Supreme Court Rulings Alter the Future of Tax Regulations

Summary

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Podcast Summary: Supreme Court Rulings Alter the Future of Tax Regulations

ACTEC Trust & Estate Talk Episode | November 26, 2024
Host: Margaret Van Houten (ACTEC Fellow)
Guests: Mark Parthomer (ACTEC Fellow), Jenny Johnson (Guest)

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Episode Overview

This episode dissects the major impacts of two recent U.S. Supreme Court decisions—Loper Bright Enterprises v. Raimondo and Corner Post Inc. v. Board of Governors of the Federal Reserve System—on the future of federal (including tax) regulations. The conversation explores the end of Chevron deference, changes in the statute of limitations for regulatory challenges, and practical implications for wealth planners and estate professionals.

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Key Discussion Points and Insights

1. The End of Chevron Deference

[01:52–04:12]

• Background:

  • The Administrative Procedures Act (APA) set rules for agency regulations (1940s).
  • Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984): For 40 years, courts deferred to agencies if (a) the statute was ambiguous and (b) the agency’s interpretation was reasonable.
  • With Loper Bright, the Supreme Court now rejects this, restoring an earlier, more limited approach from Skidmore v. Swift & Co. (1944).

• What’s Changed:

  • Courts, not agencies, are the final experts in interpreting statutes.
  • "The Supreme Court held that the APA requires courts to say what the law is, not agencies, and that courts, not agencies, are experts in statutory interpretation." — Jenny Johnson [03:06]
  • Express (not implied) congressional delegations to agencies are required for deference.

• Current Standard of Review:

  • Express Delegation: If Congress explicitly delegates regulatory authority, courts uphold regulations unless arbitrary or capricious.
  • No Express Delegation: Under Skidmore, agency interpretations offer guidance but get no formal deference; courts make the final call.

2. Broad Implications and Recent Applications

[04:12–07:56]

• Comparison with Other Cases:

  • Mark Parthomer notes how Varian v. Commissioner (the first post-Loper Bright case) underscored that clear statutes will not get deference, but ambiguous ones now get only consideration, not deference.

• Broader Trend:

  • Shrinking agency leeway also seen in Supreme Court’s approach to agencies' interpretations of their own rules (e.g., from Seminole Rock to Kisor v. Wilkie (2019)).
  • "We're seeing a parallel now going on to the issuance of a regulation very similar to what we've seen on an agency's interpretation of its own regulations. So not a surprise." — Mark Parthomer [05:38]

3. Corner Post: Statute of Limitations for Challenging Regulations

[07:56–11:37]

• Key Ruling:

  • Six-year statute of limitations (28 USC § 2401(a)) to challenge a regulation now starts when the challenger is injured, not when the regulation is issued.
  • "The government wanted that statute to start running when the regulation was published and instead the court said, nope, it only starts running when the individual... has a cause of action." — Jenny Johnson [08:09]

• Implications for Taxpayers:

  • Taxpayers still face strict time limits for challenging IRS actions due to the Anti-Injunction Act (IRC §7421(a)).
  • For claims such as refunds, this decision confirms that—six months after the IRS ignores a refund claim, the taxpayer has six more years to file in court.
  • For direct challenges not involving tax collection/assessment (like information reporting requirements), the six-year clock starts upon actual injury (e.g., resources spent to comply).

• Resulting Landscape:

  • More opportunities for regulation challenges, but traditional procedural hurdles (timing, claim type) remain in tax cases.

4. Practical Impact and Best Practices

[11:37–12:23]

• Forum Shopping and Venue Importance:

  • Because the Supreme Court now emphasizes "correct interpretation over uniformity," expect variations by circuit and increased forum shopping.
  • "Venue is going to become very important... as you're doing your planning, you're going to want to be thinking about putting your trusts or the taxpayers who are going to be challenging certain regulations in the circuits that are going to be most advantageous to them." — Jenny Johnson [11:18]

• Strategic Regulatory Writing:

  • Agencies like IRS may bolster regulations with more thorough rationales (e.g., detailed explanations, advisory releases) to withstand challenges.

• Outlook:

  • Expect ongoing evolution as litigation and agency responses develop. More circuit splits and regulatory variation likely.

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Notable Quotes & Memorable Moments

• "The benefit of the doubt embedded in the Chevron case is gone, so we need to know what is in its place." — Margaret Van Houten [00:39]
• "Courts, not agencies, are experts in statutory interpretation." — Jenny Johnson [03:06]
• "Now we're back to where courts are not going to abandon their review." — Mark Parthomer [06:32]
• "Venue is going to become very important... think strategically about forum shopping." — Jenny Johnson [11:18]
• "We’re likely to see the IRS issue more expansive explanations in regulations to build a better file to protect against attacks." — Mark Parthomer [11:51]

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Timestamps for Key Segments

• 00:39: Episode introduction and overview of Supreme Court cases.
• 01:52: Historical background and Chevron deference summary.
• 03:06: Loper Bright decision explained; end of Chevron.
• 04:12: What Skidmore means as the new standard; effect of express vs. implicit delegation.
• 07:56: Corner Post decision; procedural changes for statute of limitations.
• 11:18: Importance of venue selection and practical planning impacts.
• 11:51: Predicted agency responses and future developments.

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Conclusion

This episode clarifies the quantum shift in federal and tax regulatory review post-Loper Bright and Corner Post: courts now have the final say on statutory interpretations unless Congress is explicit, and challenges to regulations may arise years after issuance, reshaping compliance, planning, and litigation strategies for practitioners and clients alike.

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Transcript

[A]

Supreme Court rulings alter the future of tax regulations that is the subject of today's ACTEC Trust and Estate Talk.

[B]

Welcome to ACTEC Trust and Estate Talk from the American College of Trust and Estate Council, a professional society of peer elected trust and estate lawyers in the United States and around the globe. This series offers professionals best practice advice, insights and commentary on subjects that affect our profession and clients. And now our ACTEC Fellow host with today's topic.

[A]

This is ACTECH Fellow Margaret Van Houten of West Des Moines, Iowa. This year the US Supreme Court issued its decisions in two significant estate planning cases, Loper Bright Enterprises v. Raimondo and and Corner Post Inc. V. Board of Governors of the Federal Reserve System. These two cases have meaningfully shifted the landscape of federal regulations, including those from Treasury. The benefit of the doubt embedded in the Chevron case is gone, so we need to know what is in its place. Also, the tolling of the statute of limitations to challenge a regulation received a very friendly reception by the court. Combined, these result in a new approach to challenging a regulation, including introducing the strategy of forum shopping. ACTEC fellow Mark Parthomer of West Palm Beach, Florida and guest Jenny Johnson of Chicago will share their thoughts on these important rulings. Welcome, Mark and Jennie, why don't you start with a where are we now regarding the standard of review by a court?

[C]

Thank you, Margaret and Jenny, it's a pleasure to be working with you again on this matter. We're going to be talking today about these cases, starting with lopr, that dealt with the Administrative Procedures Act. Remember, that act was put into place in the 1940s that provided a structure and framework for how a regulation can have the force and effect of law. The question then becomes within the apa, how do we challenge? We had a Chevron deference, as we know. So what we had is a 1944 case, Skidmore, that provided the standard of review. Then 40 years later, 1984, a Chevron case was held that created a deference that if a two pronged test was met, then a regulation would be deemed valid. The two pronged test first, is the statute ambiguous on the precise question at issue, and second, if so, is the agency's interpretation reasonable? And if the answer to those questions are yes and yes, a court would defer to the regulation. That was 40 years after Skidmore in 1984. And now we are 40 years later and Chevron is gone. Jenny, why don't you lead us through some of the context of the decision?

[D]

Sure. So in the Loperbright decision The Supreme Court held that the APA requires courts to say what the law is, not agencies, and that courts, not agencies, are experts in statutory interpretation. So whereas Chevron deference said if the agency's interpretation was permissible, the courts would defer to that interpretation, now the courts will not defer under the theory that if it's not the best interpretation, it's not permissible, and courts have to decide what is the best interpretation. They found that there should be no implied delegations to agencies and instead would be looking for an express delegation by Congress to an agency if there was going to be any deference by the courts to the agency's interpretation. And without that express delegation, they rewound back to Skidmore. As Mark started in the beginning with something that is really, it looks to the agencies for guidance, but there's really truly no deference under that standard. Mark, why don't you go ahead with the next step?

[C]

Absolutely. Thank you, Jenny. So where are we now? I think that's the question of the day. And with Skidmore, we really have two different levels of review. Those levels are dependent upon whether there was an express delegation by Congress to interpret the statute. So does the law that passed expressly delegate the authority to establish regulations under that statute? If so, then so long as the notice and comment procedures are followed, that regulation is going to be upheld unless it is deemed to be arbitrary or capricious. So express delegation in the statute, very high standard. If there's no express delegation. So we're following under just the general authority of treasury or whichever agency is involved, then we're back to Skidmore, as you mentioned, Jenny, Skidmore isn't really a deference. What Skidmore basically provides is that a court will take into consideration an agency's rulings, opinions, and interpretations. They're not binding on the court, but they are used to reflect the experience of the agency and can be viewed by the courts and litigants for that purpose for guidance only. But the court will then decide in and of itself whether or not the regulation is appropriate. That this shouldn't be a surprise. If we have a little context here. We've seen the same sort of expansion and contraction of authority as it relates to an agency's interpretation of its own regulations. We had the Seminole Rock hour, a U E R cases from many years ago, starting in 1945 that similarly had, you know, a deference standard built into it. And then as we move forward and Kaiser In 2019, the Supreme Court narrowed that hour and then some in Iraq standard as it relates to those interpretations. So we're seeing a parallel now going on to the issuance of a regulation very similar to what we've seen on an agency's interpretation of its own regulations. So not a surprise. Now, there was a lot of notoriety about a case that came out subsequent to Loperbright called Varian v. Commissioner. It was the first sort of post Loper case. And I think it's probably been given a little more emphasis than it needs to, because if we think about what happened in Varian in which a regulation was overturned, it would have been also at issue even under Chevron deference. This dealt with the 2017 Tax act in which there were two different statutes of limitations that are not statute of limitations, but two different designations as to when a particular code section was going to be applicable. And so the IRS issued a regulation that said, well, this doesn't work for certain fiscal year corporations. Therefore we're going to publish a regulation that says you're going to use the effective date of the other code section. And the court said, well, you can't do that by regulation. But there was no ambiguity. So it wouldn't have fallen under Chevron anyway. The statute was very clear. Code section A had a, an effective date of January 1st. Code section B had an effective date of June, July 1st. And so there's, there was no ambiguity there. So we've seen. Now we're back to where courts are not going to abandon their review. They're really going to look at things and they'll just take into consideration the body of evidence by the issuing agency. So that's where we stand now with Loper. But we also had Corner Post. And Jenny, let me turn back to you to talk a little bit about Corner Post.

[D]

We're going to switch gears from the substantive standard of review to a more procedural aspect of administrative law with Corner Post. Because in Corner Post, the court said that the default statute of limitations in 28 USC 2401a, which is a six year statute of limitations for any civil action commenced against the United States, does not accrue and start running until an individual who's seeking to challenge or the entity who's seeking to challenge is actually injured. The government wanted that statute to start running when the regulation was published and instead the court said, nope, it only starts running when the individual who's coming to court to challenge it has a cause of action that they can bring to a court. And that's when that six year time limit starts. Now, for taxpayers, you might Say, well, what does this mean to us? Because there are very strict limitations for when we need to bring some type of cause of action challenging the application of a regulation to a taxpayer. And while on the substantive side, most people would agree that tax exceptionalism is relatively dead, here, on the procedural side, that's really not true because there's another statute, the Anti Injunction act, that bars any suit for the purpose of restraining the assessment or collection of any tax. And that's in code section 7421A, with that bar on pre enforcement review of a tax. It's much more difficult for any taxpayer to bring an affirmative action challenging a regulation prior to having that regulation applied against them in a deficiency action from the ir. And there are very strict time limits for challenging a deficiency. So what this boils down to for taxpayers is that you still have to follow all the same old rules about when you would file a petition in the tax court or how and when you would file a claim for refund. And now this just confirms that if you file your claim for refund, your administrative claim, and the IRS ignores it and doesn't do anything with it, really, from six months after that, you have six years to go to court and file your action, there's a limitation on when you can continue pursuing that claim for refund. And then there's a whole section of potential challenges to the regulations that came up in some other cases recently. CIC Services is one of them, where if there's an information reporting requirement that is separate and apart from any tax, that can be challenged in a direct action under the APA and that statute of limitations, the six years is probably going to start running whenever the person who wants to challenge the regulation is injured by it, meaning they have to expend resources to comply with the information reporting requirements. So that sets us up for three different ways to potentially challenge regulations. But I see that we're getting very short on time, so we should talk about one quick best practices hint, which is that venue is going to become very important, because in Loper Bright, the court was very explicit that they see no reason to presume that Congress prefers uniformity for uniformity's sake over the correct interpretation of the laws. So I think we're going to see a lot more variance across the country in terms of different circuits interpreting the laws in different ways. And as you're doing your planning, you're going to want to be thinking about putting your trusts or the taxpayers who are going to be challenging certain regulations in the circuits that are going to be most advantageous to them.

[C]

I think that's fascinating and it's going to be a very interesting development. Jenny. I think also we're likely to see issuing agencies like the IRS when issuing a regulation to have a more expansive explanation in regulations to build a better file to protect against attacks. And I suspect we might also see some agencies looking to do other avenues, take other avenues for alerting, say, taxpayers through things like rulings and notices and chief counsel advisory releases like we've seen of late. So it's going to be fascinating as this plays out over the next number of years and and I appreciate the opportunity to speak on it. And good luck, everyone.

[A]

Thank you, Mark and Jenny, for informing us about these significant changes in how judicial review of federal regulations will be looking like in the future. Thank you.

[B]

Thank you for listening to this episode of ACTEC Trust and Estate Talk, the podcast series about wealth planning matters from the American College of Trust and Estate Council. To find an ACTEC lawyer near you, visit actec. Org. Please subscribe to this series and leave us a rating or a review.