Fishing trawler
In a groundbreaking rulingthe Supreme Court has given federal courts sweeping recent powers to limit the authority of federal agencies. While the case at hand involved the regulation of fishing boats, the choice could have significant implications for the power of the Treasury Department and the IRS to issue regulations that make clear gray areas within the tax law.
The 6:3 decision in Loper Bright Enterprises v. Raimondo is stepping up the Supreme Court’s efforts to limit what conservatives call the “administrative state.” In recent days, the justices limited the Environmental Protection Agency’s ability to cut back air pollution and Securities and Exchange Commission ban using administrative procedures to come to a decision fraud cases.
A gravestone for Chevron
The Loper Bright The ruling rejects the standards the court itself had set in a 1984 case. Chevron USA, Inc. v. NRDC. Since Chevrons, When faced with “ambiguous” laws, judges generally follow the federal agencies’ interpretations so long as their conclusions are “reasonable.”
While the term “reasonable” allows for a broad interpretation, the Chevron Doctrine governed judicial review of regulations for 40 years. In an amicus curiae temporaryLaw professors Kent Barnett and Christopher Walker demanded Chevron “fundamental precedent” cited in 17,000 court decisions.
Nevertheless, the bulk agreed: Chevron, it was said, was based on a “fiction”. It was “fundamentally misguided” and “unworkable”.
They said: “Courts must not defer to an agency’s interpretation of the law just because a law is ambiguous. Chevron is repealed.”
While the court majority Chevron since it allegedly violates administrative law, two justices – Clarence Thomas and Neil Gorsuch – went further and declared it unconstitutional. Gorsuch added: “The court is laying a tombstone on Chevron no one can miss it.”
The disagreement
Loper Bright was a dispute over the regulation of economic fishing boats. But many conservative advocates (Here And Here) used this as a possibility for the Supreme Court to significantly expand its recent, incremental efforts to limit the authority of the chief branch. And the Court majority seized the chance.
In their dissent, Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson called the choice “judicial hubris.” They said judges often lack the expertise needed to handle complex and sometimes highly technical issues and may proceed to depend on administrative agencies to resolve unclear legal questions. They also identified that Congress has had 40 years to reverse the choice. Chevron and has never done so.
Impact on tax law
Regulatory flexibility is especially necessary in tax law. Congress often leaves it to the Treasury Department and the IRS to fill in legal loopholes, either because taxes are so complex or because lawmakers cannot agree on the best way to solve a specific problem. In fact, lawmakers often leave tax law enforcement to the IRS and the Treasury Department because they know they’ll, thanks largely to Chevron.
On Capitol Hill, the chance of gaps or mistakes in policy is gigantic. Tax laws are sometimes written on the last minute by laypeople in back rooms. They rarely have the chance to hunt technical advice, so that they leave it to regulatory experts to seek out problems and solutions.
A central query that Loper Bright will not be clear: How much discretion will the Treasury and IRS have if Congress specifically asks them to fill these statutory gaps? The majority left the door open by saying, “This is not to say that Congress cannot or will not affirm agency discretionary authority. Congress can do so, subject to constitutional limitations.”
It could, but will it occur in today’s hyper-partisan environment?
Today, the Treasury Department and the IRS would likely look to older rulings, including the Supreme Court’s 1979 decision in National Muffler Dealers Association v. United StatesBut in a recent article Ellen Aprill, professor emeritus of tax law at Loyola Law School, concluded“The results of its application are uncertain. Sometimes deference is in the foreground, sometimes hardly at all.”
Complicating life
The Chevron The ruling comes at a time when the IRS is facing significant pushback from the courts. Aprill, of Loyola University, said the agency may have to solicit public comment more often to bolster its “reasonableness” arguments. But even that makes its authority to issue regulations without judges difficult them less clear.
The Treasury Department and the IRS would proceed to have the authority to issue certain regulations, especially recent laws, without constant judicial intervention. But without Chevron’s legal guardrails, regulators would have far less flexibility to answer changing circumstances. For example, would they still have the ability to issue tax rules that apply to cryptocurrencies that to evolve much faster than Congress can react?
Repeal Chevron continues the court’s recent enthusiasm for weakening executive power. But it could change the best way Congress writes tax laws, create administrative chaos for the Treasury and IRS, and complicate the lives of taxpayers who crave and deserve legal clarity.
