Potential effects of Loper Bright and Corner Post on tax practitioners

On this episode of the JofA podcast, Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA, explains some of the tax-related repercussions of recent Supreme Court decisions. One case could have a dramatic effect on future rulemaking, and the other could have a decades-long retroactive effect.

On June 28, the Supreme Court overturned its decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), holding that the Administrative Procedure Act (APA) requires courts to exercise their independent judgment in determining the meaning of statutory provisions, and courts may not defer to an agency’s interpretation of the law just because a statute is ambiguous (Loper Bright Enterprises v. Raimondo, No. 22-451 (6/28/24)).

On July 1, the Supreme Court decision expanded the time frame to sue federal agencies, holding that the six-year statute of limitation for lawsuits challenging regulations does not start to run until a plaintiff is injured by final agency action (Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008 (7/1/24)).

What you’ll learn from this episode:

• Background on the Loper Bright and Corner Post decisions.
• Why Lauridsen said that one of the rulings was unexpected.
• Why Sec. 6045 broker regulations could now be “vulnerable.”
• The reasons that, according to Lauridsen, the Loper Bright decision will not likely affect beneficial ownership information reporting requirements.
• How legislators on Capitol Hill have reacted to the decisions.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is your host, Neil Amato. On today’s episode, I’m going to discuss two recent Supreme Court decisions with an AICPA tax leader. We’re going to delve into those decisions right after this brief sponsor message.

Welcome back to the show. I’m joined for this episode by repeat guest Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA. Melanie and I are going to discuss, as I mentioned, two recent Supreme Court decisions and their possible effects on the accounting profession.

Melanie, first, welcome back to the JofA podcast. We’re glad to have you here today.

Melanie Lauridsen: Glad to be here.

Amato: Great. Now, as I said, two recent decisions have some potential to significantly affect the accounting profession. First, what are those decisions specifically, and what is a little of the background on each?

Lauridsen: The court cases you’re talking about are the Loper Bright and the Corner Post cases. Now, the Loper Bright case, it overturned a 40-year-old decision guiding lawsuits that challenged federal regulations. Now, the Loper Bright case, in my opinion, will mainly affect future rulemaking. The Corner Post case determined that the statute of limitations surrounding existing regulations did not start when the regulations were enforced. This will affect existing rules, which may go back decades.

Now, let me give you a little bit of the background because I do believe that it helps to understand the court decisions. Loper Bright: In 1984, the Supreme Court issued a decision in which Chevron challenged a regulation by the EPA, Environmental Protection Agency. And Chevron won, allowing government agencies to interpret legislative statutes where there was ambiguity.

Amato: And that means judges would have to defer to agency interpretations of ambiguous statutes.

Lauridsen: This is known as the Chevron deference. Fast-forward to the Loper Bright case, where there was a fisherman that was disputing a regulation that demanded that the fishermen pay for an observer to be on the boat that ensured compliance with the regulations.

Long story short for the fishermen, they weren’t making that much money anyways and then to pay for an observer, it was really cutting into their pockets. But the case really was not about the fishermen, it was really about disputing the Chevron deference doctrine. In this case, the courts actually determined that judges no longer needed to defer to an agency’s interpretation of the laws where the law was ambiguous. Again, this ruling, it was not a surprise. The courts also decided to not reopen an estimated 18,000 court decisions that had relied on the Chevron deference.

Now, there’s Corner Post. The Corner Post case is a case against the Federal Reserve regarding capped interchange fees for a regulation that was issued in 2011. Now the business, Corner Post, was incorporated in 2017, and it opened for business in 2018. Previously, the courts held that agencies had a six-year statute of limitations where they could be challenged. In the Corner Post case when the damages occurred, keep in mind that regulation was 2011, but they didn’t go into business until 2018.

The damages didn’t occur until after the six-year statute of limitations, so Corner Post went ahead and sued and they appealed their case. The judges actually ruled that the six-year statute of limitations would not start until a plaintiff was injured, not when the regulation was issued or enforced. The reversal of Corner Post has big impacts, and it also was unexpected.

Amato: Thank you for that summary on the two cases. We’ll come back to Corner Post in just a bit. I want to focus on the Loper Bright case. Specifically, looking ahead, what do you think are the effects that that case might have on tax regulation?

Lauridsen: Really, there’s a myriad of regulations that could come under legal challenge, and they can also receive a hefty review and pushback from the federal courts. Lawmakers are now going to have to craft legislation with an eye to ensure that rulemaking can stand up to challenges. This may mean that legislators may have to grant explicit authority to government agencies and also be more explicit in what their intentions are. What does this mean for the IRS? IRS regulations such as the partnership basis-shifting or the Sec. 6045 broker regulations, which recently came out, they’ve now become vulnerable.

Now, federal judges, like I said, they no longer are required to defer to the IRS’s interpretation. Though, a judge may give weight to the IRS’s expertise and experience, so they can still take into account what the IRS and Treasury have put forth as regulations. Now, the IRS will also have to be very careful to stay within the bounds of the law because, again, they could be challenged moving forward.

Amato: Obviously, one of the reasons you’re in advocacy is to assist members. I know you get a lot of questions about this from members, but one of those, I guess, is, what does Loper Bright mean for the future of BOI, or beneficial ownership information, reporting requirements?

Lauridsen: That’s a good question. I get asked that a lot because a lot of people are hoping that it’ll be thrown out, or the delay will kick in, or something will happen with that. But, unfortunately, BOI, if you look at its origins, comes through the Corporate Transparency Act. When the law was put out, it was very explicit and very clear in certain objectives that they were wanting. For example, with beneficial ownership information, there were 23 exemptions. The Corporate Transparency Act actually spelled out those 23 exemptions. There’s nothing that can be challenged, and it isn’t up for FinCEN to determine if there could be more exemptions or not.

Having said that, FinCEN was also directed to determine a reasonable amount of reporting. FinCEN actually went through the steps of having an open comment period, getting feedback. Originally, when FinCEN had come out with their proposed regulations, when they were looking at updated or corrected filings for the IRS, they had proposed 15 days, but thanks to that comment period, they actually changed it to 30 days.

Now, a lot of our membership feels that that 30-day [period] is really unreasonable, and I actually agree that it is unreasonable. We were actually talking with FinCEN about changing that. Those 30 days were up to FinCEN’s discretion. Could there be a challenge with that aspect of the BOI reporting requirements? Yes, there could. But at the same time, FinCEN did go through the proper steps and channels to get to that 30 days.

That is where there is some ambiguity that can be challenged. But for the most part, the Corporate Transparency Act that pushes out the BOI rules, that really won’t be challenged.

Amato: Now, obviously, you’ve touched on it, but Loper Bright is more what happens going forward. On Corner Post, there’s a little more of a retroactive effect to it, I guess. What’s the significance of that, and what more can you tell me about it?

Lauridsen: Corner Post is really a big issue for tax regulations because it’s known and we are aware that Treasury has some old regulations which were not procedurally compliant. That means they can absolutely be challenged. But this also means that older, long-term existing regulations — in other words, regulations that people have been bound by, say something by 20 years that they accept as what it should be and there’s no questions about it — those regulations could be challenged today.

If someone were to be injured today, the statute of limitations didn’t start 20 years ago when that regulation was implemented and enforced, but it could start today, and so that brings a lot of ambiguity and uncertainty to us.

Amato: This has been great information, but I guess I’ll ask a new question this way. Why should CPAs be concerned? Or do they have little or nothing to worry about?

Lauridsen: Well, Neil, I think the two court cases bring a lot of uncertainty. CPAs do not like to work in a world of uncertainty. This is very hard, and it’s not just hard for CPAs. It really is just hard for a lot of people. At the moment, there are no immediate impacts since everyone really is trying to figure out exactly what this means. When I say everyone, I mean legislators, regulators, and, of course, our membership. For example, on July 10, the House of Representatives leadership and committee chairs sent over 40 letters to various departments and agencies in the wake of the Chevron reversal.

They were asking questions such as, what’s the list of pending rules? What about the final regulations that have yet not been challenged in a court case or pending regulations that have relied on Chevron deference? There’s still a lot of uncertainty. At this moment, I would say we need to sit tight and, in due time, we’ll have a better understanding of the implications of these two court cases because it’s not just our membership. Like I said, everyone is trying to get a grasp as to what needs to happen and how they can move forward.

Amato: How is the AICPA tax advocacy team addressing these cases, and what are the implications on that advocacy approach?

Lauridsen: Like everyone else, we immediately, when the Chevron case and the Corner Post case came through, we immediately started having conversations to try to understand these implications. We’ve also reached out to the IRS and [Capitol] Hill members and other stakeholders, trying to get responses because, ultimately, we can have certain interpretations, but we need more guidance as to how to move forward. But I don’t think anyone has a full understanding, like I said, but we are prepared to move forward as needed.

I think those who work in advocacy understand, and they’re used to things moving quickly. They also understand on how to pivot as needed. In a nutshell, I would say the implications for our approach to advocacy, I don’t think it’s going to change that much because we’re going to continue to monitor and look out for what’s best in the interests of the membership in the profession and pivot as we need to.

Amato: Melanie Lauridsen, this has been great. Anything you’d like to add in closing?

Lauridsen: I think it’s a tough time. I think people just need to have an understanding, and we need to sit tight to see how things pan out.

Amato: Thank you, Melanie. For this episode, we’ll post related resources, including JofA coverage and any other advocacy resources. Again, thanks for being on.