Boring Is as Boring Does

The U.S. Constitution begins with some of the most ambitious words in the history of governance: “We the People of the United States of America, in Order to form a more perfect Union..." For over 200 years now, the Supreme Court of the United States has helped shape that effort like a river’s banks shape its flow. The Court has weighed in on some of the thorniest, most contentious issues in American life. Is “separate but equal” really equal? Does the Constitution protect a right to privacy? Where do the limits of free speech apply?

These days, the Court typically issues fewer than 100 signed opinions per year (along with a busy “shadow docket” of lower profile activity). Naturally, the justices focus most of their scrutiny on fundamental constitutional questions. Tax opinions are rare, simply because the technical nature of most tax disputes rarely involves fundamental constitutional questions. Every so often, though, the Court does address specific tax disputes. Earlier this year, for example, in Connelly v. United States, the Court ruled that a company’s obligation to buy out a deceased owner’s interest doesn’t reduce the company’s value for purposes of taxing the deceased owner’s estate. (That sounds really boring right? It is, although if you have an insurance-funded entity-purchase buy-sell agreement, you might want to rethink it.)

Sometimes, though, the Court issues opinions that indirectly affect how Uncle Sam actually collects the taxes Congress decides we should owe. That happened on June 28 when the justices released their opinion in Loper Bright v. Raimondo.

First, some background. Our Constitution establishes a legislative branch, Congress, to write the laws, and an executive branch, headed by the President, to enforce them. However, as life and legislation have gotten more complicated, Congress has had to get more ambitious. Technical challenges like protecting the environment mean that in practice, Congress writes statutes expressing their general intent, then executive branch agencies flesh out those statutes with more detailed regulations.

Here's the problem. At what point does writing regulations cross the line into writing laws? In 1984, the Court held in Chevron v. Natural Resources Defense Council decision that courts should defer to an executive branch agency’s reasonable interpretation of any legislative ambiguity. However, the Court in Loper Bright ruled that the Chevron decision violated the 1946 Administrative Procedures Act (APA), which gives courts the job of deciding whether the law means what an agency says it does. It all sounds boring and technical, which it is. The winning plaintiffs characterize their case as “constitutional housekeeping.” But it could also encourage new challenges to various regulations throughout the government.

And that, of course, includes tax regulations. Congress writes the tax laws, then delegates the job of enforcing them to the Treasury department and the IRS. So most observers think the Loper Bright ruling will encourage taxpayers to challenge IRS regulations. That’s already happening, of course. In 2020, the Court ruled in CIC Services v. IRS that the IRS violated the APA when it issued a notice identifying certain captive insurance arrangements as “transactions of interest.” (Boring? Yes. Important? Also, yes.) We’ll see over the next few years how frontline Tax Court judges incorporate Loper Bright into their opinions.

Loper Bright won’t bring immediate change the way Congress could if they had simply changed a law raising a rate or limiting a deduction. But over time, the decision may limit IRS power to enforce the regulations it writes. That, in turn, may weaken the Service’s power to reach into your pocket. And there’s nothing boring about that! Naturally, we’ll be keeping an eye out for any opportunities to help you pay less.