The recent Supreme Court decision in the Loper Bright case will have a lasting impact on tax practitioners. The ruling overturned the Chevron doctrine, which previously required courts to defer to federal agencies’ reasonable interpretations of ambiguous statutes.
“This ruling allowed federal agencies, such as the Treasury and the Environmental Protection Agency, to effectively create their own laws, as long as their interpretations were reasonable,” explained Dave Gair, head of the tax controversy practice at the law firm Locke Lord. “Courts were generally deferential to these agencies, enabling them to implement rules not explicitly stated in the law. This created uncertainty for businesses and individuals, especially as interpretations shifted between administrations.”
“For instance, the Environmental Protection Agency’s stance on fossil fuels changed significantly from the Trump administration to the Biden administration,” he noted. “These changes led to unpredictable tax compliance and planning.”
As a result, many existing regulations may now be invalid, creating more opportunities for legal disputes among tax practitioners. “We might see a ‘Wild West’ scenario where previously established rules, like those on partnership audits, may no longer be applicable,” said Gair.
Changing Priorities
The Chevron decision is just one of several significant changes in the tax landscape, according to Gair.
Increased IRS funding from the Inflation Reduction Act has enabled the Biden administration to hire more staff. “At tax conferences, you might see IRS booths recruiting attorneys and CPAs,” Gair said. “This is part of the administration’s effort to ensure tax compliance fairness by focusing on high-income earners, partnerships, and promoters of abusive tax shelters. Previously, there was more emphasis on low-income taxpayers and preparers exploiting the Earned Income Tax Credit.”
“Currently, the IRS is examining 75 of the largest publicly traded partnerships, including hedge funds, real estate investment partnerships, and large law firms,” Gair noted. “There is also a growing focus on cryptocurrency and other digital assets. Most IRS forms now include sections about crypto, as studies suggest a 75% noncompliance rate among cryptocurrency owners, indicating potential tax evasion.”
The government is also targeting high-income nonfliers with offshore accounts to avoid taxes. Identity theft remains a persistent issue.
Additionally, questions linger about the Employee Retention Credit (ERC), a pandemic-era measure to support struggling businesses. “Only a small percentage of ERC claims were valid, and many consultants who processed these claims took upfront fees and disappeared before claims could be denied,” Gair explained.