Immediately following Justice Kennedy’s July 31, 2018 announcement of his retirement, Brett Kavanaugh, a prominent conservative D.C. Circuit Court judge, received a call from the President. This marks Donald Trump’s second opportunity to appoint a Supreme Court Justice.
Since his nomination on July 9, 2018, Kavanaugh has been the subject of extensive speculation as to the impact he could have on America’s highest court. In this post, we will briefly outline his judicial approach and his holdings in a few tax-related cases.
Kavanaugh’s judicial approach
A Constitutional Conservative, Kavanaugh has stated that “judges must interpret the Constitution as written, informed by history and tradition and precedent.” With a judicial approach that resembles that of the late Justice Antonin Scalia, Kavanaugh’s rulings have demonstrated a strong adherence to separation of powers principles (“changing policy… is for the legislatures”), and an ongoing “push back” on administrative agencies. He is clearly pro-business and anti-regulation, having overruled federal regulators on numerous occasions on a wide variety of issues.
Kavanaugh on taxes
Kavanaugh’s distrust of federal regulation may benefit those who are fighting IRS overreach. For example, in Loving vs IRS (2014), three independent tax return preparers challenged IRS regulations requiring that they (1) pass a certification exam, (2) pay an annual fee, and (3) complete 15 hours of continuing education annually. The tax return preparers argued that by attempting to establish a mandatory nationwide licensing system, the IRS exceeded its authority under 31 U.S. Code § 330. The district court agreed, and on appeal the case was affirmed by Kavanaugh, who found that “the IRS’ statutory authority under Section 330 cannot be stretched so broadly as to encompass authority to regulate tax-return preparers.” By invalidating the regulations in Loving, Kavanaugh prevented the IRS from getting into an area outside its jurisdiction (tax collection and enforcement of the Internal Revenue Code) – and from interfering further in what is essentially the job of Congress (making new laws).
On the other hand, Kavanaugh’s broad view of 26 U.S. Code § 7421, the Anti–Injunction Act (AIA), will most likely limit taxpayer challenges, particularly to new tax laws. For example, Florida Bankers Assn. v. United States (2015) involved a challenge to an IRS regulation that penalized commercial banks and savings associations for failing to report interest-earning accounts of foreign account-holders. Kavanaugh barred suit in that case, holding that the AIA applied. His reasoning was that “the suit, if successful, would invalidate the regulation and thereby directly prevent collection of the tax.”
In Seven-Sky v. Holder (2011), the D.C. Circuit Court of Appeals held that the AIA, which bars pre-enforcement challenges to the assessment and collection of taxes, did not apply since Congress specifically labeled the ACA’s shared responsibility payments as a “penalty” and not a “tax.” Kavanaugh wrote the dissent in that case, arguing that since Congress did not create an exception that permits pre-enforcement suits that challenge the constitutionality of the Affordable Care Act, pressure from the health insurance industry to uphold it should not override the text of a statute that limits the court’s jurisdiction in such cases.
Many argue that Kavanaugh’s insistence on being able to demonstrate that harm was suffered as a result of legislation before challenging it could make it difficult for taxpayers to challenge problematic new tax laws and regulations that have not yet taken effect. Regardless of everyone’s thoughts on his approach (and his politics), he has superb credentials and is likely to be confirmed for a new, lifetime position.
San Francisco tax attorneys
The tax attorneys at Moskowitz, LLP represent clients against IRS, State, Department of Justice and tax-related regulators. We provide our clients a personalized and realistic solution to their tax issues. Contact our California offices today.