The U.S. Supreme Court today overruled the longstanding Chevron doctrine that for 40 years largely deferred to federal agency regulations in interpreting ambiguities in the law. The landmark decision in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce, et al. addressed appeals in Loper Bright Enterprises v. Raimondo and in Relentless v. Department of Commerce. Six justices joined the majority decision authored by Justice Roberts, with Justices Sotomayor and Jackson joining Justice Kagan’s dissent in Relentless and Justice Jackson taking no part in the consideration or decision in Loper Bright. In the Court’s decision, the majority wrote that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority… courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”
The Court’s decision represents a reversal of the longstanding legal framework for evaluating whether an executive agency’s regulatory interpretation of a statute it administers is correct. Pursuant to the Supreme Court’s 1984 decision in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., courts previously were instructed to defer to the agency’s interpretation so long as the statute was ambiguous and the agency’s interpretation was reasonable. Chevron deference effectively meant that agencies were given the first opportunity to interpret an ambiguous law and fill statutory gaps, and courts would not disturb that interpretation unless it was unreasonable.
The Loper Bright case relates to a regulation issued by the National Marine Fisheries Service (“NMFS”). The petitioner in each case challenged the regulation, and the lower courts upheld the regulation as a reasonable interpretation of an ambiguous statute under Chevron. The Supreme Court, concluding that Chevron deference “cannot be reconciled with the [Administrative Procedure Act],” vacated and remanded the decisions, instructing the lower courts to exercise their own independent judgment to reconcile the statutory ambiguity and determine whether the fee was warranted by the law.
In undoing Chevron, the Supreme Court has effectively turned agency regulations from affirmative law to an expression of an agency’s position on a statute. The potential impacts of this decision are far-reaching and particularly important in the tax space, where Treasury Regulations are not usually based on explicit delegations of authority and more often serve the role of filling gaps or clarifying ambiguities in the Internal Revenue Code. The full ramifications of the decision will take years to unfold. In the near term, the decision almost certainly will result in greater tax litigation and an increased role by the courts in settling disputes between taxpayers and the IRS as to the meaning of multiple aspects of the Internal Revenue Code.
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