MEDIA ALERT — Recent Supreme Court of the United States decisions have taxpayer implications that tax & accounting professionals should consider

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–(BUSINESS WIRE)–Wolters Kluwer Tax & Accounting (AEX:WKL):

What: The Supreme Court of the United States (SCOTUS) ended its 2020/2021 term at the end of June with the usual flurry of end-of-term decisions. While SCOTUS usually does not hear a lot of tax cases, a few of its recent decisions at least touched on tax issues. The cases involved deference to Internal Revenue Service (IRS) regulations and pronouncements, state taxation of remote workers, and the Affordable Care Act.

Why: SCOTUS decisions represent the final level of review for a particular issue and, therefore, become important precedent in future IRS and judicial actions involving same or similar tax issues.

IRS Regulations, Rulings and Other Pronouncements

  • The IRS issues many forms of guidance possessing different levels of authority, with regulations having the highest authority and notices a lower level of authority
  • The IRS issues both legislative and interpretive regulations, with only legislative regulations generally considered required to meet the notice and comment requirements of the Administrative Procedures Act
  • The Anti-Injunction Act also prohibits initiating any challenge to an IRS position in federal court before paying the tax and filing a claim for refund action
  • The case of CIC Services, LLC v. Internal Revenue Service involved a company that was engaged in facilitating micro-captive insurance transactions, and the IRS had issued Notice 2016-66 imposing significant reporting requirements involving micro-captive transactions, with possible civil and criminal penalties for noncompliance
  • CIC Services, LLC filed suit to challenge the reporting burdens of the law, and the IRS took the position that the notice could not be challenged until a civil penalty was asserted, which is considered a tax
  • SCOTUS sided with CIC Services, LLC on the basis that the burdensome reporting requirements were being challenged, not the tax; CIC Services, LLC said that they would comply with the notice until it was overturned, so a civil penalty was unlikely to ever be asserted; and taxpayers were unlikely to not comply with the notice due to the additional threat of criminal penalties

State Income Taxation of Remote Workers

  • During the COVID-19 pandemic, Massachusetts enacted tax regulations which stated that workers who had normally worked in Massachusetts prior to the pandemic but were temporarily working out-of-state must continue to pay Massachusetts taxes during the remote work period
  • Some other states, including New York, also have requirements that workers pay taxes where the employer is located
  • New Hampshire, which does not have a state income tax, had asked SCOTUS to take a challenge to Massachusetts regulations as a case of first impression, without prior proceedings in the lower courts
  • SCOTUS refused to take this case without explanation, leaving the Massachusetts regulations still in place
  • It may still be possible to challenge such state statutes and regulations, but the process will probably have to start in the lower courts and take time to resolve

The Affordable Care Act

  • SCOTUS had previously upheld the Affordable Care Act on the basis that the individual mandate imposed on individuals for failing to obtain health insurance was a tax within the US Congress’s taxing power
  • Congress subsequently reduced the individual mandate to zero
  • Texas, other states, and a couple of individuals filed suit to declare the Affordable Care Act unconstitutional with the individual mandate reduced to zero by Congress
  • In its ruling, SCOTUS held that Texas and the other plaintiff states and individuals did not have standing to bring the case since, with the individual mandate at zero, they could not show any harm that they incurred as a result of the Affordable Care Act
  • SCOTUS decision leaves the Affordable Care Act in place and makes future challenges to its constitutionality more difficult

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help discuss the implications of these recent SCOTUS decisions on taxpayers.

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.


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