The U.S. Supreme Court has received a lot of attention lately. That could be partly due to the overturning of Roe v. Wade and, more recently, reports of some justices receiving expensive gifts and trips.
However, there are also several new and influential decisions from the Court. Some of these directly affect the finances and bank accounts of millions of people.
Recent Supreme Court rulings and your finances
Here's what you should know about four particular rulings that can impact your finances — from property taxes, home equity, and student loans to taxes on foreign earnings and the privacy of your financial records.
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#1. The IRS can look at your bank account
In a case called Polselli v. IRS, the Supreme Court ruled that the IRS can sometimes secretly probe bank records without notice to taxpayers. Under an existing statute, the IRS can also — without notice — request and examine bank records of people who don't owe it money, like friends, family, and associates of a taxpayer who does owe the IRS.
What happened in the case? As Kiplinger reported, the dispute in the Polselli case began when a taxpayer owed more than $2 million to the IRS. The agency issued summonses to J.P. Morgan Chase, Bank of America, and Wells Fargo (banks of Polselli’s wife and law firm) but failed to notify Polselli's wife or law firm that it was trying to obtain their banking information.
As a result, Polselli's wife and the law firm sued the IRS, claiming they should have been notified of the agency's probe of their financial information.
Related: Supreme Court: Yes, the IRS Can Secretly Obtain Bank Records
How can Polselli v. IRS impact your finances?
- Your bank and financial records may not be as private as you believe.
- Sensitive financial information belonging not only to you if you owe taxes, but to loved ones and associates, could be accessible to the IRS without your prior knowledge.
The case serves as a reminder to pay the IRS if you owe taxes as soon as you can or to consider entering into an installment agreement or negotiating an offer in compromise.
#2. 'Home Equity Theft' violates the Constitution
In a case called Tyler v. Hennepin County, the Supreme Court ruled that a practice sometimes called “home equity theft” violates the U.S. Constitution. Basically, a state cannot pocket any excess home equity/profit if it takes and sells your home to pay your past due property taxes.
What happened in the case? As Kiplinger previously reported, Geraldine Tyler's Minnesota condo was sold at auction for $40,000 after she failed to pay $15,000 in property taxes. She had lived in the condo for over 10 years before moving to a senior assisted living community. Tyler sued the county for keeping the surplus home equity from the sale of her home, arguing that the action violated the Fifth Amendment and was an excessive fine. The county argued that it followed state law and that Tyler didn't have a property interest in her home equity.
Related: Who Benefits From the Supreme Court's Home Equity Theft Ruling?
How can Tyler v. Hennepin County impact your finances?
- It's still important to pay property taxes on time or seek assistance if you cannot pay.
- But this Supreme Court ruling should prevent a state or locality from keeping the excess profit if they seize and sell your home to cover unpaid property taxes.
The Pacific Legal Foundation says that the practice of “home equity theft” has affected over 8,950 homes, resulting in $860 million in losses for U.S. homeowners.
#3. The Supreme Court student loan decision
The Supreme Court ruled in a case called Biden v. Nebraska that President Biden did not have the power under the HEROES Act, to forgive federal student loans on a large scale, up to $20,000 for eligible borrowers, as proposed in the President's program.
What happened in the case? The Court considered two cases brought against Biden’s student loan forgiveness. (One case was dismissed by the Supreme Court, and the other was upheld.) Critics argued that without congressional approval, President Biden lacked the power to implement nearly $500 billion in federal student loan forgiveness and that the program would harm some states and loan servicers, creating unfair benefits.
The Biden administration planned to forgive federal student loans under the HEROES Act, citing pandemic hardships for borrowers. According to government data cited by the Biden administration, most borrowers who would have benefited make less than $75,000 a year. However, the Supreme Court ruled that the Biden administration didn't have the authority, without congressional approval, to enact sweeping student loan forgiveness.
Related: Student Loan Forgiveness: What You Need to Know
How can Biden v. Nebraska impact your finances?
- Student loan forgiveness couldn't go forward as initially planned and Federal student loan payments resumed after a multiyear pause.
- The Department of Education offers several new programs to help reduce the burden on some borrowers, so be sure to check StudentAid.gov for information.
Make a plan to manage your student loan payments. Also, double-check the details of your existing loan(s) to be sure about servicer and contact information, payment amounts, and balances due. And don't forget that you may be able to deduct student loan interest on your federal income tax return.
4. Foreign earnings tax is constitutional
As Kiplinger reported, a case called Moore v. United States, centered on whether U.S. taxpayers with specified foreign holdings could be subject to a one-time tax on those investments. The plaintiffs, Charles and Kathleen Moore owned a stake in an agricultural equipment company in India.
What happened in the case? Despite not receiving dividends or income from their investment over the years, the Moores paid about $15,000 in taxes on earnings attributed to them as shareholders due to the mandatory repatriation tax (MRT).
The couple later argued that the MRT was unconstitutional, contending that income must be realized to be taxable under the 16th Amendment, which grants Congress the power to impose a federal income tax.
In a long-awaited ruling released in June, the U.S. Supreme Court affirmed the constitutionality of the mandatory repatriation tax introduced by the Tax Cuts and Jobs Act (TCJA).
Related: Unrealized Gains Tax Survives SCOTUS Scrutiny
How can Moore v. United States impact your taxes?
The Supreme Court's ruling in the Moore case, which affirmed Congress's authority to tax certain unrealized gains, primarily impacts people with significant investments in foreign corporations.
- For most people, this decision won't immediately affect their day-to-day finances.
- However, the decision could potentially lead to broader changes in tax policy in the future, which might impact how investments and wealth are taxed.
This could later influence investment strategies and financial planning for a wider range of taxpayers.
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