Starr International Company v. United States

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 13, 2018 Decided December 7, 2018

No. 17-5238

STARR INTERNATIONAL COMPANY, INC.,

APPELLANT

v.

UNITED STATES OF AMERICA, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:14-cv-01593)

Rajiv Madan argued the cause for appellant. With him on

the briefs were Christopher P. Bowers, Nathan P. Wacker, and

Caroline Van Zile.

Richard Caldarone, Attorney, U.S. Department of Justice,

argued the cause for appellees. With him on the brief were

Travis A. Greaves, Deputy Assistant Attorney General, and

Gilbert S. Rothenberg and Richard Farber, Attorneys. Judith

A. Hagley, Attorney, entered an appearance.

Before: HENDERSON and MILLETT, Circuit Judges, and

EDWARDS, Senior Circuit Judge.

2

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: Dividends paid by U.S.

corporations and received by foreign shareholders are

generally subject to a 30 percent withholding tax. See 26 U.S.C.

§§ 881(a)(1), 1442(a). Bilateral tax treaties between the United

States and other nations reduce this tax rate to encourage cross-

border investments and allow taxpayers to avoid double

taxation. This case concerns an attempt by Swiss-domiciled

Starr International Company, Inc. (“Starr”) to avail itself of a

bilateral tax treaty between the United States and Switzerland

to reduce its tax rate on U.S.-source dividend income.

See generally Convention Between the United States of

America and the Swiss Confederation for the Avoidance of

Double Taxation with Respect to Taxes on Income,

Switz.-U.S., Oct. 2, 1996, S. Treaty Doc. No. 105-8 (1997)

(“U.S.-Swiss Treaty” or “Treaty”).

Starr is a privately held parent company to various

international insurance and financial businesses. After

establishing residence in Switzerland in 2006, Starr sought to

pay a reduced tax rate under the U.S.-Swiss Treaty. Because

Starr did not automatically qualify for treaty benefits, it relied

on Article 22(6) of the Treaty, a provision that allows for

discretionary tax relief. Article 22(6) states:

A person that is not [otherwise] entitled to the benefits of

this Convention . . . may, nevertheless, be granted the

benefits of the Convention if the competent authority of

the State in which the income arises so determines after

consultation with the competent authority of the other

Contracting State.

3

U.S.-Swiss Treaty art. 22(6). A Swiss taxpayer will be denied

relief under Article 22(6) if the U.S. Competent Authority

determines that obtaining benefits under the Treaty was one

of the taxpayer’s “principal purposes” in establishing itself

in Switzerland. Dep’t of the Treasury, Technical Explanation

of the Convention Between the United States of America and

the Swiss Confederation for the Avoidance of Double

Taxation with Respect to Taxes on Income (“Technical

Explanation”) 72.

Starr sought discretionary relief from the U.S. Competent

Authority – the Internal Revenue Service (“IRS”) Deputy

Commissioner for the Large Business and International

Division – for the 2007 tax year. The IRS denied Starr’s request

after concluding that obtaining treaty benefits was a principal

purpose of Starr’s move to Switzerland. Objecting to this

determination, Starr filed a claim for a refund of approximately

$38 million in taxes improperly withheld. Starr then brought

suit for a tax refund in the District Court, alleging that the IRS

erred in denying Starr benefits under the U.S.-Swiss Treaty.

The District Court dismissed Starr’s tax refund claim on the

ground that it raised a nonjusticiable political question. See

Starr Int’l Co., Inc. v. United States (“Starr II”), No. 14-cv-

01593 (CRC), 2016 WL 410989, at *2 (D.D.C. Feb. 2, 2016).

Starr then amended its complaint to bring a claim under the

Administrative Procedure Act (“APA”), challenging the IRS’s

denial of treaty benefits as arbitrary and capricious. The

District Court granted the Government’s motion for summary

judgment on Starr’s APA claim. Starr Int’l Co., Inc. v. United

States (“Starr III”), 275 F. Supp. 3d 228, 251 (D.D.C. 2017). It

held that the IRS had reasonably interpreted and applied the

U.S.-Swiss Treaty in denying Starr’s request. Id.

4

Starr now appeals both decisions of the District Court. It

claims the IRS misinterpreted and misapplied Article 22(6) and

the Technical Explanation’s “principal purpose” test. Starr

therefore asks this court to issue a judgment granting the

requested tax refund, which it maintains does not raise a

political question.

For the reasons stated below, we reverse the decision of the

District Court dismissing Starr’s tax refund claim as raising a

nonjusticiable political question and remand for further

proceedings. Because we hold that Starr can proceed with its

tax refund claim, we also hold that Starr does not have a cause

of action under the APA. We therefore vacate the District

Court’s decision granting summary judgment against Starr on

its APA claim, and remand with instructions to dismiss that

claim.

I. BACKGROUND

A. The U.S.-Swiss Treaty

Section 881(a) of the Internal Revenue Code imposes a

30 percent tax on the U.S.-source income, such as dividend

income, of foreign corporations. 26 U.S.C. § 881(a)(1). To

collect this tax, the IRS requires U.S. corporations issuing

dividends to withhold the tax from the foreign taxpayers and

remit it directly to the IRS. See 26 U.S.C. § 1442(a). Dividend

income may be subject to a lower tax rate if the taxpayer is a

resident of a country with which the United States has an

income tax treaty. As relevant here, the U.S.-Swiss Treaty

reduces the tax on U.S.-source dividend income for Swiss

residents from 30 percent to either 5 or 15 percent, depending

5

on the Swiss entity’s percentage of ownership in the U.S.

corporation. See U.S.-Swiss Treaty art. 10.

By reducing tax rates, bilateral tax agreements like the

U.S.-Swiss Treaty serve several purposes, including removing

impediments to trade and cross-border investment. See Tax

Convention with Switzerland, S. Exec. Rep. No. 105-10, at 1

(1997). They mitigate double taxation of income earned by

residents of one country from sources within the other country,

in addition to preventing tax evasion by facilitating information

sharing between the tax authorities of the treaty countries.

See id. at 1–2. Treaty “Limitation on Benefits” provisions

establish the criteria taxpayers must meet in order to obtain

benefits. These provisions are designed to filter out “treaty

shoppers,” or residents of third states who use legal entities

established in a contracting state in order to obtain the benefits

of a tax treaty. Technical Explanation 59.

Article 22 is the “Limitation on Benefits” section of the

U.S.-Swiss Treaty. It begins with a series of objective,

mechanical tests designed to identify those treaty-country

residents who merit benefits because of legitimate, non-tax

motives for their claimed state of residency. See U.S.-Swiss

Treaty art. 22(1)–(3); see also Technical Explanation 59. For

example, individuals residing in Switzerland, certain Swiss

family foundations, and companies engaged in business in

Switzerland that meet specified criteria are automatically

eligible for benefits. U.S.-Swiss Treaty art. 22(1)(a), (c), (g).

The “assumption” underlying these tests is that a taxpayer

who satisfies them “probably has a real business purpose for

the structure it has adopted, or has a sufficiently strong nexus

to the other Contracting State” to warrant benefits, and such

“business purpose or connection outweighs any purpose

to obtain the benefits of the Convention.” Technical

Explanation 59.

6

The Treaty drafters recognized that certain entities with

legitimate reasons for residing in a contracting state might fail

the rigid mechanical tests of Article 22, which “cannot account

for every case in which the taxpayer was not treaty shopping.”

Technical Explanation 60. Accordingly, paragraph 6 of

Article 22 leaves open the possibility of discretionary relief for

persons who are not otherwise entitled to benefits “if the

competent authority of the State in which the income arises so

determines after consultation with the competent authority of

the other Contracting State.” U.S.-Swiss Treaty art. 22(6).

Paragraph 6, like the mechanical tests, aims “to identify

investors whose residence in the other State can be explained

by factors other than a purpose to derive treaty benefits.”

Technical Explanation 60. Therefore, in deciding whether a

taxpayer qualifies for relief under Article 22(6), the competent

authority of the treaty country in which the taxpayer’s income

arises

will base a determination under this paragraph on

whether the establishment, acquisition, or maintenance

of the person seeking benefits under the Convention,

or the conduct of such person’s operations, has or had

as one of its principal purposes the obtaining of

benefits under the Convention. Thus, persons that

establish operations in one of the States with a

principal purpose of obtaining the benefits of the

Convention ordinarily will not be granted relief under

paragraph 6.

Id. at 72. This “principal purpose” test provides the standard

for evaluating whether a taxpayer is entitled to relief under

Article 22(6).

7

B. Factual and Procedural Background

Starr, a parent company to a number of international

financial and insurance businesses, was once the largest

shareholder of American International Group, Inc. (“AIG”).

Starr continued to hold significant investments in AIG common

stock, its principal asset, at all times relevant to this case. In

2004, Starr relocated to Ireland from Bermuda, where it had

long resided. In Ireland, Starr paid a reduced rate of

withholding tax on dividends under a bilateral income tax

treaty between the United States and Ireland. In 2006, Starr

established itself in Switzerland and subsequently sought to

reduce its dividend tax rate by obtaining benefits under the

U.S.-Swiss Treaty. Because Starr did not automatically qualify

for benefits under the mechanical tests of Article 22, it

requested discretionary relief under paragraph 6.

After a prolonged review process from 2007 to 2010, the

U.S. Competent Authority issued a final determination letter

denying Starr’s request. The Competent Authority found it

“impossible . . . to conclude that obtaining treaty benefits was

not at least one of the principal purposes for moving [Starr’s]

management, and therefore its residency, to Switzerland.” Joint

Appendix (“J.A.”) 256. The letter pointed to “facts and

circumstances regarding [Starr’s] original structure and

subsequent restructurings” that the Competent Authority found

“troubling,” including Starr’s (1) legal organization and initial

incorporation in Panama, (2) relocation to Ireland and

enjoyment of tax treaty benefits shortly before the payment of

AIG dividends, (3) brief residence in Ireland before moving to

Switzerland, and (4) control by predominately U.S.

individuals. J.A. 255–56.

Starr filed a claim for a tax refund with the IRS for the 2007

tax year, seeking approximately $38 million based on the

8

Treaty’s reduced tax rates. When the IRS took no action on

Starr’s refund claim, Starr brought a tax refund suit in the

District Court under § 7422(a) of the Internal Revenue Code to

recover the taxes it alleges were wrongly withheld. Complaint

¶¶ 3, 53–56, J.A. 312, 322; see also 26 U.S.C. § 7422(a)

(providing a cause of action for a “suit or proceeding . . . for

the recovery of [an] internal revenue tax alleged to have been

erroneously or illegally assessed or collected”). Starr asserts

that the Government erred in denying benefits under the U.S.-

Swiss Treaty because it was not treaty shopping when it

relocated to Switzerland, and because the U.S. Competent

Authority failed to consult with its Swiss counterpart before

denying Starr’s request. Complaint ¶¶ 49–50, J.A. 320–21.

The District Court initially granted the Government’s

motion to dismiss Starr’s claim that the Government violated

the Treaty by failing to consult with the Swiss Competent

Authority, but allowed Starr’s tax refund claim to proceed.

Starr Int’l Co., Inc. v. United States (“Starr I”), 139 F. Supp.

3d 214, 231 (D.D.C. 2015), vacated, Starr II, 2016 WL

410989. The court found that the U.S.-Swiss Treaty and

guidance from the Technical Explanation, including the

“principal purpose” test, provide a judicially-manageable

standard for review of whether Starr is entitled to relief under

Article 22(6). Id. at 229. It granted Starr’s motion to strike the

Government’s justiciability defenses, finding that the

Government’s decision was not committed to agency

discretion by law, id. at 228, and that interpreting the terms of

the Treaty would not implicate the political question doctrine,

id. at 231.

The District Court subsequently vacated its decision in

Starr I after the Government moved for reconsideration.

Starr II, 2016 WL 410989, at *6. The court reaffirmed its prior

holding that a manageable standard exists for assessing

9

whether Starr met the relevant criteria for obtaining treaty

benefits. Id. at *1. It also reiterated that interpreting the Treaty

“in a manner necessary to determine whether Starr met the

applicable criteria would not offend the political-question

doctrine.” Id. However, the court dismissed Starr’s tax refund

claim under 26 U.S.C. § 7422(a) as raising a nonjusticiable

political question. Id. at *2. As the District Court saw it,

ordering the IRS to pay Starr the requested $38 million refund

would impinge upon the Executive Branch’s exercise of

diplomacy in its consultation with the Swiss competent

authority, as required under Article 22(6). Id. As consultation

had not yet occurred, the court believed that, if it were to find

that Starr was entitled to treaty benefits, ordering the IRS to

issue Starr a specific monetary refund would “render

consultation meaningless or dictate its outcome.” Id. Because

the District Court assumed it could not redress Starr’s harm

without answering a political question, it held that Starr lacked

standing to pursue its tax refund claim. Id. at *4. The court thus

allowed Starr to amend its complaint to bring a claim under the

APA. Id. at *6.

Starr then challenged the Government’s denial of treaty

benefits as “arbitrary, capricious, an abuse of discretion, and

otherwise not in accordance with law.” First Amended

Complaint ¶ 3, J.A. 347; see also 5 U.S.C. § 706(2)(A). In a

lengthy opinion, the District Court granted the Government’s

motion for summary judgment and denied Starr’s cross-

motion. Starr III, 275 F. Supp. 3d at 251. The court held that

the Government reasonably interpreted and applied the U.S.-

Swiss Treaty and the Technical Explanation in denying Starr a

tax refund. See id.

Starr appeals both the decision in Starr II granting the

Government’s motion to dismiss the tax refund claim as a

nonjusticiable political question, as well as the decision in

10

Starr III granting the Government’s motion for summary

judgment and denying Starr’s cross-motion on the APA claim.

II. ANALYSIS

A. Standard of Review

We review de novo whether this case presents a

nonjusticiable political question. See Ralls Corp. v. Comm. on

Foreign Inv. in U.S., 758 F.3d 296, 314 (D.C. Cir. 2014). In

light of our decision, as explained below, that Starr does not

have a cause of action under the APA, see 5 U.S.C. § 704, we

decline to review the District Court’s decision on Starr’s APA

claim.

B. The Political Question Doctrine Has No Application

in this Case

The District Court dismissed Starr’s tax refund claim under

26 U.S.C. § 7422(a) as raising a nonjusticiable political

question. We hold that the District Court erred regarding the

applicability of the political question doctrine.

The Supreme Court laid out its oft-cited formulation of the

political question doctrine in Baker v. Carr:

Prominent on the surface of any case held to involve a

political question is found a textually demonstrable

constitutional commitment of the issue to a coordinate

political department; or a lack of judicially

discoverable and manageable standards for resolving

it; or the impossibility of deciding without an initial

policy determination of a kind clearly for nonjudicial

discretion; or the impossibility of a court’s undertaking

independent resolution without expressing lack of the

11

respect due coordinate branches of government; or an

unusual need for unquestioning adherence to a political

decision already made; or the potentiality of

embarrassment from multifarious pronouncements by

various departments on one question.

369 U.S. 186, 217 (1962). Under Baker v. Carr and its progeny,

a court may not dismiss a claim as nonjusticiable “[u]nless one

of these formulations is inextricable from the case at bar.”

bin Ali Jaber v. United States, 861 F.3d 241, 245 (D.C. Cir.

2017) (quoting Baker v. Carr, 369 U.S. at 217).

Furthermore, the Supreme Court has made it clear that

application of the political question doctrine is a limited and

narrow exception to federal court jurisdiction. For example, in

United States v. Munoz-Flores, 495 U.S. 385 (1990), the

Supreme Court considered whether a special assessment statute

was a revenue raising bill within the meaning of the Origination

Clause. Id. at 387. In rejecting the Government’s argument that

the case presented a nonjusticiable political question, the Court

aptly noted:

Surely a judicial system capable of determining when

punishment is “cruel and unusual,” when bail is

“[e]xcessive,” when searches are “unreasonable,” and

when congressional action is “necessary and proper”

for executing an enumerated power is capable of

making the more prosaic judgments demanded by

adjudication of Origination Clause challenges.

Id. at 396.

Thus, “it is error to suppose that every case or controversy

which touches foreign relations lies beyond judicial

cognizance,” Baker v. Carr, 369 U.S. at 211, and it is axiomatic

12

that “courts have the authority to construe treaties,” Japan

Whaling Ass’n v. Am. Cetacean Soc’y, 478 U.S. 221, 230

(1986). A court cannot “avoid [its] responsibility” to enforce a

specific statutory right “merely ‘because the issues have

political implications.’” Zivotofsky ex rel. Zivotofsky v. Clinton,

566 U.S. 189, 196 (2012) (quoting INS v. Chadha, 462 U.S.

919, 943 (1983)).

None of the Baker v. Carr factors are present in Starr’s tax

refund claim. Starr’s eligibility for discretionary relief under

Article 22(6) presents a straightforward case of treaty

interpretation. And Article 22(6) and the Technical

Explanation provide meaningful standards that enable a court

to determine whether the IRS’s determination was erroneous.

Therefore, Starr’s claim that the IRS misinterpreted federal law

in denying the company a refund is plainly a matter for a court

to decide.

The Supreme Court’s decisions in Japan Whaling and

Zivotofsky are particularly instructive. In Japan Whaling, the

Court rejected the argument that the political question doctrine

barred judicial resolution of an action to repudiate an executive

agreement between the United States and Japan and to require

the U.S. Secretary of Commerce to certify Japan as violating

an international convention. Japan Whaling, 478 U.S. at 229–

30. The challenge to the Secretary’s decision not to certify

Japan for harvesting whales in excess of international quotas

“present[ed] a purely legal question of statutory interpretation.”

Id. at 230. The Court had to “determine the nature and scope of

the duty imposed upon the Secretary by the [statute], a decision

which call[ed] for applying no more than the traditional rules

of statutory construction, and then applying this analysis to the

particular set of facts presented.” Id. Cognizant of the

decision’s potential implications for foreign relations and the

“premier role which both Congress and the Executive play in

13

[that] field,” the Court nonetheless concluded that “under the

Constitution, one of the Judiciary’s characteristic roles is to

interpret statutes, and we cannot shirk this responsibility

merely because our decision may have significant political

overtones.” Id.

The decision in Zivotofsky is the Supreme Court’s most

recent reminder that the judiciary must resolve disputes over

specific statutory rights when properly called upon to do so.

Zivotofsky concerned a statute that directed the Secretary of

State, upon request, to issue to a U.S. citizen born in Jerusalem

a birth certificate or passport identifying Israel as the place of

birth. 566 U.S. at 191–92. Diplomatic officials later refused a

request to list “Jerusalem, Israel,” as an individual’s place of

birth out of concern that the statute would impermissibly

interfere with the Executive’s foreign relations powers. Id. at

192–93. The Court held that the question of the statute’s

constitutionality was justiciable. Id. at 194, 201. The Court was

not being asked to determine whether Jerusalem is the capital

of Israel but instead to decide whether an individual had a

statutory right to have Israel designated as his place of birth on

his passport. Id. at 195. “[Zivotofsky] recognizes that, in foreign

policy cases, courts must first ascertain if ‘[t]he federal courts

are . . . being asked to supplant a foreign policy decision of the

political branches with the courts’ own unmoored

determination’ or, instead, merely tasked with, for instance, the

‘familiar judicial exercise’ of determining how a statute should

be interpreted or whether it is constitutional.” bin Ali Jaber,

861 F.3d at 248 (quoting Zivotofsky, 566 U.S. at 196).

Starr’s tax refund claim is squarely an example of the latter

case. Starr’s claim requires a court to “determine the nature and

scope of the duty imposed” on the U.S. Competent Authority

under Article 22(6), “a decision which calls for applying no

more than the traditional rules of statutory construction” with

14

respect to the U.S.-Swiss Treaty, “and then applying this

analysis to the particular set of facts” of Starr’s case. Japan

Whaling, 478 U.S. at 230; see also Hourani v. Mirtchev, 796

F.3d 1, 8 (D.C. Cir. 2015) (declining to find a case

nonjusticiable under the political question doctrine where “the

standards needed to resolve” the claims at issue were “the

workaday tools for decision-making that courts routinely

employ,” even though the court’s judgment “might implicate

the actions of a foreign government”). And it is hardly an

oddity for courts to adjudicate tax claims based on international

tax agreements, which is all that is required here. See, e.g.,

Eshel v. Comm’r, 831 F.3d 512 (D.C. Cir. 2016); Nat’l

Westminster Bank, PLC v. United States, 512 F.3d 1347 (Fed.

Cir. 2008); Del Commercial Props., Inc. v. Comm’r, 251 F.3d

210 (D.C. Cir. 2001); Xerox Corp. v. United States, 41 F.3d

647 (Fed. Cir. 1994).

The District Court held that Starr’s refund action was

nonjusticiable because granting a refund would “impinge upon

the Executive’s prerogative to engage in [the consultation]

process” with Switzerland. Starr II, 2016 WL 410989, at *2.

Explaining that it could not “dictate the contents of any

diplomatic communications in which the executive branch

engages,” the court assumed that a decision about Starr’s

eligibility for relief under Article 22(6) would impermissibly

“establish the outcome of any negotiation or consultation

between an executive-branch official and representatives of a

foreign country.” Id. at *4. The court focused on its perceived

“inability and lack of competence” to “step into the shoes of

the IRS and its Swiss counterparts and effectively preordain the

outcome of any consultation between the two.” Id. at **3–4.

This understanding of Starr’s tax refund claim and the political

question doctrine was incorrect.

15

A District Court decision will have no impact on the

consultation between the U.S. and Swiss Competent

Authorities. Starr asks for a judicial determination as to

whether the Government erred in denying Starr treaty benefits.

As explained below, if the District Court finds the IRS’s

position indefensible, it can stay the case pending consultation

between the Competent Authorities, as consultation is required

before a refund can be granted. See U.S.-Swiss Treaty art.

22(6). The IRS then can return to court and present any new

evidence from consultation. Our holding does not grant Starr

the right to review the consultation. Rather, consultation is

merely one element of the IRS’s deliberative process. The

Government may use information that arises out of

consultation as support for its ultimate decision, but Starr duly

concedes that it has no right to challenge the consultation itself.

And a foreign authority’s views do not control any

determination by the U.S. Competent Authority under

Article 22(6). See Oral Argument at 39:14–39:35, 45:13–

45:35, No. 17-5238 (D.C. Cir. argued Sept. 13, 2018).

Because the District Court concluded that it could not

redress Starr’s harm without deciding a political question, it

found that Starr lacked standing. Starr II, 2016 WL 410989,

at *4. However, the question as to whether the IRS properly

found Starr ineligible for treaty benefits under Article 22(6)

does not raise a political question. Therefore, Starr’s standing

is not in dispute because a tax refund of the requested $38

million would plainly redress Starr’s injury. We therefore

reverse and remand the District Court’s judgment so that Starr

may proceed with its tax refund claim under 26 U.S.C.

§ 7422(a).

16

C. Starr Does Not Have a Cause of Action Under

the APA

Because the District Court assumed that Starr could not

seek redress under 26 U.S.C. § 7422(a), it allowed Starr to

challenge the Government’s denial of treaty benefits under the

APA, although it found no merit in that claim. We hold that the

District Court was mistaken in assuming that Starr could

pursue a cause of action under the APA.

The APA supports a cause of action only when “there is no

other adequate remedy in a court.” 5 U.S.C. § 704. Because

26 U.S.C. § 7422(a) is the appropriate vehicle for Starr’s claim

for relief, Starr does not have a cause of action under the APA.

See Perry Capital LLC v. Mnuchin, 864 F.3d 591, 620–21

(D.C. Cir. 2017) (explaining that the adequate remedy bar of

§ 704 determines whether there is a cause of action under the

APA); Cohen v. United States, 650 F.3d 717, 731 (D.C. Cir.

2011) (en banc) (holding that APA review of a challenge to tax

refund procedures would be available only if 26 U.S.C. §

7422(a) did not provide an adequate remedy).

D. Starr’s Tax Refund Claim was Properly Brought

Under 26 U.S.C. § 7422(a)

Section 7422(a) of the Internal Revenue Code provides a

cause of action for the “recovery” of a “tax alleged to have been

erroneously or illegally assessed or collected,” 26 U.S.C.

§ 7422(a), which is precisely the relief Starr seeks. Taxpayers

are generally required to challenge the validity of a tax

assessment in a refund proceeding, as opposed to suits seeking

equitable or declaratory relief. See, e.g., Bob Jones Univ. v.

Simon, 416 U.S. 725, 746 (1974) (holding that suits for refunds

offer taxpayers a full opportunity to litigate the legality of IRS

17

decisions); Enochs v. Williams Packing & Nav. Co., 370 U.S.

1, 7 (1962) (interpreting the Anti-Injunction Act, 26 U.S.C.

§ 7421(a), to “require that the legal right to . . . disputed sums

be determined in a suit for refund”); Fla. Bankers Ass’n v. U.S.

Dep’t of Treasury, 799 F.3d 1065, 1066 (D.C. Cir. 2015)

(affirming that challenges to tax statutes and regulations are to

be brought in refund suits after a tax has been paid or in

deficiency proceedings).

The Government cites Cohen, 650 F.3d 717, in support of

its claim that Starr’s case should be decided under the APA.

We disagree. In Cohen, we stated unequivocally that “taxpayer

challenges to the validity of an individual tax” are

“paradigmatic refund suits.” 650 F.3d at 733. And we stressed

the fundamental difference between those cases and

“challenge[s] to an IRS regulation, action, or procedure

unrelated to the individual assessment or collection of taxes.”

Id. Cohen involved a class-action challenge to a refund

mechanism that the IRS had established after illegally

collecting an excise tax on phone calls. Id. at 720–21. We

allowed the APA action to proceed because, “[i]n the tax

context, the only APA suits subject to review would be those

cases pertaining to final agency action unrelated to tax

assessment and collection.” Id. at 733. The plaintiffs in Cohen

sought prospective, non-monetary relief, so an APA action was

appropriate.

Unlike in Cohen, Starr challenges the validity of an

individual tax, not IRS procedures, and requests retroactive

monetary relief. We therefore remand the case to the District

Court to allow Starr to pursue its claim for a tax refund. One of

four possible scenarios will likely play out, though the parties

and the District Court may consider other ways to proceed:

18

1. The U.S. Competent Authority could decide to proceed

with consultation and might subsequently determine that Starr

is entitled to benefits under the U.S.-Swiss Treaty. If the IRS

awards Starr the monetary amount it seeks, the case will

presumably be moot.

2. The U.S. Competent Authority might consult with its

Swiss counterpart and maintain its current position that Starr is

not entitled to Treaty benefits. Engaging in consultation before

further proceedings in the District Court could expedite

resolution of this case and give the Government any additional

information that might come from consultation. If the District

Court finds that the IRS should have deemed Starr eligible for

benefits under Article 22(6), then the court may award Starr the

money it seeks, consultation having already occurred as

required under the Treaty.

3. The IRS might choose to maintain its current position

without engaging in consultation at this time. If the District

Court finds the IRS’s position indefensible, it can stay the case

pending consultation between the U.S. and Swiss Competent

Authorities, as no refund can be granted without consultation.

The IRS can return to court and have the opportunity to present

any new evidence that may have come to light during

consultation. This posture would not afford Starr the right to

seek review of the consultation, which is simply part of the

IRS’s deliberative process. But if the IRS returns to the District

Court and cites information obtained during the consultation

process as the reason for denying tax benefits, that decision

would be reviewable.

4. If the refund action goes forward and the District Court

finds the evidence supports the IRS’s decision to deny benefits,

then judgment may be granted in the Government’s favor.

19

In the last three scenarios above, appellate review may be

sought by an aggrieved party, as appropriate. In reviewing any

IRS decision to deny Starr benefits under the U.S.-Swiss

Treaty, the District Court will use established principles of

treaty interpretation in evaluating the IRS’s application of

Article 22(6). “The interpretation of a treaty . . . begins with its

text.” Medellin v. Texas, 552 U.S. 491, 506 (2008). The “clear

import” of a treaty’s text “controls unless application of the

words of the treaty according to their obvious meaning effects

a result inconsistent with the intent or expectations of its

signatories.” Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S.

176, 180 (1982) (citation and internal quotation marks

omitted). If a treaty’s text leaves any ambiguity, a court should

“consult[] sources illuminating the ‘shared expectations of the

contracting parties,’ such as ‘the negotiating and drafting

history’ and ‘the postratification understanding of the

contracting parties.’” Eshel, 831 F.3d at 519–20 (quoting

Zicherman v. Korean Air Lines Co., 516 U.S. 217, 223, 226

(1996)). “Although not conclusive, the meaning attributed to

treaty provisions by the Government agencies charged with

their negotiation and enforcement is entitled to great weight.”

Sumitomo, 457 U.S. at 184–85.

Finally, Starr urges this court to hold that the IRS

misinterpreted and misapplied Article 22(6) and the principal

purpose test of the Technical Explanation. We recognize that

the District Court addressed these issues when it reviewed the

IRS’s determination in the context of Starr’s APA claim.

However, because we remand this case to the District Court to

proceed as a tax refund claim, we leave it to the District Court

in the first instance to consider Starr’s arguments in the context

of the tax refund action.

20

III. CONCLUSION

For the foregoing reasons, we reverse the decision of the

District Court dismissing Starr’s tax refund claim and remand

for further proceedings. We vacate the District Court’s decision

granting the Government’s motion for summary judgment and

denying Starr’s cross-motion with respect to Starr’s APA

claim, and we remand with instructions to dismiss that claim.

So ordered.