Who decides? Courts, Congress, and the shifting boundaries of tax authority

In recent months, Americans have seen tariff rates swing wildly—announced by executive order, challenged in court, and left in legal limbo. These sudden shifts don’t just affect the price of imports and create uncertainty for businesses and consumers; they highlight a deeper question: Who actually holds the power to tax?  The answer, as it turns out, is increasingly up for debate.

In the last 18 months, the courts have weighed in on three major cases that are reshaping the boundaries of tax law, not by setting rates or defining brackets but by defining how revenue rules are written, interpreted, and enforced. In Loper Bright Enterprises v. Raimondo, the Supreme Court ended decades of deference to agency rulemaking, leaving tax regulations more vulnerable to legal challenge. In Moore v. United States, it upheld a central pillar of the Tax Cuts and Jobs Act’s (TCJA) international tax reform but left unresolved deeper constitutional questions of whether Congress can tax unrealized gains and, by extension, wealth. And in the ongoing litigation over the administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose “Liberation Day” tariffs, the courts are weighing in on the circumstances under which presidents can unilaterally impose broad-based tariffs. Together, these cases illustrate how the judiciary is recalibrating the balance of taxing authority, and in doing so, injecting new uncertainty surrounding the rules of taxation.

Loper Bright Enterprises v. Raimondo

Congress often writes tax laws in broad strokes, leaving the IRS and Treasury to fill in the details through regulations. This approach has historically provided taxpayers not only the chance for input—thanks to the required notice-and-comment period—but also a measure of certainty: Even if the rules were complicated, the IRS’s interpretation usually stuck.

This stability came from the “Chevron doctrine” established by the 1984 Supreme Court case Chevron, U.S.A. vs Natural Resource Defense Council, Inc., which directed courts to defer to an agency’s reasonable interpretation of unclear law. But in the 2024 Loper Bright Enterprises v. Raimondo case—a case about whether the National Marine Fisheries Service could make commercial fishing vessels pay the salaries of federal observers—the court overturned that precedent. As a result, the regulations that agencies like the IRS and Treasury write will be far more vulnerable to court challenges.

The “no tax on tips” provision in the One Big Beautiful Bill Act (OBBBA) illustrates how much discretion is often built into tax law. At a high level, the provision exempts service workers from paying federal income tax on their tip income. But the statute leaves key questions unanswered, directing the Treasury to decide which occupations “customarily and regularly received tips,” what counts as a voluntary tip, and what other requirements should apply. It also explicitly authorizes the secretary to issue regulations and guidance to prevent abuse, such as income reclassification. In other words, Congress sketched the broad outlines, but the practical details—which industries qualify? How should shared tips be treated? What kinds of payments really count as tips?—are left for IRS and Treasury to decide.

Under the old Chevron framework, taxpayers and employers could generally rely on these regulations as authoritative once finalized. And unlike legislation, regulations can be directly shaped through a required notice-and-comment process that gives taxpayers, practitioners, and industry groups the chance to weigh in on how proposed rules would work in practice. This process can improve clarity, reduce compliance costs, and make the system more workable on the ground. After Loper Bright, however, regulations that emerge from this participatory process are far more vulnerable to court challenges, raising the prospect of uneven rules and greater uncertainty for workers and businesses alike. Regulators bring technical expertise to make rules workable in practice, while judges may lack the grounding to resolve such questions consistently.

The deduction for pass-through income, often referred to by its section of the tax code (199A), is another example of how much the tax code relies on agency interpretation. When Congress created the deduction in the 2017 Tax Cuts and Jobs Act (TCJA), it left wide gaps—most notably in determining which industries were eligible for the deduction. Treasury filled in these details through extensive regulations. The OBBBA expands and modifies 199A, again leaving Treasury with broad discretion to define scope and prevent abuse. Under the new Loper Bright framework, these same rules could be challenged more aggressively, with judges second-guessing technical distinctions made by Treasury. This raises the prospect of uneven outcomes across courts and prolonged uncertainty for millions of small businesses trying to plan around a deduction that is, at least on its face, intended to support investment and growth.

The end of Chevron deference marks a major shift in how tax law will be administered and litigated. By moving final interpretive authority from regulators to judges, the Court has made tax rules more vulnerable to legal challenges and less predictable for taxpayers. What once could be settled through detailed IRS guidance and public input during the regulatory process may now be reopened in the courts with a risk of conflicting outcomes across jurisdictions. That shift places judges—not expert regulators—at the center of many technical tax questions, underscoring the Court’s growing role in defining the boundaries of taxing authority.

Moore v. United States

In another landmark 2024 ruling, Moore v. United States, the Supreme Court revisited the constitutionality of a central part of the fundamental international tax reform that was enacted in the TCJA. Specifically, Congress imposed a one-time “transition tax” on foreign earnings that had gone untaxed under the old system and would not otherwise be taxed under the new one. The Moores argued that this tax violated the 16th Amendment, which governs how the federal government can tax income. While the case on its face concerned a more technical element of international tax reform, its implications raised deeper questions about the limits of Congress’s power to tax unrealized gains—and, by extension, wealth.

Many people think of wealth taxes as central to a political debate, but Moore underscored how they also raise constitutional questions. In this way, the case again highlights that it is not just Congress or the Treasury that shapes tax rules—judges are also central in defining the constitutional boundaries of taxing authority. To understand why, it helps to look back at how the Constitution originally structured Congress’s power to tax.

At the nation’s founding, the Constitution gave Congress the authority to levy federal taxes but with important limits. The framers distinguished between “direct” taxes—generally understood as a per-person tax, such as a head tax—and other “indirect” taxes, for example taxes on transactions like tariffs or excise taxes. Importantly, the Constitution requires that direct taxes be “apportioned” among the states in proportion to their population. In practice, this meant that  an income tax would have required each state to raise the same amount of revenue per resident, regardless of how wealthy its residents are.

This rule made a simple, flat head-tax possible—albeit politically unpopular—but it made a nationwide income tax unworkable. Under an income tax, the rates would have to be adjusted so that a poor state and a wealthy state with the same population collect the same total revenue. For this reason, Congress mostly avoided direct taxes and instead relied on tariffs and excise taxes on goods like whiskey and tobacco to fund the federal government.

It wasn’t until the 16th amendment in 1913 that Congress gained clear authority to tax income without apportionment, setting the stage for the modern federal income tax. But the amendment applied only to income taxes; other forms of direct taxation must still be apportioned among the states. And because the amendment left unresolved what exactly counts as income, it left open whether Congress can tax wealth itself. This came to the forefront in Moore, where the Supreme Court was asked to decide whether foreign earnings that had not actually been paid out to U.S. shareholders counted as “income” or something else.

The Moore case involved a couple who owned 11% of a farm equipment company in India but never received any of the company’s profits as dividends. When Congress enacted the TCJA, it included a one-time “transition tax” on U.S. shareholders’ share of previously untaxed foreign earnings as key part of its broader international tax reform effort. As a result, the Moores were required to pay tax on their portion of the company’s accumulated profits despite never actually received any money. In their lawsuit, they challenged the transition tax as unconstitutional, arguing that Congress lacks the authority to tax income that has not been realized.

At the heart of this debate is the distinction between income and wealth. Income is a flow of resources, such as wages from a job, interest from savings, or dividends from a stock. Wealth, by contrast, is a stock of resources, such as the balance of a bank account, the value of a home, or shares in a business that may fluctuate in value over time. The dividing line is realization: Under a traditional tax system, people are taxed when they actually receive income, such as selling a stock for a profit. Taxing wealth would mean taxing the value of all assets, even if nothing has been sold and no cash has changed hands. This distinction matters because the 16th Amendment clearly authorizes an income tax, but it does not say whether Congress can tax unrealized gains or overall wealth. In the context of the Moore case, the central question was whether the profit earned by their foreign company—but never remitted to the Moores in the form of a dividend—constituted an unrealized gain that was not “income” according to the 16th Amendment.

What was at stake in the Moore case went far beyond one family’s tax liability. The U.S. already taxes many forms of income that are not realized in cash. For example, owners of pass-through businesses are taxed on their share of business income whether it is distributed to them or reinvested. Mutual fund shareholders are taxed on gains earned by the fund whether or not they sell their shares. And U.S. taxpayers with foreign subsidiaries have long faced rules that bring undistributed foreign profit into their taxable income. A ruling asserting that Congress cannot tax unrealized income would have cast doubt on these long-standing features of the tax code and potentially unraveled large parts of the system.

The Supreme Court ultimately ruled 7-2 to uphold the one-time transition tax, reaffirming Congress’s power to tax income under the 16th Amendment. Importantly, the Court drew a clear line about what it chose not to decide. Justice Kavanaugh, writing for the majority, stressed that the opinion did not resolve whether income must be realized to be tax, nor did it address more speculative issues such as taxes on wealth:

“The Moores argue that realization is a constitutional requirement; the Government argues it is not. To decide this case, we need not resolve that disagreement over realization. Those are potential issues for another day, and we do not address or resolve any of those issues here.”

This narrow framing preserved the TCJA’s international tax structure but left unanswered the deeper constitutional issues: whether Congress can ever tax wealth in principle and whether a wealth tax would be considered a direct tax in practice.

The Moore decision marks another way the Court is defining the boundaries of taxing authority. By upholding the transition tax but declining to settle whether realization is constitutionally required, the Court preserved a key piece of the tax system while leaving one of the biggest questions in tax law unanswered. In this way, the Court placed itself even more firmly in the role of arbiter over where Congress’s taxing power ends, while leaving both policymakers and taxpayers to navigate an unsettled landscape at a time when the political and economic urgency of taxing wealth is growing and sits at the center of debates over the future of tax reform.  

V.O.S. Selections, Inc. v Trump

Finally, a case with major tax implications is now in front of the Supreme Court. Judges are being asked to decide how far the executive branch can go in using the International Emergency Economic Powers Act (IEEPA) of 1977 to reshape tax and trade policy. Article 1 of the Constitution gives Congress alone the power to levy broad-based taxes. But in the realm of trade, Congress has gradually delegated limited tariff authority to the president, treating tariffs as instruments of diplomacy, negotiation, and national security.

IEEPA is different. As the name suggests, it was designed to be an emergency tool, giving the executive wide latitude to act quickly in response to sudden foreign threats or urgent economic crises. It was not meant to serve as an addition to standing trade statutes. Whether this authority is broad enough to authorize sweeping, open-ended tariffs is an  unanswered question—one that is now being tested in ways that blur the line between foreign-policy action and Congress’s core taxing power.

That test came on April 2, 2025, when the Trump administration declared a national emergency and invoked IEEPA to impose sweeping “Liberation Day” tariffs aimed at addressing the U.S. trade deficit. The U.S. does, in fact, run a trade deficit—meaning that it imports more than it exports—but it has done so in almost every year since the 1970s. Under the emergency order, the administration imposed a 10% baseline tariff on nearly all imports, with higher “reciprocal” duties for countries with which the U.S. had significant deficits.

The court challenges to the “Liberation Day” tariffs raise two distinct legal questions. First, does a persistent trade deficit qualify as a “national emergency” under IEEPA? And second, even if it does, does the law authorize the president to respond with sweeping, across-the-board tariffs that function like taxes?

Unlike the targeted tariffs authorized under other trade statutes, which are generally temporary, capped, and limited in scope, the “Liberation Day” tariffs are broad, open-ended, and could raise potentially substantial revenue. This makes them look less like narrow trade remedies and more like general revenue measures that fall under the exclusive purview of Congress. Together, these questions go to the heart of how far Congress meant to extend emergency powers and whether the president can use them to reshape tax and trade policy without legislative approval.

Do chronic trade deficits qualify as the kind of national emergency that IEEPA was designed to address? Enacted in 1977, the law gives the president wide-ranging flexibility to act quickly in the face of sudden foreign threats. The U.S. trade deficit, by comparison, has been a feature of the U.S. economy for nearly half of a century. Administration officials argue that persistent trade deficits weaken U.S. industry—especially manufacturing—and make the country vulnerable to foreign adversaries, qualifying as a threat to national security under IEEPA’s broad language. Critics, including a coalition of leading economists—among them Nobel laureates and former senior economic advisors from both parties—counter in a high-profile amicus brief that bilateral trade deficits are neither unusual nor extraordinary, failing to meet the IEEPA threshold for emergency justification. 

Can IEEPA be used to impose sweeping tariffs, rather than the narrow actions it has historically authorized? In practice, IEEPA has never been used to levy broad tariffs. Instead, it has been used to freeze assets, block specific actions, or impose targeted sanctions. For example, President Carter froze Iranian government assets after the 1979 hostage crisis under IEEPA authority. Similarly, President Bush issued an executive order under IEEPA to block the property of individuals and entities linked to terrorism under IEEPA in the aftermath of 9/11.

By contrast, sweeping tariffs on nearly all imports mark a sharp departure from these earlier applications. The Federal Circuit Court underscored this in its recent ruling, writing that “IEEPA’s grant of presidential authority to ‘regulate’ imports does not authorize tariffs imposed by the Executive Orders.” The court struck down the tariffs as unlawful, though it left them in place temporarily while the case proceeds. Opponents also stress that such sweeping tariffs function like taxes—powers that the Constitution delegates only to Congress. Defenders, however, argue that the statute’s broad language was meant to give presidents maximum flexibility in times of crisis, even if measures taken overlap with Congress’s taxing power.

The IEEPA dispute highlights yet another way the courts are being asked to referee the boundaries of taxing authority. By questioning whether a chronic trade deficit can justify emergency powers and whether those powers extend to imposing sweeping tariffs, the appellate court signaled that the president may have gone beyond what Congress intends to delegate. The case now sits before the Supreme Court, leaving open the critical question of how far executive authority can stretch into Congress’s taxing role. This unresolved boundary ensures that tariff policy, which has increasingly become a signature tax policy lever of this administration, remains unsettled at a moment when trade conflicts and revenue pressures are mounting. In this way, the courts again stand at the center of defining who really holds the power to tax, while policymakers and businesses alike operate in a state of uncertainty.

Conclusion

Taken together, these three cases highlight the central role of the courts in defining the boundaries of taxing authority. In Loper Bright, the Court shifted interpretive power away from regulators, leaving tax regulations more open to challenge and less predictable. In Moore, the Court upheld a specific tax provision introduced by the Congress but left one of the biggest constitutional questions in tax law unresolved: whether Congress can tax unrealized income. And in the IEEPA litigation, the courts are weighing whether the president can invoke emergency powers to impose sweeping tariffs that function like taxes, bypassing Congress altogether.

None of these recent cases directly set tax rates or rewrite the Internal Revenue Code. Collectively, however, they reshape the institutional framework within which tax law is made, interpreted, and enforced. In the past, Congress relied on agencies for detailed rulemaking, and presidents relied on delegated taxing authority. Today, the courts are asserting a more prominent role in drawing the lines. The result is greater uncertainty about how stable the rules of taxation will be—whether agency regulations will withstand judicial scrutiny, whether new forms of taxation can survive constitutional challenges, and whether executive actions can expand into the broad tax domain.

What can seem like technical legal debates are, in fact, fights over the ground rules that affect everyone. Tax rules shape investment, work, trade, and opportunity. As the courts increasingly define those rules, the consequences will ripple far beyond the courtroom. The authority to tax is being renegotiated in real time, with the judiciary now a central player—leaving policymakers, businesses, and households alike facing a less certain future.