In an August 24, 2024 decision, Varian Medical Systems Inc. v. Commissioner (Varian), the Tax Court offered a first view of how it will analyze challenges to Treasury regulations after the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo (Loper Bright). Loper Bright reversed the four-decades-old Chevron doctrine of judicial deference to agency regulations in interpreting ambiguous statutory language.
The substance of the regulation in Varian — which, very broadly, sought to conform mismatched effective dates of interrelated amendments to the Tax Code — is not what is significant. In fact, because the language of the statute at issue in Varian was unambiguous, the Tax Court held that the contrary regulation would have been invalid under the Chevron doctrine. What is significant about Varian is that Tax Court Judge Emin Toro felt it necessary to discuss Loper Bright even under these circumstances—and thereby presage how the court will review Treasury Regulations going forward.
The taxpayer in Varian argued that the statute’s text was plain and unambiguous. The Commissioner at first argued that the statute was at least ambiguous and that, under Chevron, the regulation’s statutory interpretation was permissible. After Loper Bright was decided, Judge Toro requested the parties’ views on the impact of that decision.
Judge Toro thereafter agreed with the taxpayer that the regulation was invalid because the statute’s plain meaning was obvious, noting that, under Loper Bright, a court must determine a statute’s “single, best meaning,” i.e., “the reading the court would have reached if no agency were involved.” A court will not determine whether the particular statute under consideration constitutes bad policy and whether, therefore, the court should defer to a regulation that, while contrary to statutory language, accomplishes the most desirable resolution. “[G]eneral policy concerns … and speculation about congressional intent cannot override clear statutory text.”
As a result, although the court will pay “careful attention” to the Treasury Department’s views, it will exercise independent judgment in deciding whether Treasury has acted within its statutory authority. The weight to be accorded Treasury’s views will depend on their thoroughness, consistency over time, and persuasiveness. If Congress has delegated rulemaking authority to Treasury, the court will decide what the boundaries of that authority are.
Judge Toro concluded that: “Appeals to policy and Congress’s overarching purpose cannot overcome [Congress’s choices when enacting a particular statute], no matter how much the Commissioner may dislike them,” and “[a]chieving a better policy outcome … is a task for Congress, not the courts.” The entire tax court reviewed and agreed with Judge Toro’s opinion.
Challenges to both new and older Treasury regulations under these standards are undoubtedly coming in the future, and we await how the Tax Court will hone its post-Loper Bright review.
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