Over the years, the circuits have split on how to interpret the statute of limitations for bringing a facial challenge to a regulation or other agency action under the Administrative Procedure Act (“APA”). Yesterday, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, the Supreme Court held that the APA’s six-year statute of limitations begins to run when the injury is suffered, not when the challenged agency action becomes final. The Court reversed the Eighth Circuit, which had joined the Fourth, Fifth, Eighth, and Ninth Circuits, as well as the Federal Circuit and D.C. Circuit. As a result, taxpayers will be able to challenge Treasury regulations, no matter how old, as part of their legal strategy during deficiency or refund proceedings.
Writing for the majority, Justice Barret explained that the APA’s judicial review provisions include an injury-in-fact requirement. Thus, an APA action does not “accrue” under the general statute of limitations (28 U.S.C. § 2401(a)) until the regulation or agency action at issue harmed the party. Because the plain language of Section 2401(a) starts the limitations period when “the right of action first accrues” rather than when a rule becomes final, the majority reasoned that Congress intended that the “statute of limitations begins to run at the time the plaintiff has the right to apply to the court for relief,” and not before.
Justice Jackson, joined by Justice Sotomayor and Justice Kagan, warns that “The tsunami of lawsuits against agencies that the Court’s holdings in this case and Loper Bright [Enterprises v. Raimondo] have authorized has the potential to devastate the functioning of the Federal Government.” In Loper Bright, the Supreme Court did away with Chevron deference, creating new opportunities to challenge the substantive validity of regulations. Corner Post ensures that taxpayers have a vehicle to raise these challenges in current and future tax controversies.
Of course, Congress might also impose deadlines that are tied to final agency action rather than injury, as it has done with the sixty-day periods under the Occupational Safety and Health Act and the Hobbs Act. The dissent invites this, noting in the final sentence that the ball is now in Congress’s court to prevent “fresh attacks on settled regulations from all newcomers forever.” Until then, the regulatory landscape has changed dramatically, opening new avenues to challenge any regulations on which the Government relies. This is particularly significant to taxpayers and tax practitioners: because our system of taxation is driven by regulations that fill in the gaps Congress has left in its legislation, there are opportunities to make Corner Post and Loper Bright part of their legal strategy in many tax controversies.
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