Supreme Court Upholds NYC Tax Liens Against India

The Supreme Court has held that the Foreign Sovereign Immunities Act (FSIA) does not immunize a foreign government from a New York City declaratory judgment action brought to declare the validity of real property tax liens asserted against India. Permanent Mission of India to the U.N. v. City of New York, Docket No. 06-134, 6/17/2007).

[Several floors of India’s permanent mission to the United Nations are used for diplomatic offices, but 20 floors contain residential units for diplomatic employees, who are all Indian citizens below the rank of Ambassador. N.Y. Real Prop. Tax Law § 418 provides that real property owned by a foreign government is exempt from tax if it is “used exclusively” for diplomatic offices or for the residence of an Ambassador. If only a portion of the property is used for the purpose described, the remainder is subject to taxation.”

For several years, the City levied property taxes against India for portions of buildings used to house lower level employees. By operation of law, unpaid taxes eventually became tax liens totaling $16.4 million. In 2003, the City filed complaints in state court seeking declaratory judgments establishing the validity of the tax liens. India removed the case to federal court under 28 U.S.C. §1441(d), where it argued that the FSIA’s general rule of immunity for foreign governments barred the suit. The District Court, relying on FSIA’s “immovable property” exception, held for the City. The Second Circuit affirmed. The Supreme Court granted certiorari. 549 U.S.___ (2007), and affirmed.]

The issue requiring resolution was whether the city’s tax lien fell within the scope of the “immovable property” exception in the FSIA. The Court, observing that that a tax lien “inhibits one of the quintessential rights of property ownership — the right to convey,” held that a suit to establish the validity of a lien indeed implicates “rights in immovable property.” Support for this view comes from recognition that the U.S. has adopted the “restrictive theory” of sovereign immunity, under which sovereign acts (jure imperii) are immune, but private acts (jure gestionis) are not. Since (i) property ownership is not an “inherently” sovereign function, and (ii) the restatement of foreign relations law at the time of the FSIA’s enactment supports the view that sovereign immunity does not extend to “an action to . . . establish a property interest in immovable property…” the Court, per Justice Thomas, affirmed. Two justices dissented.

In Hinck v. U.S., Docket No. 06-376, 5/21/2007, Chief Justice Roberts, writing for a unanimous Court, held that the Tax Court has exclusive jurisdiction to review denial of interest abatement requests under IRC § 6404(e)(1). Although Congress failed to explicitly define the Tax Court’s jurisdiction as exclusive, the result is “quite plain” from the “carefully circumscribed, time-limited, plaintiff-specific provision.” The taxpayer’s dilemma in the case was that the Tax Court’s jurisdiction was limited to individuals whose net worth did not exceed $2 million, a requirement which the taxpayer could not satisfy. The decision affirmed a judgment of the Federal Circuit.

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