Tax Trends: FAQs on Supreme Court overturning of Chevron decision

On June 28, 2024, the Supreme Court overturned the 40-year-old Chevron decision, issuing a seismic ruling that could alter the power of federal agencies. 

Q: The disputes in Loper Bright Enterprises v. Raimondo and Relentless v. Chamber of Commerce are related to fisherman. What does this have to do with tax policy? 

A: The linked disputes were brought by fisherman who disagreed with a federal regulation that mandated vessel owners cover the cost of federal monitors required to ride while the vessel is at sea. The plaintiffs argued Chevron v. Natural Resources (Chevron), a ruling that gave federal agencies broad regulatory power, should be overturned. 

Q: What is the Chevron decision? 

A: Chevron v. Natural Resources Defense Council was a Supreme Court case, decided in 1984, that created a precedent that required courts to defer to federal agency interpretations when a law lacked specificity. The Chevron doctrine effectively allowed government agencies to compel compliance with their interpretations of federal law. The Chevron doctrine has guided judicial decisions for the last four decades. 

Q: How will a reversal of the Chevron decision impact tax policy? 

A: When Congress passes a tax law it often provides a framework but does not include all the details required for implementation. Taxpayers rely on the Treasury Department and IRS to interpret the law and provide more comprehensive guidance, filling in gaps, in order to facilitate compliance.   

The rationale behind the Chevron doctrine was that agencies employ experts who are best suited to interpret federal law. The decision noted judges should not substitute their general knowledge or assume expertise. Accordingly, under this doctrine, where the law is ambiguous, judges have historically relied on Treasury and IRS guidance. Without this mandate, judges will have more flexibility in their decisions to ignore and/or overturn agency interpretations.  

Q: Will the ruling have an immediate impact on tax policy? 

A: The ruling is not retroactive; the decision specifically stated, “[b]y overruling Chevron, the Court does not call into question prior cases that relied on the Chevron framework.”   

However, among other things, we will be watching to see: 

• If there are more frequent challenges and a wider range of judicial interpretations of Treasury regulations and IRS sub-regulatory guidance; 
• If Congress will specifically delegate regulatory authority to the secretary of the Treasury more often; 
• Whether future Treasury regulations will be more taxpayer favorable to prevent taxpayer challenges, incorporating taxpayer comments more frequently; and 
• If deference to federal agencies interpretations of their own regulations and guidance will be called into question (e.g., IRS interpretations of Treasury regulations via revenue rulings, revenue procedures, private letter rulings, notices, FAQs, announcements, form instructions, etc.).

Please join us for our next Tax Trends: Quarterly tax roundtable, on Thursday, July 11, to learn more about the potential impact of this landmark decision. Reach out to your Baker Tilly advisor with questions on how the above may impact your tax situation.

Questions? Reach out to your Baker Tilly advisor if you have questions on how this may impact you.

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