CONTINUING EDUCATION FOR TAX & FINANCIAL PROFESSIONALS
Subscribe
Login
Main Menu
Main Menu
Account
Cart

The Supreme Court Overrules the Forty-year-old Chevron Doctrine

On June 28, 2024, the Supreme Court delivered a landmark decision in Loper Bright Enterprises v. Raimondo fundamentally altering the role of federal agencies in interpreting the laws they enforce. In a 6-3 ruling, the Court overruled the Chevron doctrine, a principle established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984). Under Chevron, courts were required to defer to federal agencies’ interpretations of ambiguous statutes if the agency’s interpretation was deemed reasonable, provided Congress had not directly addressed the issue.

The recent decision in Loper Bright shifts this paradigm. The Supreme Court ruled that judges should no longer defer to agencies’ interpretations when a statute is ambiguous. Instead, courts are now required to independently interpret statutory language, reinforcing a stricter separation of powers and ensuring more rigorous judicial review of agency actions. This shift reflects concerns about the expanding power of administrative agencies and aims to reaffirm judicial authority in statutory interpretation.

Impact on Treasury Regulations

  1. Independent Judicial Review: The ruling mandates that judges must now independently assess whether Treasury has acted within its statutory authority. Consequently, even if Congress grants regulatory power to Treasury, courts are no longer obligated to defer to Treasury’s interpretations simply because they are reasonable.
  2. No Automatic Deference: Previously, under Chevron, courts would defer to an agency’s reasonable interpretation of an ambiguous statute. The new ruling requires courts to interpret the statute themselves, potentially leading to disagreements with Treasury’s views.
  3. Increased Scrutiny: Treasury regulations are expected to undergo more rigorous judicial scrutiny. Courts can now replace their judgment with that of the Treasury (and IRS) in complex tax matters.
  4. Focus on Statutory Interpretation: The focus will shift towards traditional methods of statutory interpretation. Courts will scrutinize the text, structure, and purpose of tax legislation more closely rather than relying on Treasury’s expertise.
  5. Congressional Intent: Despite the end of Chevron deference, courts will still consider congressional intent when evaluating Treasury’s authority. This consideration will be part of a broader analysis rather than a basis for automatic deference.
  6. Expertise Consideration: While Treasury’s expertise in tax matters may still influence courts, it will not be weighted as heavily as it was under Chevron. Courts may find Treasury’s interpretations persuasive but are no longer required to defer to them.

Impact on Courts

  1. Judicial Expertise: Tax Court judges, who specialize in tax law, will be crucial in applying this more rigorous judicial review to complex tax disputes. Tax Court judges’ expertise will provide some comfort to taxpayers, and their representatives, when challenging the IRS.
  2. Potential Instability: The absence of Chevron deference may lead to inconsistencies in tax law interpretation, especially in courts lacking specialized tax expertise – district courts and appellate courts. This could result in circuit splits and an increase in Supreme Court cases addressing tax issues.
  3. Increased Appeals: With the shift in judicial review standards, appeals related to tax disputes are likely to increase as parties challenge court interpretations more frequently. The Court stated that the holdings of previous cases finding specific agency actions lawful are still subject to statutory stare decisis, despite the change in interpretive methodology.

Note: 3M is appealing to the Eighth Circuit Court of Appeals a Tax Court decision related to its transfer pricing case. The IRS has maintained that the Chevron ruling does not justify reversing the Tax Court’s decision. We will see what the Appellate Court says.

Impact on the Legislative Branch

In response to the Supreme Court’s decision, Congress will need to draft clearer and more comprehensible tax legislation to minimize ambiguity and reduce the need for judicial interpretation. We tax practitioners and our clients hope (and dream) that Congress can write “clearer and more comprehensible tax legislation.”