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From the Hill: July 9, 2024

A recent U.S. Supreme Court ruling will affect how Congress writes tax legislation.
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Lately on the Hill

Here’s a look at recent tax-related happenings on the Hill, including a recent U.S. Supreme Court ruling that will impact tax legislation and a Democratic push to fully implement the 15% corporate alternative minimum tax (CAMT).

Supreme Court Ruling Affects Tax Legislation Writing

The recent Supreme Court ruling in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce will have a significant impact going forward on the way Congress writes tax laws.

For decades the courts have followed the “Chevron Doctrine,” giving deference to regulating agencies to interpret gaps and ambiguities in laws written by Congress. Proponents of the doctrine say it allows for those with technical expertise and experience to help execute complex laws written by congressional representatives and their staff, who may not have such know-how or the resources to do so. Others argue that the doctrine gives federal bureaucrats excessive power.

When Congress writes tax statutes, it generally provides the purpose and basic framework of the law and empowers the Secretary of the Treasury and the IRS to establish regulations to sort out all the details of the actual administration of what the law intends.

The Administrative Procedure Act (APA) governs how federal administrative agencies, such as the IRS, propose and establish regulations. The APA requires that proposed and final rulemaking receives public notice in the Federal Register, requires opportunities for public comment, and requires agency response.

As a result of the Supreme Court ruling, the administrating agencies will no longer receive deference, giving the courts a greater role in interpreting the law and in the implementation thereof. Attacking a particular tax regulation, by the IRS’ failure to comply with the APA, is already a common tactic employed by attorneys. The ruling will only boost this legal approach to challenge rulings based on lack of proper notice, non-consideration of all comments, final rules that are arbitrary and capricious, rules exceeding the IRS’ statutory authority, or otherwise being contrary to law.

The ruling also places greater onus on Congress to draft more detailed legislation, not only in the meaning and intent of the law, but also to a certain degree, its administration. Bloomberg Tax reports on comments made by U.S. Rep. Kevin Hern (R-OK), “Congress may be able to rely more heavily on committee staff of legislative support agencies like the Joint Committee on Taxation and Congressional Research Service to draft more comprehensive bills.” Lawmakers skeptical of potentially having to pay a little more to fund extra congressional capacity need to understand the trade-off, he said. “You have to ask that in exchange for having more accountability and responsibility,” he said. “If we don’t it’s just going to go back to the agencies again, and we’re going to be stuck in court.”

Democrats Urge Proposed Regulations on the CAMT

A cadre of Democratic congressional members urged Secretary of the Treasury Janet Yellen to fully implement the 15% CAMT in a letter last week. “The Treasury Department has a critical role to play in the implementation of the CAMT and must roll out strong and timely rules to ensure giant corporations begin paying their fair share.”

The letter asserts the tax will generate more than $220 billion over the next decade in contrast to the “Trump tax cuts,” where “55 of the biggest corporations reported nearly $670 billion in profits to their shareholders but paid less than 5 percent of those profits in taxes.”

The letter acknowledges the complexity of implementing the tax law and enlists the Treasury to “proactively thwart off corporation-led efforts to frustrate the intent of the law.”

The Judicial Report

The Supreme Court determines when the statute of limitations begins accruing under the APA. Corner Post Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008.

Corner Post, Inc. began business operations in 2018. In 2021, Corner Post challenged the Federal Reserve Board’s 2011 regulation establishing debit card interchange fees under the APA. The District Court dismissed the case, agreeing with the board that the six-year statute of limitations for suits against the U.S. had run its course under 28 U.S.C. Section 2401(a). The Eighth Circuit affirmed the lower court’s decision.

The Supreme Court by a 6-to-3 margin reversed and remanded the decision, holding that the six-year statute of limitations does not begin accruing under the APA until “the plaintiff is injured by final agency action,” citing Green v. Brennan, 578 U.S. 547, 554.

The dissenting opinion argued, “There is effectively no longer any limitations period for lawsuits that challenge agency regulations on their face. Allowing every new commercial entity to bring fresh facial challenges to long-existing regulations is profoundly destabilizing for both Government and business. It also allows well-heeled litigants to game the system by creating new entities or finding new plaintiffs whenever they blow past the statutory deadline.”

The ruling potentially allows taxpayers to challenge tax regulations formulated by the IRS under the APA they may have previously thought unchallengeable due to the statute of limitations.

The Supreme Court rules on presidential immunity. Trump v. United States, No. 23-939.

The court held that under the separation of powers structure of the Constitution, the president is entitled to absolute immunity, or at least presumptive immunity, from criminal prosecution in the performance of official acts pursuant to constitutional and statutory authority. The immunity does not extend to unofficial acts.

“Such an immunity is required to safe-guard the independence and effective functioning of the Executive Branch, and to enable the President to carry out his constitutional duties without undue caution. At a minimum, the President must be immune from prosecution for an official act unless the Government can show that applying a criminal prohibition to that act would pose no ‘dangers of intrusion on the authority and functions of the Executive Branch.’ Fitzgerald, 457 U.S., at 754,” according to the majority opinion.

The court stopped short of defining “official” and “unofficial” acts, instructing the lower court to do so in context of the current allegations against the former President Donald Trump, reminding observers that the Supreme Court is “a court of final review and not first review.”

The dissenting opinion, written by Justice Sonia Sotomayor, states, “The main takeaway of today’s decision is that all of a President’s official acts, defined without regard to motive or intent, are entitled to immunity that is ‘at least … presumptive,’ and quite possibly ‘absolute.’” It went on to say, “This official-acts immunity has ‘no firm grounding in constitutional text, history, or precedent,’” citing Dobbs v. Jackson Women’s Health Organization, 597 U.S. 215, 280 (2022).

At the crux of the argument is the definition of an “official” act and to what extent a sitting or former president may invoke the definition, thereby avoiding criminal prosecution. As the U.S. Department of the Treasury and the IRS are part of the executive branch, under the purview of the president, their actions will likely take a prominent place within an impending “official acts doctrine” that the courts will have to conceive in future rulings.

From the Treasury & IRS

Revenue Procedure 2024-30 has been issued, providing procedures for obtaining automatic consent to change methods of accounting to the allowance charge-off method as described in Proposed Regulations §1.166-2 with respect to the determination of when a debt instrument held by a regulated financial company or a member of a regulated financial group is conclusively presumed to be worthless for purposes of the bad debt rules under §166. The revenue procedure modifies Revenue Procedure 2024-23, which contains the current list of automatic changes.

Final Regulations (T.D. 10003) released by the IRS set forth procedural provisions relating to the reporting of excise tax liabilities imposed on certain sales by manufacturers, producers, or importers of designated drugs.

IR-2024-181 reminds individuals and businesses in disaster-area localities in Alaska, Maine, and Rhode Island that their postponed 2023 federal income tax returns and tax payments are due on Monday, July 15, 2024.

This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein. 

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