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The Future of Tax Regulations is not (Loper) Bright

Published
Jan 29, 2025
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On day three of the 59th Annual Heckerling Institute on Estate Planning, panelists David E. Foster of Kirkland & Ellis and Jenny L. Johnson of Will & Emery LLP shared their insights into the new regulatory landscape after the most recent Supreme Court administrative law cases. As the panelists discussed, the one-two punch of Relentless/Loper Bright v. United States and Corner Post v. United States in the summer of 2024 could have ramifications for tax regulations and guidance for years to come.  

Administrative Procedure Act and Anti-Injunction Act 

The panelists began by giving an overview of the complex administrative and regulatory world and the laws that govern it. Mr. Foster gave an outline of the Administrative Procedure Act and the process that the government must follow when it promulgates regulations. As explained by the panelists, taxpayers wishing to challenge regulations can challenge these regulations either by claiming they were not created using the correct process (procedural grounds) or by arguing that they are not accurately interpreting the law (substantive grounds). The panelists also discussed the Tax Anti-Injunction Act, which can limit how and when courts can place an injunction on enforcement of tax regulations. The panelists also discussed the 2011 administrative law case Mayo Foundation v. United States, in which the Supreme Court expressly held that the long-standing Chevron doctrine (discussed below) applied to tax regulations. 

Relentless/Bright Loper v. United States 

The most ground-shaking decision in 40 years for the regulatory world came in the case Relentless/Loper Bright v. United States, decided on June 29, 2024. This case overturned the seminal administrative law case Chevron v. EPA, which was decided in 1984. Chevron held that when making decisions about regulations, courts had to defer to an agency’s interpretation so long as there was ambiguity in the statute and the interpretation was “reasonable.” Loper Bright rolled back this test; instead holding that courts should determine the “best” interpretation of the law and not defer to an agency merely because the agency’s interpretation was “reasonable.” The panelists discussed how this decision could open the door to more successful challenges to tax regulations from taxpayers.  

Corner Post v. United States 

The second administrative law case that could have an impact on the tax world is Corner Post. The United States Code contains a provision that limits the time someone can challenge an agency’s final rule to six years from the date that the claim “first accrues.” Historically, this provision has been interpreted to limit a challenge to a rule to within six years after the final rule’s publication. In Corner Post, the Court instead held that the claim “accrues” when the particular person or company is harmed by the final rule. However, the panelists noted that the opinion generally only addresses substantive challenges, not procedural challenges, which the Court left for another day.  

Regulatory Challenges 

The panelists noted that put together, both the above cases will make for a much harsher environment for regulations to stand if reviewed by a court. The panelists discussed the methods by which a taxpayer could try to use both cases to challenge regulations, including via the Tax Court or by paying the tax and claiming a refund via other federal courts. The panelists agreed that the rate of regulation writing could slow down in light of the rulings and noted that the IRS has already changed how it writes their purposes statements in the preamble of regulations. They also touched on the fact that the new administration may change enforcement or writing of regulations.  

Impacts of Court Decisions 

The panelists highlighted two court cases that struck down taxpayer-favorable regulations post-Loper Bright. A recent Tax Court case, Varian v. United States, dealt with a regulation that interpreted a statutory “glitch” in a taxpayer favorable manner. The Tax Court stuck down the regulation as the statute was “unambiguous” and held that the IRS cannot fill in gaps where it is not expressly delegated. Similarly, the Fifth Circuit struck down a taxpayer-friendly interpretation regarding the requirements to qualify as a 501(c)(4).  

The panelists agreed that the regulatory landscape has shifted to a more taxpayer favorable climate but cautioned that it could easily shift back over time. They brought up the length of time it can take for a challenge to a regulation reach the courts, especially the higher federal courts, and suggested it is possible that in that time, the climate could shift back to a more government or regulatory friendly environment. Accordingly, taxpayers should not expect all regulations to fall quickly, if they fall at all.  

Overall, the panel highlighted the uncertainty before taxpayers and practitioners alike, which was a common theme at the conference. Taxpayers should prepare for an unpredictable future by engaging a trusted tax advisor to proactively advise them of potential changes. 


Heckerling

The Heckerling Institute offers practical guidance on today’s most important tax and non-tax planning issues, including planning challenges and opportunities. We’ve aggregated blog posts from highlight sessions here, to share our insights with you.

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