With its decision in Loper Bright Enterprises v. Raimondo, the Supreme Court ended a 40-year precedent established by the case of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. of giving deference to regulatory agencies in interpreting legislation such agencies administer. 

While neither of the cases is a tax case, the decision in Loper has broad implications for the tax regulations written and administered by the Department of the Treasury and the IRS as well as the agencies tasked with the regulation of the alternatives industry. 

Under Chevron, the examination of regulations was subject to a two-step approach: 

1. Determination of whether there is ambiguity in the statutory language, and if there is, 
2. Whether the regulatory agency provided a permissible interpretation of the statute. 

To the extent both conditions were met, agency interpretation of the statute would receive deference, even if the interpretation was not one that would have been reached by the courts. Over the years there has been a move toward making ambiguity in the statutory language a given, leaving the courts with the determination of the reasonableness of the interpretation by the agencies. 

Loper intends to return the task of determining the best (as opposed to permissible) interpretation of the legislation to the courts. The Loper decision has the potential to have widespread implications for tax regulations and administration and provide opportunities for taxpayers, while creating a more uncertain regulatory environment. As it relates to tax provisions relevant for alternative investment firms, two could be specifically impacted. 

Code Section 1061 was enacted by the Tax Cuts and Jobs Act of 2017 and is intended to limit carried interest earned by alternative funds managers taxed at preferential long-term rates to amounts earned from the sale of assets held for greater than three years. While simple on the surface, the details of getting the goal of the legislation accomplished are quite complex and were largely left to the regulations to work out. 

One of the exceptions provided for in the Code, by Section 1061(c)(4)(A), is the exception for carried interest held by a corporation. On its surface, by the plain reading of the statute, the exception means provisions of Section 1061 should not apply to carried interest held by a corporation. However, Regulation Section 1.1061-3(b)(2)(i) was published to interpret Section 1061(c)(4)(A) and provides that the exception should not apply to a corporation that has made an election to be treated as an S corporation or a passive foreign investment company that has made a Qualified Electing Fund election. 

While many commentators have expressed a view that exclusion of certain corporations from the definition of a corporation for purposes of Section 1061 by regulation is an overreach and is contrary to the plain reading of the statute, to date taxpayers have been reluctant to take positions contrary to the regulation or to litigate the matter. As with other positions taken contrary to regulation, taxpayers’ decisions with respect to the application of the Section 1061 regulations may need to be reexamined in light of the Loper decision. Without the same deference awarded to the Treasury’s interpretation of the legislative intent and the statute, the courts may take a broader view of what “corporation” means for purposes of Section 1061. And the government, for its part, may need to take legislative action if its true intent was to exclude certain corporations from the exception provided for in Section 1061. 

The other area to watch with particular interest for alternative asset managers is the saga surrounding regulations under IRC Section 1402(a)(13). Broadly, Section 1402(a)(13) exempts income earned by limited partners from self-employment taxes. The exemption has been relied on by alternative asset managers, most commonly structured as limited partnerships, to exempt large portions of their net management fees from self-employment taxes. The struggle to define “limited partner” for purposes of Section 1402 has been undertaken by the Treasury when it issued proposed regulations in 1997 and by courts on numerous occasions, but most recently in the case of Soroban Capital Partners v. Commissioner. 

The 1997 proposed regulations tried to provide a functional test to determine whether an individual was a limited partner for the purposes of Section 1402. These regulations were withdrawn after the Senate specifically expressed concerns that the proposed regulations exceed the regulatory authority of the Treasury and indicated that “Congress, not the Department of the Treasury or the Internal Revenue Service, should determine the tax law governing self-employment income for limited partners.” 

In the Soroban case, the court has chosen to continue pursuing the functional analysis in determining whether limited partners in asset managers were limited partners for purposes of Section 1402(a)(13), most recently ruling that they were not. The IRS, however, has included regulation under Section 1402(a)(13) on its priority guidance plan for fiscal year 2023-2024. The year ended June 30, 2024, and the plan for 2024-2025 fiscal year has yet to be released, but if the self-employment for limited partners guidance remains on the priority guidance list, and the IRS in fact undertakes the task of providing regulations defining a limited partner, there could be tension between what impact the Loper and Soroban decisions would have on the direction the IRS takes in its rulemaking. It also can cause further confusion for the principals of asset management firms (as well as other service-type businesses operating as limited partnerships) and serve as a reminder to Congress that it indicated that the guidance on the matter should come from them. 

While the Loper decision does not provide any clarity or guidance on the complicated and uncertain tax issues facing alternative asset firms, it might provide opportunities for taxpayers to refine and redefine their tax positions in cases where current or prospective tax regulations do not provide the best interpretation of the statute.

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Talent acquisition and retention is a growing challenge in the accounting profession. Despite efforts to raise salaries, and firms diving deeper into the realm of artificial intelligence to make up for staffing shortages, experts say widespread changes are needed to refocus the next generation of talent on the future of accounting — not the present.

To start, average starting salaries for those with accounting majors fall short of those offered to business majors and applicants in the technology and finance sectors.

Data from Accounting Today’s inaugural salary survey found that average annual wages are uncompetitive at $65,000 and $88,000 for entry-level staff and senior team members respectively. It’s not until reaching managerial roles that average salaries go beyond six figures at $106,000 at small firms and $121,000 for those working at large organizations.

“The industry as a whole is not attractive to the younger population, and it’s difficult for our staff to work remotely,” Paul Miller, a CPA and managing partner at Miller & Company in New York, said in an interview with Accounting Today’s Jeff Stimpson. “We pay our staff above [the] industry average, we offer excellent benefits, we have a matching pension plan [and] more importantly … we treat people well and respect our staff.”

Read more: Misconceptions and mismatches: Dealing with the staff shortage

Wage disparities are only one piece of the puzzle, however. 

Leaders of audit firms and accounting practices have taken to integrating traditional and generative AI tools into their organizations to handle the mundane tasks that normally plague professionals. The challenge then becomes, how can firms effectively use this technology without outmoding the entry-level positions that would otherwise handle the mundane?

Shagun Malhotra, CEO and founder of Skystem, told Accounting Today last month that modifying accounting education and certifications to include a greater focus on technology “could make the profession more appealing and relevant to a younger, broader set of professionals,” she said.

“The focus needs to shift from routine compliance tasks to strategic, technology-driven roles that still add value to the business without wasting time on [un]necessary tasks,” Malhotra said.

Read more: Do we need a paradigm shift to overcome the accountant shortage?

AI adoption will only continue to grow as regulators become more knowledgeable and comfortable with the technology, which executives hope will ease the workload for accountants across the profession and, in turn, reduce turnover.

“We’ve asked tax and accounting professionals to do too much with too few resources for too long. … The burnout shows through high attrition rates and professionals committing highly visible errors,” said Elizabeth Beastrom, president of Thomson Reuters Tax & Accounting.

Read on for a look at the top talent struggles hitting firms across the U.S. and expert commentary on what factors are underpinning this trend.

Five of the most important organizations in the planning profession are pushing for lawmakers to restore tax incentives for financial advice ahead of a massive potential deadline next year.

In a letter to the U.S. House Ways and Means Committee, the CFP Board, the Financial Planning Association, the Financial Services Institute, the Investment Adviser Association and the National Association of Personal Financial Advisors described the loss of a deduction for financial advice as “an unintended consequence” of the Tax Cuts and Jobs Act. The message last month came about six weeks before one of the most consequential elections for tax policy in recent memory will decide the fate of the many expiring provisions of the law.

READ MORE: Economists want to trash the QBI deduction. What will voters say?

The letter represents an area of agreement among wealth management trade and professional organizations that have split in other policy debates — such as the Biden administration’s rule expanding fiduciary duties to 401(k) rollovers and other types of retirement advice. The groups are just a few of the many that will be vying to get back their highly specific tax credits or deductions once the dust settles on the election and the next president and Congress work out what to do about the parts of the 2017 law with a sunset date at the end of 2025. For example, the doubling of the standard deduction, the end of personal exemptions and other changes have drastically reduced itemization in recent years.

Repeal of “a limited tax deduction for investment advice” as part of the law essentially raised the “cost of financial advice crucial to Main Street investors saving for retirement, college and other important life events such as home purchases,” according to Erin Koeppel, the managing director of government relations and public policy counsel of the CFP Board. Reinstating incentives could bring tax savings for those who weren’t previously eligible for the deduction because their fees didn’t go above 2% of their adjusted gross income, Koeppel noted.    

“Congress and the new administration will have the opportunity to restore and expand tax incentives to make financial advice more accessible to everyday Americans,” she said in a statement. “Tax credits or other subsidies aimed at moderate-income individuals would encourage these investors to seek professional financial advice, which, in turn, will improve financial outcomes. This ultimately will allow a broader range of Americans to access financial advice for major financial milestones and everyday needs.”

READ MORE: How the election — and Senate procedure — will decide tax policies

However, the earlier deduction and other “miscellaneous” items eliminated by the Tax Cuts and Jobs Act added up to roughly $32 billion worth of revenue in the first 10 years of the legislation, according to Garrett Watson, a senior policy analyst and modeling manager at the nonprofit, nonpartisan Tax Foundation. The writers of the legislation were seeking “to broaden and simplify the tax base as a partial offset to other tax changes in the law that were scored as losing revenue under the baseline,” Watson said in an email.

“I have not seen any specific evidence suggesting that the repeal of this deduction led to a decline in Americans seeking financial advice or if it noticeably impacted the prices for those services,” he said. “The AGI floor means that a portion of those services were not impacted at all, and taxpayers received tax breaks elsewhere that would offset (or more than offset) this tax increase in insolation.”

In their letter, the organizations argued that the earlier tax incentives “may have appeared inconsequential” at the time of the 2017 law, but the COVID-19 pandemic and accompanying economic volatility demonstrated the importance of “having access to affordable, professional advice from trusted financial professionals.” 

“As Congress considers extending the expiring provisions of the TCJA, we ask that Congress restore and expand tax incentives for financial advice, including financial planning,” the organizations wrote in the Sept. 16 letter. “Such tax incentives may include deductions, credits, or a combination thereof. Further, Congress should ensure that these incentives are responsive to the needs of Main Street Americans. All taxpayers need help to obtain the critical financial advice they need now, and any tax incentives should be widely available to American households.”

READ MORE: Why tax-related services drive business for RIAs

They had responded to a call by House Ways and Means Committee Chairman Jason Smith, a Republican from Missouri, and other members for public input on the expiring portions of the law. For future occupants of the White House and Congress, the looming deadline will create difficult choices about the economy, the federal budget deficit and a variety of other issues. 

“The challenge heading into next year is every specific tax deduction, credit or other expenditure has a specific use-case and set of folks who argue that they should be retained, but this comes at the cost of greater complexity in our tax code and higher tax rates,” Watson said. “If anything, we may need to further base broadening efforts to ensure the fiscal situation improves federally, and that would include retaining the progress policymakers made on base broadening in 2017. This can help keep tax rates lower, which is helpful for taxpayers and American families across the country.”