Primary tabs

A law, administrative agency rule, or court decision that imposes liability on individuals for prior actions. Adjudications are by their nature retroactive applications of the law. That is, a judicial body necessarily determines whether a litigant’s past events violated a law. However, retroactive application of statutes or rules are generally disfavored. That is, an individual will likely not be found liable for violating a statute if that statute was not in effect at the time of the individual’s conduct predicating the alleged violation. For example, in Landgraf v. USI Film Products, the U.S. Supreme Court denied application of a federal statute which directly addressed the issues being litigated because it was passed during the litigation, emphasizing the presumption against retroactive application of statutes. The principle of disfavoring retroactive application of the law is rooted in the Fifth Amendment of the U.S. Constitution, i.e. the due process clause. Put another way, it is not considered fair for an individual to be liable for violating a law that did not exist at the time of the alleged violation. 

Nevertheless, courts may allow retroactive application of statutes, regulations, or standards under certain circumstances. For example, in SEC v. Chenery II, the U.S. Supreme Court allowed retroactive application of an SEC adjudicatory proceeding which applied a new standard of conduct, stating: “Every case of first impression has a retroactive effect, whether the new principle is announced by a court or by an administrative agency. But such retroactivity must be balanced against the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles. If that mischief is greater than the ill effect of the retroactive application of a new standard, it is not the type of retroactivity which is condemned by law.”

Federal courts have also been much more receptive of retroactive application of tax laws as well. For example, in U.S. v. Carlton, the U.S. Supreme Court, while recognizing the protections of the due process clause of the Fifth Amendment, held that an amendment to a federal estate tax statute limiting the availability of a deduction and its retroactive application did not violate the Fifth Amendment because the taxpayer did not rely on the previous statute, Congress corrected an error in amending the statute, and the application only extended retroactively by one year. 

[Last updated in April of 2021 by the Wex Definitions Team]