
And so therefore, in general, there would be an independent obligation on the part of these non-resident aliens to report that information in the first place.

[00:37:00] Speaker 03:
And so the reason that the exposure that, first of all, we disagree that they would have confidentiality and misuse of information concerns, because we think that there are more than adequate safeguards in place to protect that.

[00:37:15] Speaker 03:
But even so, the reporting requirement doesn't expose them to those risks if they're meeting their own tax obligations in their own countries by reporting this information in the first place.

[00:37:29] Speaker 04:
So the.

[00:37:33] Speaker 03:
It's in excess of 80 now.

[00:37:37] Speaker 04:
Somewhere I read or heard or whatever that the United States was unique in taxing its citizens on income earned anywhere in the world.

[00:37:49] Speaker 04:
Even if they're living in a foreign country, they earn income there that they get taxed on it in the United States.

[00:37:57] Speaker 04:
And I know there are treaties.

[00:37:59] Speaker 04:
There's a statute that exempts

[00:38:03] Speaker 04:
non-resident aliens from having to pay US taxes on their accounts, right?

[00:38:10] Speaker 04:
But are all these 70 countries, do they tax income of their citizens earned outside of their jurisdiction?

[00:38:22] Speaker 03:
If they didn't tax the interest earned in the United States, then we wouldn't be providing this information.

[00:38:29] Speaker 03:
However, there are, for example, other reasons why you might want to have an exchange relationship, even if you aren't taxing the interest earned on US accounts.

[00:38:40] Speaker 03:
You might tax interest earned on business activities, even if it's beyond your borders.

[00:38:46] Speaker 03:
You might be using, for example, with the UBS example,

[00:38:52] Speaker 03:
It wasn't necessarily the interest that was creating the massive under-reporting by U.S.

[00:38:58] Speaker 03:
citizens keeping Swiss bank accounts secret.

[00:39:03] Speaker 03:
It was the fact that they were earning income all over the world, and they were having that income directed to Switzerland, and so shrouding it in its entirety, not just the interest component.

[00:39:13] Speaker 03:
And so if you have that going on by, for example, an Italian citizen, by directing income that should be, for example, generated in Italy, but having it channeled to a bank account in the United States and then not disclose that bank account, Italy's got the same problem that the United States does.

[00:39:34] Speaker 04:
Yeah, but you're not giving the information on the amount of the account.

[00:39:38] Speaker 04:
You're only giving them the information regarding interest.

[00:39:42] Speaker 03:
That's true, Your Honor, but it does disclose the account.

[00:39:46] Speaker 03:
And so once you've disclosed the account, I mean, as we kind of pointed out, there's a GAO study that says once you've got third-party reporting obligations amongst U.S.

[00:39:56] Speaker 03:
citizens,

[00:39:58] Speaker 03:
the honesty in reporting doubles.

[00:40:01] Speaker 03:
It goes from under 50 percent to almost 100.

[00:40:05] Speaker 03:
And so therefore, if that information is, you know, if you have a reporting requirement that covers the globe, the United States expects that

[00:40:15] Speaker 03:
its underreporting will go down.

[00:40:17] Speaker 03:
And the idea, I believe, is that there's a global consensus surrounding that, reflected by the fact that these countries are obviously motivated to enter into these exchange relationships.

[00:40:31] Speaker 00:
Have you accounted for, I think the plaintiff raised this, the countries, the non-resident aliens, and let's just take a rogue country, Venezuela,

[00:40:43] Speaker 00:
One reason, or the main reason they don't deposit in Venezuela is it will be confiscated or they will be subject to extortion, something like that.

[00:40:54] Speaker 00:
And so we then turn around and say we've got Carlos so-and-so's ten million dollars here in the United States.

[00:41:05] Speaker 00:
And he's living in that country.

[00:41:07] Speaker 00:
And they find out he's put his money in America.

[00:41:11] Speaker 00:
I did read that was a concern.

[00:41:13] Speaker 00:
I don't know if the plaintiffs brought it up, but when this rule was being considered.

[00:41:18] Speaker 00:
What do our treaties do to try to at least stop that?

[00:41:24] Speaker 03:
Well, Your Honor, what we have is we have the safeguards that are explained in the final rulemaking, which is that before we enter into, first of all, we can't exchange information with a country in which we do not have an existing information exchange relationship with.

[00:41:40] Speaker 03:
So those countries have been vetted on the front end before we enter into a bilateral or multilateral arrangement.

[00:41:47] Speaker 00:
Just to cut the short, the 80 countries we're dealing with are all

[00:41:51] Speaker 00:
I mean, you've got China and Russia in there.

[00:41:55] Speaker 03:
They have been, but also the individual requests are also reviewed.

[00:42:01] Speaker 03:
It's not just that they've passed mustard at one particular point in time.

[00:42:05] Speaker 03:
This is a continually monitored process.

[00:42:07] Speaker 03:
So when a request comes in, except for countries that we designated to be appropriate to exchange

[00:42:16] Speaker 03:
on an automatic basis.

[00:42:18] Speaker 03:
There are two categories.

[00:42:19] Speaker 03:
They have an exchange relationship, and then appropriate countries that are appropriate to exchange automatically.

[00:42:25] Speaker 03:
And but for the countries that are non-automatic, there is a evaluation of each individual request to make sure that they are in compliance with their treaty obligations, to make sure that the information that they're requesting is going to be used for tax purposes.

[00:42:43] Speaker 03:
This is not a rubber stamp process.

[00:42:46] Speaker 00:
OK.

[00:42:47] Speaker 00:
Are Russia and China in the automatic or in the review?

[00:42:51] Speaker 03:
No, the automatic ones, there was a rev-proc that was just published that is the follow-on to the 2012 rev-proc cited in our brief in which I believe there are between 10 and 12 in which we have dual tax treaties with.

[00:43:09] Speaker 03:
Those are the ones that we work with the closest to their center ratified treaties.

[00:43:13] Speaker 03:
And no, China and Russia are not amongst.

[00:43:15] Speaker 00:
OK, thank you.

[00:43:17] Speaker 00:
Does Mr. Lockhart have any time left?

[00:43:20] Speaker 00:
Okay, why don't you take just two minutes.

[00:43:23] Speaker 00:
Thank you.

[00:43:28] Speaker 01:
The record states

[00:43:30] Speaker 01:
has confirmation from Senate 11 that most NRAs, most nonresident aliens, are honest.

[00:43:36] Speaker 01:
Let's put them to the side.

[00:43:37] Speaker 01:
Let's talk about their regulation.

[00:43:40] Speaker 01:
The regulation says, and I'm referring to page 8217, this reporting information will directly enhance US tax compliance, but making it more difficult for US taxpayers with deposit defaults, who claim to be NRAs.

[00:43:54] Speaker 01:
That's just inaccurate.

[00:43:56] Speaker 01:
It's impossible.

[00:43:57] Speaker 01:
It's so easy to circumvent, as I've pointed out.

[00:44:00] Speaker 01:
Judge Henderson, you asked about compliant other countries, such as – and I don't mean any disrespect for Mexico, Venezuela, Bangladesh, or Ukraine.

[00:44:08] Speaker 01:
You asked about other countries.

[00:44:09] Speaker 01:
The IRS's position is we'll have these treaties and trust us.

[00:44:14] Speaker 01:
We'll assure confidentiality of this mass data program.

[00:44:17] Speaker 01:
We're saying that if you want – if the IRS wants to get information and share information, you should do it on a particularized basis.

[00:44:24] Speaker 01:
If you're going to do mass data collection, which is really all this is, then you've got to analyze what you were doing.

[00:44:31] Speaker 01:
They were told, they were told in the record by commenters, not just the American Bankers Association, but the Texas and the Florida bankers about capital flight.

[00:44:39] Speaker 01:
And they didn't want to, they didn't address it.

[00:44:42] Speaker 04:
Do you have standing to argue that this is going to be a problem for non-resident aliens in their home country?

[00:44:53] Speaker 01:
That's one of the things we save.

[00:44:56] Speaker 01:
The bankers said, we have talked with NRAs who are deeply concerned with foreign countries.

[00:45:01] Speaker 01:
They put money in the United States because of stability.

[00:45:04] Speaker 01:
The concerns that were articulated in the record are as follows.

[00:45:06] Speaker 04:
You're not representing these individuals.

[00:45:10] Speaker 04:
If they have a problem in their country, then they ought to be before us, not you.

[00:45:15] Speaker 01:
Well, I anticipate a back question.

[00:45:18] Speaker 01:
The answer to that is that what happens here is the money is here in the United States with the banks.

[00:45:23] Speaker 01:
The banks are who are affected by disintermediation.

[00:45:26] Speaker 01:
Disintermediation in turn affects the economy.

[00:45:29] Speaker 01:
What the IRS did not take into account

[00:45:32] Speaker 01:
It recognized deep down in the 10,000 page record, it recognized that there was a potential for at least $26 billion of capital outflow.

[00:45:40] Speaker 01:
That's an awful lot of money.

[00:45:42] Speaker 01:
How much is the United States going to gain in anticipated tax revenue?

[00:45:45] Speaker 01:
There was no suggestion in the record.

[00:45:47] Speaker 01:
All they have are two brothers who, in fact, would have been caught today under FACA, which applies to any country, not just these 70 countries.

[00:45:55] Speaker 01:
So our position is this belief that this data collection program

[00:45:59] Speaker 01:
is going to enhance the United States tax and fine.

[00:46:01] Speaker 01:
It's utterly illusory.

[00:46:04] Speaker 00:
Thank you, honor.

[00:46:05] Speaker 00:
Thanks a lot.