On June 28, the U.S. Supreme Court issued its ruling in Loper Bright Enterprises v. Raimondo, and Relentless, Inc. v. Department of Commerce, overturning the longstanding Chevron doctrine that generally required federal courts to defer to a federal agency’s reasonable interpretation of an ambiguous statute.
This landmark ruling has significant implications for the IRS and the broader landscape of tax law. While the overall consequences of the Loper decision are unclear, there is little doubt it will significantly impact the IRS, how it operates and the remedies available to taxpayers.
Background: The Chevron Doctrine
Established by the 1984 Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the Chevron doctrine empowered agencies to interpret statutes without judicial guidance or, some might say, interference. Provided that an agency complied with the rule-making requirements for such interpretations, under Chevron, courts were required to defer to such agencies as experts in their respective fields.
Key Changes after Loper
After Loper, courts no longer were required to defer to a federal agency’s regulatory interpretations. The courts are now tasked to determine the “best” interpretation of a statue. Because of this, challenges to agency interpretations will be more common.
Overall, it is expected that this change will lead to an increase in taxpayer challenges to IRS issued regulations and to greater regulatory uncertainty.
This shift has several critical implications:
Increased Legal Challenges to IRS Regulations
Without Chevron deference, taxpayers and other stakeholders are more likely to challenge IRS regulations in court. Previously, the IRS could rely on the deference courts gave to its interpretations, but now each regulation must stand on its own merit as the “best” interpretation of the statute. The frequency of legal challenges to IRS regulations is expected to increase, as taxpayers may see more opportunities to contest regulations that they find unfavorable.
Stricter Judicial Scrutiny
Courts will now scrutinize IRS regulations more rigorously, evaluating whether the agency’s interpretation of a statute is indeed the best one. This change could lead to more regulations being struck down or modified by the courts. It may also lead to significant delays at the IRS when its regulations are challenged.
Existing IRS regulations may be revisited and challenged, potentially leading to significant changes in tax compliance and enforcement. It remains to be seen how lower courts will respond to such challenges.
Legislative Clarity and Congressional Action
The reversal of Chevron places a greater onus on Congress to draft clear and unambiguous tax laws. Congress can no longer expect that the IRS will clarify ambiguous statutes through the issuance of regulations. Ambiguities that were previously resolved by the IRS through regulatory interpretations will now require more precise legislative language to avoid judicial disputes.
Congress will need to provide more detailed guidance within tax statutes to reduce ambiguity and the resultant litigation. It remains to be seen whether Congress is up to this task.
Uncertainty and Compliance Challenges for Taxpayers
The increased likelihood of legal challenges and stricter judicial scrutiny will create uncertainty around tax compliance. Taxpayers may face new challenges in understanding and adhering to the current and proposed tax code.
Conclusion
The Supreme Court’s decision to overturn Chevron marks a significant shift in the balance of power between federal agencies and the judiciary. For the IRS, this means navigating a more challenging regulatory environment with increased legal scrutiny and potential challenges to its authority. Taxpayers must stay informed and seek professional guidance to manage the uncertainties and opportunities presented by this new legal landscape..
Written by Joseph A. Peterson
Joseph A. Peterson
Senior Attorney
38505 Woodward Ave., Suite 100
Bloomfield Hills, MI 48304
T: (248) 433-7158
F: (248) 901-4040
jpeterson@plunkettcooney.com
