During their recently ended term, the US Supreme Court issued multiple decisions that will impact tax policy, administration, and practice. This includes a decision overturning 40 years of precedent regarding federal agency authority and a decision extending the time organizations may challenge regulations. The full impacts of these decisions will unfold over the coming weeks, months, and years. However, the information below provides a sense of what is at stake and what is likely to be challenged.
Loper Bright Enterprises v. Raimondo (June 28, 2024)
In a landmark 6-3 decision, the Supreme Court overturned the 1984 Chevron precedent, fundamentally shifting the balance of interpretive power from federal agencies to the courts. Historically, the Chevron deference allowed agencies to interpret and apply ambiguous legislation. Now, courts will have more latitude to push back on agency rulemaking where the underlying statutory language is ambiguous or vague. This powershift shift could certainly have big impacts on agency interpretations of vague or ambiguous tax laws.
While we must wait and see the impacts of this power shift as regulatory challenges arise, the implications of the decision are profound. Increasing judicial latitude and responsibility for interpretive authority is expected to alter regulations across various sectors, with regulations facing increased judicial scrutiny.
Impact Across Sectors
- Financial Services—Banking regulators previously relied on deference to oversee financial institutions, while the Consumer Financial Protection Bureau (CFPB) used broad authority to crack down on practices like overdraft fees and payday lending, drawing numerous lawsuits from business interests. The Securities and Exchange Commission (SEC) is also likely to face challenges regarding cryptocurrency, insider trading, and climate reporting rules.
- Healthcare— At least one lawsuit against the Department of Health and Human Services (HHS) Medicare reimbursement rules has already been filed in response to Loper. The HHS uses broad authority to regularly update complex health program rules under statutes that are decades old, rarely amended, or loosely worded regarding technical and scientific issues. The Food and Drug Administration (FDA) exercises authority under a 1938 law for authorizing “breakthrough” drugs, while courts have cited Chevron in rulings to uphold Medicare pay cuts to off-site outpatient clinics and definitions to calculate payment rates for certain hospitals.
- Labor—The Department of Labor (DOL) and the National Labor Relations Board (NLRB) issue rules based on broad authority from laws passed in 1935 and 1938. Recently, the DOL abandoned reliance on Chevron ahead of the Supreme Court ruling, with business groups challenging DOL rules expanding overtime pay eligibility and limiting when tipped workers can be paid a lower minimum wage. Republican state attorneys general referenced the decision overturning Chevron in a June 28 letter to the Fifth Circuit to support arguments for blocking the Labor Department’s “do-good” 401(k) investing rule. Also, the FTC’s non-compete ban will likely face additional scrutiny given the Loper decision.
View the full 6-3 opinion here.
Corner Post Inc. v. Federal Reserve (July 1, 2024)
Another significant Supreme Court decision extended the period businesses can challenge regulations to six years from when the business is harmed, rather than from when the regulation goes into effect. This decision, paired with Loper Bright, invites a wave of legal challenges to existing laws, especially in areas where regulations have expanded without amendments to the underlying statute.
View the full 6-3 opinion here.
Moore v. US (July 1, 2024)
In a 7-2 decision, the Supreme Court upheld the mandatory repatriation tax, a provision of the Tax Cuts and Jobs Act (TCJA). The Court ruled that Congress can lawfully impose a tax on the undistributed earnings from foreign-based profits of American owners of foreign corporations. Before the TCJA, there were no tax consequences for undistributed foreign profits until they were repatriated to the US. This decision confirmed the legality of taxing undistributed foreign earnings under the TCJA but did not address other potential implications or challenges to the TCJA provisions beyond the specific issue of the mandatory repatriation tax.
View the full 7-2 opinion here.
SEC v. Jarkesy (June 30, 2024)
In another critical 6-3 decision, the Supreme Court ruled against the SEC’s use of in-house judges for securities fraud cases. The Court decided that defendants accused of securities fraud are entitled to a jury trial under the Seventh Amendment. Historically, the SEC used in-house administrative proceedings for civil fraud complaints. Moving forward, defendants must be tried by a jury in federal court for fraud cases. This ruling could affect other federal agencies that impose civil penalties through administrative proceedings, potentially requiring more jury trials in federal court for fraud cases.
View the full 6-3 opinion here.
These historic Supreme Court decisions mark significant shifts in tax policy, practice, and regulatory enforcement, setting the stage for a wave of challenges and changes across various sectors. The true impact will become clearer as these rulings are tested and applied in the coming years.
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This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
