Supreme Court Overturns Chevron Deference
The U.S. Supreme Court on June 28 issued an opinion in Loper Bright Enterprises. v. Raimondo, No. 22-451 overturning the doctrine set forth by the Court in Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), which gave deference to agency interpretations of silent or ambiguous statutes if the interpretation was reasonable. In overturning this principle, the Supreme Court held that courts must exercise independent judgment.
Discussion
The Supreme Court granted certiorari for Loper Bright Enters. v. Raimondo, 45 F.4th 359 (D.C. Cir. 2022) and Relentless, Inc. v. U.S. Dep’t of Commerce, 62 F.4th 621 (1st Cir. 2023) related to whether Chevron should be overruled or clarified. At issue was a rule promulgated by the National Marine Fisheries Service, which is part of the National Oceanic and Atmospheric Administration within the Commerce Department.
As the Court noted, the Chevron doctrine essentially involved a two-part test for evaluating an agency interpretation of a statute. Under Chevron, the first inquiry involved whether Congress had spoken to the question at issue. If so, then the statute would control. However, as a second step, for silent or ambiguous statutes, the court should defer to an agency’s interpretation if based on a permissible construction.
The Loper Bright decision overturns Chevron and instead holds that courts are required to be the final arbiters of questions of law. The Court pointed to the Administrative Procedure Act (APA), 5 U.S.C. § 551 et seq., to hold that courts are required to apply their own independent judgment, as compared to being bound to agency interpretations.
In rejecting the government’s proposition that agencies have technical skills and expertise that should trigger deference, the Court noted that some level of weight may be generally appropriate for agency interpretations. In its discussion of judicial history, the Court cited pre-Chevron cases, including Skidmore v. Swift & Co., 323 U.S. 134 (1944), that utilized factors such as experience and thoroughness of the interpretation, to evaluate agency actions. The decision also implies that specific statutory grants of authority should be respected, although agency actions may be evaluated to ensure that they fall within the grant of authority.
BDO Insight
The Chevron doctrine has generally stood for the proposition that a government agency’s interpretation, including Department of Treasury regulations interpreting Internal Revenue Code provisions, would be respected when a statute was silent or ambiguous on a specific issue. However, courts are now required to apply a more independent analysis in these situations.
This change in standard could open up more Treasury regulations to challenge—perhaps even regulations that have previously been challenged and upheld—or potentially trigger changes to the regulatory process of government agencies.
Courts will likely continue to give some weight to tax regulations, in keeping with pre-Chevron standards; however, there is no longer binding deference when there is ambiguity. The government may ultimately prevail if a tax regulation is challenged, but the cost and burden to defend it may be more significant.
SHARE