By admin 
Two of the Supreme Court’s most consequential cases involving income tax planning did not directly address income tax issues and did not even include the word “tax” in the opinion. Nevertheless, these cases have significant implications for the enforceability of IRS regulations and guidance. The full effect of these decisions will almost certainly require additional litigation in the coming years.
Runner Bright Enterprises against Raimondo (Docket No. 22-451) was issued by the United States Supreme Court on June 28, 2024. Since 1984, courts have had to respect agencies’ interpretations of ambiguous laws. That rule was introduced in Chevron USA, Inc. v. Natural Resources Defense Council (1984) (467 US 877). Runner rejected the longstanding rule providing judicial deference to agencies’ (including the IRS’s) interpretations of ambiguous statutes. This deference, in simple terms, created an “uphill battle” to challenge the IRS rules.
The Supreme Court determined that the rule established by Chevron did not comply with the Administrative Law Act. The Supreme Court even looked back to 1803 and ruled that the Chevron The rule of deference was contrary to the landmark Supreme Court decision Marbury v. Madison (1803) (5 US 137), which held that the court decides legal questions based on its own judgment. The net result for tax cases is that the court now decides the best interpretation of a disputed statute, not the IRS.
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A completely different standard
Prior to Runnerthe court would determine whether the IRS interpretation was permissible – a very different standard for a taxpayer challenging the IRS interpretation.
Runner recognizes that judicial deference may be appropriate when the statute itself requires the IRS to issue rules or guidance. Even in that case Runner provides that the courts continue to have independent authority to police the outer limits of regulation and ensure that the IRS exercises its discretion in a manner consistent with the Administrative Law Act.
Right afterwards RunnerThe Supreme Court ruled on July 1, 2024 Corner Post, Inc. against the Federal Reserve (Docket No. 22-1008). Corner post provides that the six-year limitation period 28 USC section 2401 began to run when the plaintiffs actually suffered injury, and not from the time the rule, regulation, or statute became final.
The Anti-Prohibition Act (AIA) prevents prior enforcement of judicial review. If the statute of limitations begins on the date of enactment of the ordinance, then the six-year period under Section 2401 of the AIA would run before the plaintiff, or anyone else, could meet the requirements for a challenge. The effect of Runner is that a newly created entity appears able to challenge a long-standing regulation that was otherwise thought to be final and unchallengeable. In the past, the government used Section 2401 of the AIA to avoid legal challenges to regulations.
Expect more lawsuits
We can expect more lawsuits due to the uncertainty this creates Runner And Corner post. Taxpayers may now be able to challenge regulations that were finalized ten or twenty years ago and are thought to be immune to such challenges. Courts are no longer required to defer to the IRS’s interpretation of regulations. Taxpayers can now more easily argue for meanings other than those asserted by the IRS.
We can be sure that we are in for some interesting times.
Taxpayers with well-reasoned positions based on case law or other authority may now be more willing to pursue positions that conflict with IRS regulations. In the event of a dispute, the judge can more easily accept an opposing position. This even applies to regulations that have been in place for years.
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