Tax News & Views Declares Independence from Chevron and UFOs Roundup

Eide Bailly offices are closed the rest of this week for the Independence Day holiday. Regular programming resumes July 8. Have a glorious 4th!

Supreme Court Opens Door to APA Challenges of Older Tax Regs - Kristen Parillo, Tax Notes ($):

Taxpayers may get new opportunities to challenge older tax regulations after the Supreme Court held in a nontax case that the six-year time bar for Administrative Procedure Act facial challenges doesn’t start until a plaintiff is injured.

In a 6-3 decision in Corner Post Inc. v. Federal Reserve, the Court on July 1 reversed and remanded a 2022 Eighth Circuit ruling on the point at which a right of action for bringing APA facial claims against final agency rules starts accruing for purposes of the general six-year statute of limitations on civil actions against the United States under 28 U.S.C. section 2401(a).

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“A claim accrues when the plaintiff has the right to assert it in court — and in the case of the APA, that is when the plaintiff is injured by final agency action,” Justice Amy Coney Barrett wrote in the majority opinion.

As long as there are taxpayers newly-affected by an old regulation, challenges may be possible. That may matter more because of the other big new administrative law holding from the court, last week's Loper Bright ruling.

IRS Rulemaking Authority on Shaky Ground With Chevron Overturned - Erin Slowey and Chris Cioffi, Bloomberg ($):

The IRS’s most controversial regulations are more vulnerable to litigation after the US Supreme Court overturned a legal doctrine empowering federal regulators, as companies and individuals seek a fair shake from the agency.

The ruling is expected to prompt a stream of litigation in areas—ranging from syndicated conservation easements to health insurance subsidies—where the IRS and Treasury Department stretched their regulatory authority and already are facing court challenges.

But that doesn't mean the IRS is toast:

“When it comes to IRS interpretations of statutes, most IRS interpretations are not all that controversial and don’t give rise to extensive litigation,” said Kristin Hickman, a University of Minnesota law professor who specializes in tax and administrative issues.

Prof. Hickman says that regulations that passed court scrutiny before Loper Bright are likely to do so now.

High Court's 1-2 Punch Sets Up Long-Standing Regs For KO - Jeff Overley, Law360 Tax Authority ($):

Monday's opinion in Corner Post v. Board of Governors of the Federal Reserve System looked at Administrative Procedure Act cases and held that a six-year window to sue doesn't start closing until a rule harms someone, even if the rule became final decades earlier. Friday's opinion in Loper Bright Enterprises v. Raimondo overturned the Chevron doctrine , which for 40 years required judicial deference to regulatory interpretations of ambiguous laws.

"Corner Post opens the door to a fresh round of litigation challenges to agency regulations," Covington & Burling LLP partner Kevin King told Law360 on Monday. "That procedural opening is a particularly big deal when combined with Loper Bright, because regulated parties will now be able to challenge some older regulations under the new, more stringent and less-agency-friendly framework."

The Supreme Court Pronounces the Demise of Deference - Jack Townsend, Federal Tax Procedure. "The Court recognizes that Congress can delegate interpretive authority to an agency. See Opinion of the Court pp. 17-18. The delegation of authority cannot be an implicit one such as Chevron deference implicit assumption as a justification for deference. (Some such delegations may go beyond merely interpretive authority and be legislative authority for the agency to actually make the law rather than just interpret the law.) Surely, in such cases where a court will recognize a congressional delegation of interpretive authority, something like a Chevron deference framework will necessarily apply to test the validity of the agency interpretation."

Immunity Ruling Sparks Concern on Audits Requested by Presidents - Benjamin Valdez, Tax Notes ($):

The Supreme Court’s ruling that former President Trump can’t be prosecuted for “official acts” ignited concerns among tax lawyers and academics that the IRS could be more easily wielded as a tool against political opponents.

The decision raised questions about what constitutes an official act and whether it could open the door to abuses of power by federal agencies, including the IRS.

It is a felony for the president, vice president, or any of their employees — except the attorney general — to direct the IRS to audit a taxpayer or cancel an audit.

IRS requires strict IRA documentation; gets ready to accept plastic.

We’re All Labor Lawyers Now: Decoding the Final Prevailing Wage Regs - Marie Sapirie, Tax Notes ($):

The prevailing wage and apprenticeship rules embedded in the energy tax provisions of the Inflation Reduction Act are key features of many of the credits. Although they’re technically optional for taxpayers seeking energy credits, is anyone really going to settle for a 6 percent credit when a 30 percent credit is available? Certainly not. And that means it’s critical to satisfy the rules, which are based on the Davis-Bacon Act. Figuring out the details of compliance has become increasingly important for new projects now that final regulations (T.D. 9998) have established the parameters for implementation. The final rules include some taxpayer-favorable changes but squelch any hope taxpayers may have had that the documentation requirements would be less stringent. Existing contracts may need to be renegotiated to ensure compliance with the new rules.

IRS Floats Taking Tax Payments Directly By Credit Card - Anna Scott Farrell, Law360 Tax Authority ($):

Taxpayers using credit cards could sidestep third-party payment processors and make tax payments directly to the IRS under regulations the agency proposed Monday that align with the Taxpayer First Act.

In a notice of proposed rulemaking, the Internal Revenue Service proposed amending U.S. Treasury Regulation Section 301.6311-2 to implement changes to the Internal Revenue Code made by the Taxpayer First Act in 2019. The act lifted a bar prohibiting the IRS from paying fees related to receiving payments by credit or debit card.

California apportionment and tiered partnerships

California Taxed Right Share of Business Income, Panel Rules - Perry Cooper, Bloomberg ($):

Blau owned Yukon Holdings LLC, which had a partial ownership interest in The Related Cos., (TRC) a limited partnership that generated pass-through income from other partnerships including Related General IV LP. Yukon reported to the federal government a net gain of $85.5 million, and reported that 10% should be apportioned to California.

The state determined that $80.3 million of the $85.5 million was business income subject to apportionment, and used the 10% apportionment percentage to determine that Blau had additional California-source income of $8.08 million for the 2011 tax year, resulting in an additional income tax assessment of $650,000, plus interest.

The three-judge panel rejected Blau’s argument that his net gain business income should be apportioned to California using TRC’s apportionment factor of 9.25% instead.

Pillar 1 OECD deadline ignored

OECD Tax Chief Affirms Pillar 1 Progress As Deadline Passes - Dylan Moroses, Law360 Tax Authority ($):

Negotiations continue on Pillar One at the Organization for Economic Cooperation and Development even after a deadline passed to release the final text of a multilateral convention to establish the project's taxing right known as Amount A, the director of the OECD's tax policy office said Monday.

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For the Amount A taxing right to take effect, which reallocates a share of tax payments to countries where large multinational corporations have customers but lack a physical presence, the U.S. must sign and ratify a multilateral convention. The U.S. treaty process requires a two-thirds vote in the Senate to provide advice and consent regarding the convention to the executive branch, which is responsible for executing the treaty. Legislative changes to implement the taxing rights overhaul that require House of Representatives and Senate approval would likely also be necessary.

Getting two-thirds of the Senate to approve ceding taxing rights to other countries may be difficult, to say the least.

Blogs and Bits

July tax moves, from shopping to decluttering to getting storm ready - Kay Bell, Don't Mess With Taxes. "Get ready for disastrous weather. Even though I’m a weather nerd, and forecasters warned that this could be the busiest Atlantic hurricane season ever, I hadn’t planned on this being the first July tax move. But it’s looking like weather watchers might be right, so here we are."

IRS Reminds Cannabis Businesses That IRC §280E Continues to Apply as Marijuana Remains a Schedule I Drug for Now. - Ed Zollars, Current Federal Tax Developments. "The IRS has released IR-2024-2024-177 reminding taxpayers that marijuana remains a Schedule I substance for now, and that IRC §280E continues to apply until such time as the drug is removed from that schedule when and if the Justice Department finalizes the proposed rule."

Sec. 280E allows businesses selling Schedule I drugs to only deduct cost of goods sold. That means wages, rents, taxes, and other business expenses outside of inventory purchases are non-deductible.

National Taxpayer Advocate Releases Fiscal Year 2025 Objectives Report to Congress - Erin Collins, NTA Blog. "Now, the not good news: Despite these improvements, the IRS has fallen behind on processing Identity Theft Victim Assistance cases. As of April 2024, there were approximately 500,000 unresolved cases in inventory that the IRS was taking more than 22 months to resolve, followed by several additional weeks to issue refunds. The IRS must prioritize assistance for these victims and address their problems quickly. Other challenges remain with the way the IRS allocates its resources, the Level of Service it provides through phone lines, and the plan to transform its operations, as the report discusses."

How IRS Taxes Legal Settlements And Legal Fees Surprises Plaintiffs - Robert Wood, Forbes. "The tax treatment of litigation damages is varied and complex. Even worse, in some cases, legal fees can't be deducted. That can mean paying tax on 100%, even if 40% off the top goes to your lawyer, unless you qualify for one of the ways to deduct legal fees under new tax law."

Remember, it's Congress, not the IRS, that writes these rules.

IRS issues final regs. on reporting requirements for digital assets - Martha Waggoner, The Tax Advisor. "The regulations, issued Friday, require custodial brokers to report certain sale and exchange transactions beginning in 2026 for transactions in calendar year 2025. The transactions will be reported on Form 1099-DA, Digital Asset Proceeds From Broker Transactions, which the Service will release later."

Tax Policy Corner

Latest CBO Projections Highlight Fiscal Challenge of Full TCJA Extension - Nicolo Pastrone and Erica York, Tax Policy Blog. "As lawmakers consider ways to rein in budget deficits, they should recognize that higher taxes come with trade-offs: less economic growth, business investment, and employment. Now is the time for lawmakers to pursue long-term fiscal sustainability, but primarily through reduced government spending, not increased taxes. However, to the extent that a deficit reduction package includes modest tax increases, a better-designed tax system should be the goal."

Take Trump Seriously When He Says Tariffs Will Pay For Tax Reform - Joseph Thorndike, Forbes. "The tariff contribution to total revenue doesn’t have to reach antebellum levels to still make an impact on tax reform debates. If we take Trump seriously — and it seems clear that we should, given the number of times he has made the pay-for promise — then trade policy is about to become an important issue in tax policy."

It doesn't hurt to ask, does it?

Tennessee man arrested for wire fraud, money laundering, and making a false claim to the IRS - IRS (Defendant name omitted, emphasis added.):

According to the indictment, between January 1, 2019, and February 22, 2021, Defendant devised a scheme to defraud the IRS. As part of the scheme, he electronically submitted a false tax return to the IRS for a trust. Defendant falsely reported that this trust had overpaid the IRS $4,159,229. He then received a $4,197,981.28 refund from the IRS based on the fraudulent representations he made on the tax return. Afterward, Defendant used the refund money in transactions with title companies and a car dealership, including the purchase of four real properties in Chattanooga, Tennessee.

I suspect cheap used cars were not involved.

It seems like it shouldn't be quite so easy to get the IRS to cut you a $4 million check.

What day is it?

In addition to the anniversary of the approval of the Declaration of Independence - which is officially celebrated on Thursday - it is also World UFO Day. Beam me up.

Tax News & Views Declares Independence from Chevron and UFOs Roundup

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Joe B. Kristan, CPA