“Post-Loper Bright” Validation of the Split-Dollar Regulation – A Commentary on Peter McGowan v. United States (6th Cir. 2025)

1. Introduction

The Sixth Circuit’s decision in Peter McGowan v. United States, No. 24-3228 (July 9, 2025), is the first published appellate opinion to apply the Supreme Court’s post-Loper Bright framework to a federal tax regulation. The judgment affirms more than $100,000 in deficiencies and penalties assessed against a closely-held dental corporation and its owner-dentist after they attempted to shelter premium payments for a “Restricted Property / Death Benefit” split-dollar life-insurance plan tied to charitable giving. In doing so, the court:

Explicitly confirms that Treasury Regulation § 1.61-22 (“the split-dollar regulation”) validly requires shareholder-employees to include the entire economic benefit of the arrangement in income, even without Chevron deference.
Holds that contributions funneled through a purportedly independent welfare-benefit sub-trust remain nondeductible under I.R.C. §§ 162(a) and 419.
Clarifies that merely designating a beneficiary satisfies Treas. Reg. § 1.61-22(b)(2)(ii)(C)(1), regardless of contingent charitable possibilities.
Preserves, for now, the controversial precedent of Machacek v. Commissioner (2018) but signals its likely demise in light of Loper Bright.

2. Summary of the Judgment

Applying de novo review, Judges Clay, Readler (author), and Davis agreed that Dr. McGowan’s “Restricted Property Trust” arrangement squarely met the definition of a compensatory split-dollar plan. Consequently:

Dr. McGowan had to include the actuarial value of the life-insurance economic benefits in gross income for 2014-2015.
His corporation was barred from deducting $50,000 annual premium payments because (a) § 419 treats the trust as the employer, and (b) the expenses were neither “ordinary” nor “necessary” under § 162(a).
The Sixth Circuit independently construed I.R.C. §§ 61, 162, and 419, found them unambiguous, and held that the regulation “comfortably fits” within those provisions—even under the stricter Loper Bright standard.
Although the court recognized tension with its own 2018 decision in Machacek, it declined to overrule that case because the parties had not asked it to do so; under a stipulation, McGowan nonetheless receives a partial refund attributable to dividend-rate treatment.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) – Eliminated automatic Chevron deference. The panel used Loper Bright’s “independent judgment” requirement to examine § 1.61-22 but still upheld the regulation.
Machacek v. Commissioner, 906 F.3d 429 (6th Cir. 2018) – Held split-dollar benefits to shareholder-employees are § 301 distributions. Cited mainly to explain why part of McGowan’s deficiency converts to dividend income; the opinion forecasts re-examination in a future case.
Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984) – Discussed as the now-overruled default for agency deference, shaping the backdrop of Treasury rulemaking.
Multiple Supreme Court definitions of “ordinary” and “necessary” expenses (Deputy v. du Pont, Tellier, Welch) guided the court’s denial of corporate deductions.
Helvering v. Horst, 311 U.S. 112 (1940) – Quoted to show that the power to dispose of income (by designating a charitable donee) is itself enjoyment of income.

3.2 Underlying Legal Reasoning

Ownership Analysis. The “Death Benefit Trust” was a § 419(e) welfare-benefit fund. Under Treas. Reg. § 1.61-22(c)(1)(iii)(C) the employer is deemed the owner whenever a welfare-benefit fund is title holder. Therefore the arrangement was “between an owner and non-owner.” The court rejected taxpayer arguments that form trumped substance when the employer could replace the trustee “at any time.”
Sub-clause (C) Trigger. Because McGowan designated his wife as beneficiary, § 1.61-22(b)(2)(ii)(C)(1) was satisfied. The contingent possibility that the cash value might flow to the Toledo Zoo did not matter—the split-dollar test focuses on the death benefit, not cash-value donation scenarios.
Gross-Income Inclusion. The regulation’s concept of “current access” to cash value (d)(4)(ii) explicitly includes a “future right,” overruling taxpayers’ attempt to invoke § 83 “substantial risk of forfeiture.”
Denial of Corporate Deductions. Section 162 deductions failed because (a) premiums served personal estate-planning, not business purposes, (b) payments were not “ordinary,” and (c) § 419(a) expressly disallows welfare-benefit-fund contributions unless another Code provision clearly authorises them.
Statutory Validity Post-Loper Bright. Even without Chevron, broad § 61 language embraces “all accessions to wealth,” matching Commissioner v. Smith. No provision excluded the benefits, so the regulation remains valid. Likewise, § 419’s plain text supports disallowance of deductions.

3.3 Likely Impact on Future Litigation and Tax Planning

Regulation Resilient After Chevron’s Fall. The opinion offers a road-map for other circuits to uphold Treasury regulations under de-novo review, curbing speculation that Loper Bright would topple longstanding tax rules.
Tightening of Welfare-Benefit Trust Shelters. Use of “Restricted Property Trusts,” § 419A(f)(6) multi-employer plans, and similar structures will face heightened scrutiny; promoters can no longer rely on re-labeling ownership or inserting replaceable trustees.
Signals Reassessment of Machacek. By questioning its own precedent, the Sixth Circuit invites en banc review or reconsideration in a case where the parties directly challenge the dividend characterization.
Guidance for Estate-Planning Professionals. Clients considering charitable-remainder or split-interest life-insurance gifts must recognize that designating a beneficiary triggers income inclusion regardless of philanthropic intent.
Litigation Strategy. Practitioners should preserve statutory-interpretation arguments at the trial level; the court refused to entertain new Loper Bright theories raised only during reconsideration.

4. Complex Concepts Simplified

Split-Dollar Arrangement. An agreement in which one party (often an employer) pays life-insurance premiums and the other (employee/shareholder) receives part of the policy’s benefits. The “split” refers to sharing death-benefit or cash-value rights.
Economic Benefit Regime. Treasury’s method of taxing the employee on the value of life-insurance protection and cash-value access each year, instead of waiting until death or surrender.
Welfare-Benefit Fund (§ 419). A trust through which an employer provides non-pension benefits (life insurance, medical, etc.) to employees. Contributions are deductible only in narrow circumstances.
“Current Access.” Under the regulation, even a future right to withdraw or control cash value counts as access, triggering current income.
Chevron vs. Loper Bright. Chevron required courts to defer to reasonable agency interpretations of ambiguous statutes; Loper Bright replaced that with independent judicial construction, tightening the leash on agencies.

5. Conclusion

McGowan cements the vitality of the 2003 split-dollar regulations in a post-Chevron world and warns taxpayers that cosmetic trust layers or charitable contingencies will not override substance-over-form principles. The Sixth Circuit’s analytical blueprint—text-focused statutory reading, distrust of artificial ownership structures, and skepticism of deductions lacking bona-fide business purpose—will likely influence courts reviewing similar tax shelters nationwide. Although the court stopped short of overruling Machacek, its critique foretells future alignment with statutory text over conflicting regulations, reinforcing Congress’s primacy in tax law. For practitioners, the message is clear: split-dollar planning must withstand rigorous statutory scrutiny, not just creative drafting.