US Supreme Court Ends Subservience to Chevron-Level Agency Interpretations of the Law

Possible impact in the tax area

This Loper Light The decision is a landmark ruling with far-reaching implications for administrative law. The court has empowered the judiciary to take a more active role in interpreting statutes and challenging agency interpretations of statutes. The decision also has implications for businesses and regulated entities. By removing the presumption of deference to agency interpretations, the decision could make it easier for businesses to challenge agency rules and interpretations in court. That could lead to more legal uncertainty in the short term as courts grapple with their new role in interpreting statutes.

What the end might look like Chevron deference affect the administration of federal tax law? There are a few points worth noting. For starters, tax regulations often provide taxpayers with more clarity than the Code itself. Without regulations that specify how taxpayers (and the IRS) must interpret the Code, businesses and investors might find it more complicated to engage in transactions with potentially significant federal tax consequences.

Absent Chevron deference from courts, consider the impact on the amount and type of guidance issued by Treasury and the IRS. One approach could be for the IRS to rely more heavily on nonprescriptive or “subregulatory” guidance to provide greater certainty, such as revenue procedures, revenue rulings, and other announcements.

In addition, the IRS may reduce the amount of official guidance and turn to deterrence strategies (e.g., requiring disclosure of transactions it deems questionable). Given the broad scope for requiring disclosures on tax returns, this practice could serve as a way to signal to taxpayers its disapproval of certain transactions or items.

Finally, note the extent to which Congress expressly delegates authority to the Treasury to create regulations in a given area of ​​the Code. A good example of this is the consolidated return rules under section 1502. In that provision, Congress granted the Treasury broad authority to create regulations governing affiliated groups that elect to file a consolidated return, and this single provision has led to the creation of countless complex rules governing consolidated groups and their members.² As discussed below, the court’s role in reviewing regulations made under delegated authority is to ensure that the agency made reasonable decisions and complied with the limits of its authority. The court is likely to apply less scrutiny in this situation than it would in a regulation that merely interprets ambiguities or fills gaps where the statute is silent. Given Congress’s tendency to delegate authority to the Treasury for rulemaking, the end Chevron estimate may have less serious consequences for the administration of the Federal tax law than a cursory examination might suggest. In future amendments to the Code, Congress may also increase its practice of delegating authority to the Treasury to deal with tax matters.

Chevron Respect Review

This Chevron This decision required courts to use a two-step approach to interpreting statutes administered by federal agencies:

• First, the reviewing court assessed whether Congress had directly addressed the issue in dispute through the statute. If Congress’s intent was clear, the inquiry was complete, and the agency’s interpretation must conform.
• Second, if a reviewing court finds that the statute is silent or unclear on a given issue, it must defer to the agency’s interpretation if it is based on a “permissible” interpretation of the statute.³

Before the Supreme Court Loper Light thus holding that federal agencies were given considerable latitude to interpret statutes that were ambiguous or silent on a given issue. This deference extended to regulations issued by the Treasury and the IRS that interpreted a given provision of the Code. By repealing ChevronThe court indicated that it did not question the judgments issued in previous cases, which relied on Chevron structure.

Loper Bright Enterprises v. Raimondo

This Loper Light The case stems from a dispute over a regulation issued by the National Marine Fisheries Service (NMFS) under the Magnuson-Stevens Act (MSA). The MSA governs the conservation and management of fisheries in federal waters. The disputed regulation required certain fishing vessels in the Atlantic herring fishery to carry and pay for government-certified observers to collect data.

The fishing companies, Loper Bright Enterprises and others, challenged the rule, arguing that the MSA did not authorize NMFS to impose those costs on them. Lower courts, applying Chevronsided with the government, saying the provision was ambiguous and the agency’s interpretation was permissible.

The court, in a majority ruling of 6 to 3, sided with the fishing companies and overturned the ruling Chevron. The court held that the APA requires courts to exercise independent judgment in interpreting statutes, even when they are ambiguous. The court emphasized that the role of the judiciary is to decide what the law is, and that Chevron respect has unfairly shifted this responsibility to the agencies.

The Court’s decision was based on several key arguments. First, the Court argued that Chevron deference was inconsistent with the text and structure of the APA, which gives courts the authority to decide all substantive questions of law. Second, the Court reasoned that Chevron deference was not necessary to provide expertise in statutory interpretation because courts are able to understand complex regulatory issues and can rely on agency expertise when needed. Finally, the Court reasoned that the judiciary’s application Chevron the respect was inconsistent, which made the doctrine impractical.

In addition, the Court recognized situations in which the statute delegates discretionary authority to an agency to write a rule. In such cases, it stated that the role of the reviewing court is to recognize the constitutional delegation of authority, to establish the limits of that delegated authority, and to ensure that the agency exercised “reasonable discretion” within those limits. As discussed, there are countless places in the Code where Congress expressly delegates authority to the Treasury to write a rule. The Court also noted that Drifter will not apply retroactively, meaning that issues of agency rule interpretation that have already been litigated continue to be good law despite reliance on Chevron doctrine.

summary

This Loper Light The decision is a significant event in administrative law that will likely have a lasting impact on the relationship between the courts and federal agencies. The question remains how this decision will play out in practice for the Treasury and the IRS. Given the general points discussed above, firms and tax advisors should watch closely to see how the Treasury and the IRS, as well as the courts, react to the conclusion Chevron respect.