Accounting
Supreme Court appears skeptical of Trump’s global tariffs
The U.S. Supreme Court appeared skeptical of President Donald Trump’s sweeping global tariffs, as key justices suggested he had overstepped his authority with his signature economic policy.
In a nearly three-hour hearing Wednesday, the court hinted it was ready to put significant limits on Trump’s far-reaching agenda for the first time since he took office in January. Three members of the conservative majority questioned Trump’s use of an emergency-powers law to collect tens of billions of dollars in tariffs a month.
Chief Justice John Roberts said the tariffs were an “imposition of taxes on Americans and that has always been the core power of Congress.” Justice Neil Gorsuch also signaled he was a probable vote against the president, and fellow Trump appointee Amy Coney Barrett asked probing questions of both sides.
A decision against Trump could force more than $100 billion in refunds, remove a major burden on the U.S. importers that are paying the tariffs, and blunt an all-purpose cudgel the president has wielded against trading partners. More broadly, it would be by far the Supreme Court’s most significant pushback against Trump’s assertions of powers that go well beyond those claimed by his White House predecessors.
The court’s three liberal justices — Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson — also expressed doubt about the legality of the tariffs. A ruling could come as quickly as the end of the year, given the ultra-expedited schedule the Supreme Court has set so far.
“I came to oral argument thinking the administration had a pretty uphill climb, and I left feeling the same way,” said Adam White, a scholar who focuses on the Supreme Court and constitutional law at the American Enterprise Institute. “The far and away most likely outcome is that the administration loses this case.”
That would be a shift at a conservative-controlled court that has repeatedly backed Trump this year through temporary orders letting him implement new policies while legal fights go forward. The tariff case marks the first time the court directly considered Trump’s underlying assertions of sweeping presidential power.
The atmosphere Wednesday was unusually relaxed for a court that is often sharply divided, with laughter punctuating the arguments several times. At one point, Kagan playfully needled Roberts after he seemed to confuse her and Sotomayor, who had just finished asking a round of questions.
“No, she’s Justice Sotomayor. She just finished,” Kagan quipped.
The case involves Trump’s April 2 “Liberation Day” tariffs, which impose taxes of 10-50% on most U.S. imports depending on the originating country. Trump says those duties are warranted to address the longstanding national trade deficit. The high court clash also covers separate tariffs Trump said he imposed on Canada, Mexico and China to address fentanyl trafficking.
Authority questioned
Trump says his tariffs are authorized under the 1977 International Emergency Economic Powers Act, a law that gives the president a panoply of tools to address national security, foreign policy and economic emergencies. IEEPA, as the law is known, doesn’t mention tariffs as one of those powers, though a key provision says the president can “regulate” the “importation” of property to deal with a crisis.
Gorsuch indicated alarm at the reach of the Trump administration’s contention that Congress had delegated its constitutional authority over tariffs to the president.
Under the government’s logic, “what would prohibit Congress from just abdicating all responsibility to regulate foreign commerce – for that matter, declare war – to the president?” Gorsuch asked U..S Solicitor General D. John Sauer, the government’s top Supreme Court lawyer.
Gorsuch later asked whether a president could impose a 50% tariff on gas-fueled cars and auto parts to tackle climate change. Sauer responded that the president could.
Barrett questioned whether the statute’s words were enough to let the president put in place tariffs.
“Can you point to any other place in the code or any other time in history where that phrase together ‘regulate importation’ has been used to confer tariff-imposing authority?” Barrett asked Sauer.
But Barrett also joined Justice Brett Kavanaugh in questioning whether the arguments of the tariff challengers made sense, given that IEEPA authorizes the president to shut down trade entirely with a foreign country. Both asked why Congress might preclude the president from taking the more limited step of imposing tariffs.
“That just seems a bit unusual,” Kavanaugh said.
In a possible sign of the case’s likely outcome, Barrett asked how refunds would work should the tariffs be invalidated. “It seems to me like it could be a mess,” the justice said.
The companies’ lawyer, Neal Katyal, acknowledged refunds would be “very complicated,” but argued that the Supreme Court previously had held that “serious economic dislocation isn’t a reason to do something.” He also said the court could invalidate the tariffs only on a “prospective” basis, though none of the justices indicated any interest in that possibility.
Sauer, the administration lawyer, told the justices that Trump “determined that our exploding trade deficits had brought us to the brink of economic national security catastrophe.”
The high court is considering two separate lawsuits filed by small businesses along with a third case pressed by 12 Democratic state attorneys general. All three lower courts to have ruled on the issue declared the tariffs to be unlawful.
Roberts indicated he saw the case as being governed by the “major questions doctrine,” a legal rule the court used repeatedly to thwart Joe Biden’s agenda when he was president. Under the major questions doctrine, federal agencies need explicit congressional authorization to take actions that have sweeping economic or political significance.
“The justification is being used for a power to impose tariffs on any product from any country in any amount for any length of time,” he said. “It does seem like that’s major authority.”
A number of legal experts said the court seemed likely to put limits on Trump’s tariff power.
“Some conservative justices had tough questions for both sides, making it hard to say with certainty where they’ll land,” said Liza Goitein, an expert on emergency powers at the Brennan Center for Justice at NYU Law, on social media. “But given the degree of pushback on key administration arguments, it’s looking quite possible — if not likely — the tariffs will be struck down.”
Treasury Secretary Scott Bessent said Sauer “presented strong, persuasive arguments on the necessity of using IEEPA tariff authority to confront the emergencies President Trump has declared.”
The tariff arguments were a hot ticket in Washington. Among those in attendance from the administration were Bessent, Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer. Members of Congress included Democratic Senators Amy Klobuchar and Ed Markey and Republican Representative Jason Smith. John Mulaney, the comedian, was also at the arguments.
Should Trump lose, administration officials say most of the levies could be imposed using other, more complicated legal tools. Trump’s tariffs on steel, aluminum and automobiles were put in place under a different law, so are not directly affected.
The cases are Trump v. V.O.S. Selections,
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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