Supreme Court Limits IRS Authority
By Reid Diaz and Jeffrey M. Glassman on July 11, 2024
In Loper Bright Enterprises v. Raimondo, the U.S. Supreme Court overturned a 40-year-old legal precedent which granted judicial deference to federal regulators’ interpretation of ambiguous laws. That level of deference was commonly known as Chevron deference.
Chevron implemented a two-step framework to interpret statutes administered by federal agencies. First, courts considered whether Congress had addressed the precise issue before the court using traditional tools of statutory construction. If Congress’s intent was clear regarding the precise issue, a court had to implement Congress's stated intent. If a court found that the statute was silent or ambiguous, however, it was required to defer to an agency’s reasonable interpretation of the statute.
Chevron effectively gave Congress the green light to delegate legislative responsibilities to executive agencies that allowed those agencies to fill in statutory gaps through agency interpretation.
A general complaint among practitioners opposing federal agency action was that Chevron sometimes required the courts to defer to agencies' interpretations, often at the expense of the best interpretation. Chevron created a judicial vehicle whereby federal agencies promulgated regulations that also happened to bolster their litigation position, and courts were bound to defer—at least somewhat—to the agency’s position.
The majority agreed with this sentiment, holding that the Chevron decision improperly transferred the power to interpret the law from the judiciary to federal agencies. Chief Justice Roberts wrote for the Court, “Chevron was a judicial invention that required judges to disregard their statutory duties.”
The dissent, however, viewed the departure from a longstanding fixture of administrative law as judicial overreach. “A longstanding precedent at the crux of administrative governance thus falls victim to a bald assertion of judicial authority,” Justice Elena Kagan wrote for the dissenters.
Whether or not practitioners agree with the opinion, they will have to navigate a regulatory landscape without Chevron deference. This begs the question: what now?
First and foremost, according to the Court, this is not a return to the “Wild West.” Chief Justice Roberts indicated that the Court’s decision will not require cases that relied on Chevron to be overturned, “[m]ere reliance on Chevron cannot constitute a ‘special justification’ for overruling” a decision upholding agency action, “because to say a precedent relied on Chevron is, at best, just an argument that the precedent was wrongly decided.”
Moreover, Chief Justice Roberts observed that “Skidmore” deference remains good law. Under Skidmore, the amount of deference is limited to the guidance’s persuasive power. Accordingly, a federal agency’s interpretation of an ambiguous statute that it administers is still entitled to judicial respect and may be considered by the courts if that guidance is sufficiently persuasive.
While it is difficult to measure the impact Loper Bright will have on taxpayers, the end of Chevron significantly limits the IRS’s ability to exert interpretive authority. Practitioners should now be looking at statutes and regulations anew to determine the best way to represent their clients in light of the Supreme Court decision. Suffice it to say, we expect practitioners to continue analyzing these issues for the foreseeable future.
If you have any questions about this article or any other federal tax matter, please contact Jeffrey M. Glassman at 214-749-2417 or jglassman@meadowscollier.com, and Reid Diaz at 214-749-2415 or rdiaz@meadowscollier.com.
Chevron implemented a two-step framework to interpret statutes administered by federal agencies. First, courts considered whether Congress had addressed the precise issue before the court using traditional tools of statutory construction. If Congress’s intent was clear regarding the precise issue, a court had to implement Congress's stated intent. If a court found that the statute was silent or ambiguous, however, it was required to defer to an agency’s reasonable interpretation of the statute.
Chevron effectively gave Congress the green light to delegate legislative responsibilities to executive agencies that allowed those agencies to fill in statutory gaps through agency interpretation.
A general complaint among practitioners opposing federal agency action was that Chevron sometimes required the courts to defer to agencies' interpretations, often at the expense of the best interpretation. Chevron created a judicial vehicle whereby federal agencies promulgated regulations that also happened to bolster their litigation position, and courts were bound to defer—at least somewhat—to the agency’s position.
The majority agreed with this sentiment, holding that the Chevron decision improperly transferred the power to interpret the law from the judiciary to federal agencies. Chief Justice Roberts wrote for the Court, “Chevron was a judicial invention that required judges to disregard their statutory duties.”
The dissent, however, viewed the departure from a longstanding fixture of administrative law as judicial overreach. “A longstanding precedent at the crux of administrative governance thus falls victim to a bald assertion of judicial authority,” Justice Elena Kagan wrote for the dissenters.
Whether or not practitioners agree with the opinion, they will have to navigate a regulatory landscape without Chevron deference. This begs the question: what now?
First and foremost, according to the Court, this is not a return to the “Wild West.” Chief Justice Roberts indicated that the Court’s decision will not require cases that relied on Chevron to be overturned, “[m]ere reliance on Chevron cannot constitute a ‘special justification’ for overruling” a decision upholding agency action, “because to say a precedent relied on Chevron is, at best, just an argument that the precedent was wrongly decided.”
Moreover, Chief Justice Roberts observed that “Skidmore” deference remains good law. Under Skidmore, the amount of deference is limited to the guidance’s persuasive power. Accordingly, a federal agency’s interpretation of an ambiguous statute that it administers is still entitled to judicial respect and may be considered by the courts if that guidance is sufficiently persuasive.
While it is difficult to measure the impact Loper Bright will have on taxpayers, the end of Chevron significantly limits the IRS’s ability to exert interpretive authority. Practitioners should now be looking at statutes and regulations anew to determine the best way to represent their clients in light of the Supreme Court decision. Suffice it to say, we expect practitioners to continue analyzing these issues for the foreseeable future.
If you have any questions about this article or any other federal tax matter, please contact Jeffrey M. Glassman at 214-749-2417 or jglassman@meadowscollier.com, and Reid Diaz at 214-749-2415 or rdiaz@meadowscollier.com.
