Key Supreme Court Decisions Impacting Tax Professionals in 2023-2024 Session

The latest session of the Supreme Court brought significant decisions that directly impact the realm of tax law. Here’s a concise look at the major cases and their implications:

The Moore Case

The Moore case decision on June 20, 2024, garnered substantial attention among tax professionals. The Supreme Court upheld, by a 7-2 majority, that the mandatory repatriation tax (MRT) introduced by the Tax Cuts and Jobs Act is constitutional.

Key Takeaways:

• Background: Charles and Kathleen Moore owned a 13% stake in an Indian corporation. Despite not repatriating earnings to the U.S., they were taxed under the MRT, which they contested as unconstitutional.
• Supreme Court’s Decision: Congress did not overstep its authority with the MRT, as stipulated under Code Section 965.
• Implications: This ruling maintains that even unrealized foreign earnings can be taxed, emphasizing the importance of understanding tax liabilities on overseas investments.

The Connolly Decision

On June 6, 2024, the Supreme Court ruled unanimously in the Connolly decision, which centered around federal estate tax and life insurance proceeds used to redeem shares in a closely held family business.

Key Takeaways:

• Background: Michael and Thomas Connolly owned a family business with a buyback agreement funded by life insurance. When Michael died, the IRS included the life insurance proceeds in the estate’s valuation, leading to additional estate taxes.
• Supreme Court’s Decision: The value of life insurance proceeds increases the corporation’s fair market value and should be included in the estate’s valuation.
• Implications: This highlights the importance of careful planning in buy-sell agreements and considering cross-purchase agreements to avoid similar issues.

Overturning the Chevron Deference

On June 28, 2024, the Supreme Court overturned the longstanding Chevron deference, changing how administrative agencies’ interpretations of laws are reviewed.

Key Takeaways:

• Background: The Chevron deference allowed agencies significant leeway in interpreting laws. The recent Loper Bright Enterprises v. Raimondo case led to the 6-3 decision to overturn Chevron.
• Implications: Agencies now have a higher burden to prove their authority in creating rules, which could lead to increased litigation and judicial review. Tax professionals should stay updated and seek additional legal guidance when relying on agency regulations.

These decisions underscore the importance of staying informed and proactive in understanding their implications for tax practices and client advisement.