The recent Supreme Court case Loper Bright Enterprises v. Raimondo and its companion case Relentless v. Department of Commerce will have important ramifications for estate planning in general. The cases particularly address the tax ground rules that apply to retirement preparation, estate planning, and more. While it may be tempting to deem the ruling too technical, having a basic understanding is important in understanding how conflicts related to these taxes will be handled moving forward. The change in policy marks a radical shift in the handling of these complex tax issues. In particular, the ruling changes how courts will handle ambiguous tax laws. Previously, courts would always defer to the interpretation of these ambiguous laws offered by government agencies, but now they will be empowered themselves to provide interpretation.
The Loper Bright decision is important because of the sheer number of tax laws that are written in an unclear manner. While this is not the intention of the lawmakers, language must frequently be interpreted. Previously, if the Treasury Department made an interpretation of the law in question in Regulations, courts were obligated to defer to that meaning when making a ruling. In the wake of Loper Bright, this is no longer the case, and the courts themselves can make an interpretation of the law even if one has already been made by a government agency. In effect, this gives the courts much greater power in directing how complex taxation questions get addressed in the United States and could mean that prior issues related to estate planning will no longer be a problem depending on how courts choose to interpret the law.
The Impact of Loper Bright on Tax Law Decisions
Prior to Loper Bright, the Chevron Doctrine was the guiding rule. This doctrine refers to a landmark case in which the Supreme Court ruled to give deference to Regulations that had been issued by government agencies to interpret ambiguous laws. This case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, held that the Internal Revenue Service (IRS) and other similar federal agencies would need to conform to clear legislative statements when interpreting and applying a law. If the agency did this, then the courts would give deference to the agency in interpreting the law provided that the interpretation is reasonable in resolving legislative ambiguity. Under the Chevron Doctrine, authority was given to the guidance issued by administrative agencies. With the decision of Loper Bright, the Supreme Court is reclaiming this authority.
To defend the Loper Bright decision and overturn the Chevron Doctrine, the Supreme Court pointed to the Administrative Procedure Act, which holds that courts must exercise independent legal judgment when deciding whether or not Regulations issued by government agencies are within their authority. This means that courts should not simply defer to an agency’s interpretation when a given statute is ambiguous, but rather come to its own conclusion and compare that to the one issued through a Regulation. If a discrepancy exists, then the court decision will actually trump the interpretation of the regulatory body, which keeps the power of these agencies in interpreting ambiguous legislation in check. This newfound authority could have significant ramifications for Americans as they plan for the future and create their estate plans.
What This All Means for Estate Planning and Retirement
In the estate planning process, people may find that the IRS challenges a tax position that they took. Moving forward, a Regulation from the IRS that supports its interpretation of the legislation in the position that you took no longer guarantees that the IRS will win should the matter go to court. The courts may decide not to give deference to the Regulation if judges feel that the statute interpretation is not reasonable or that a person’s interpretation of the statute is just as reasonable. If the courts interpret the statute differently, that can have a resounding effect on how someone approaches estate planning and even simply retirement preparation in terms of taxation. This decision may also mean that changes to Regulations occur when administrations shift since deference is not guaranteed, which could also have an impact on estate planning.
The other point to consider is that the IRS may seek more input from taxpayers in terms of authoring Regulations considering that courts will no longer give deference to the agency’s interpretations. Provided that taxpayers make reasonable suggestions, it seems likely that the IRS will seek out these opinions to avoid going to court and potentially having its position undermined. Moreover, if a dispute does end up in court, the IRS is more likely to win if it can point to the opinions of taxpayers themselves in justifying the position that it took. However, it is also important to remember that the Treasury and IRS officials will likely have more expertise in taxation than the courts, so some judges may still choose to give deference to those agencies.
If you think this will have immediate ramifications for you, you should get in touch with your financial adviser as soon as possible to discuss next steps.