How does the end of Chevron deference affect tax law after Loper Bright?

After Loper Bright, courts must exercise independent judgment when interpreting tax statutes rather than deferring to Treasury regulations. This may make it easier for taxpayers to challenge IRS regulations, though the tax world already had its own deference framework under National Muffler and Mayo Foundation.

Can taxpayers now more easily challenge IRS regulations in court?

Potentially yes. Without Chevron deference, courts are no longer required to accept the IRS's reasonable interpretation of ambiguous tax statutes. However, the practical impact may be limited because tax law already applied a less deferential standard, and well-reasoned Treasury regulations still carry persuasive weight.

Loper Bright and the End of Chevron Deference: What It Means for Tax Law | Lynch Law

On June 28, 2024, the Supreme Court overruled Chevron U.S.A., Inc. v. Natural Resources Defense Council — the 1984 decision that required courts to defer to an agency's reasonable interpretation of an ambiguous statute. In Loper Bright Enterprises v. Raimondo, the Court held that the Administrative Procedure Act requires courts to exercise their own independent judgment in determining the meaning of federal statutes, rather than deferring to the agency's interpretation. The decision reshapes the landscape of administrative law across every regulated industry — including tax.^[1]

What Chevron Required

Under the Chevron framework, when a statute administered by an agency was ambiguous, courts applied a two-step analysis. At step one, the court asked whether Congress had directly spoken to the precise question at issue. If the statute was clear, that was the end of the analysis — the agency and the court must follow the plain meaning. But if the statute was ambiguous (step two), the court was required to defer to the agency's interpretation so long as it was "reasonable" — even if the court would have reached a different interpretation on its own.

In practice, Chevron deference was a powerful tool for agencies. An agency that could identify an ambiguity in its governing statute could promulgate regulations interpreting that ambiguity, and courts were obligated to uphold the agency's interpretation unless it was unreasonable. This gave agencies significant latitude to shape the law through regulatory interpretation, insulated from meaningful judicial review.

The Tax-Specific Context

The tax world has always had a complicated relationship with Chevron. Even before Loper Bright, the level of deference afforded to Treasury regulations depended on the type of regulation. Legislative regulations — those issued pursuant to a specific congressional delegation of authority — received a high degree of deference. Interpretive regulations — those issued under the Treasury's general authority to "prescribe all needful rules and regulations" under IRC § 7805(a) — received a lower, though still significant, degree of deference.^[2]

The Supreme Court's 2011 decision in Mayo Foundation for Medical Education and Research v. United States had settled (or appeared to settle) the question by holding that Chevron deference applies to Treasury regulations on the same terms as other agency regulations. After Mayo, Treasury regulations were entitled to Chevron deference so long as the underlying statute was ambiguous and the regulation was a reasonable interpretation. Loper Bright upends this framework by eliminating Chevron deference entirely.

What Loper Bright Means for Tax Litigation

After Loper Bright, courts must exercise independent judgment when interpreting the Internal Revenue Code — they may no longer defer to Treasury's interpretation simply because the statute is ambiguous and the regulation is reasonable. This has several implications for tax litigation.

First, taxpayers challenging Treasury regulations now face a more favorable standard. Under Chevron, the taxpayer had to show that the regulation was unreasonable — a high bar. After Loper Bright, the taxpayer need only persuade the court that the statute means something different from what Treasury says it means. The court will give the regulation respectful consideration but is not required to defer to it.^[3]

Second, the elimination of Chevron deference may embolden challenges to existing regulations that were upheld under the deferential standard. Regulations that were sustained because the court found them "reasonable" — even if the court would have interpreted the statute differently — may now be vulnerable to fresh challenges under the independent-judgment standard. This is particularly significant for regulations in areas of the Code that are genuinely ambiguous, such as partnership taxation, international tax, and the various anti-abuse provisions.

Third, the IRS and Treasury may shift their approach to regulatory authority. Without the assurance that ambiguous statutes will be interpreted in their favor, agencies may seek more explicit statutory authority from Congress, draft more detailed proposed regulations with extensive preambles explaining their interpretive reasoning, and rely more heavily on formal notice-and-comment rulemaking (which may receive a form of deference under the Skidmore standard based on the thoroughness of the agency's reasoning).

Practical Impact

For taxpayers and their advisors, Loper Bright creates both opportunities and uncertainty. Opportunities, because regulations that were previously insulated by Chevron deference may now be subject to meaningful judicial review. Uncertainty, because the boundaries of the post-Chevron landscape are not yet clear — it will take years of litigation to determine how courts apply the independent-judgment standard to specific Treasury regulations.

The practical impact is likely to be incremental rather than revolutionary. Many Treasury regulations are well-supported by statutory text and legislative history and will survive independent judicial review. The regulations most at risk are those that represent aggressive interpretive positions by Treasury — regulations that push the boundaries of the statutory text or that fill gaps in the Code in ways that favor the government. For taxpayers who believe they are adversely affected by such regulations, Loper Bright opens the door to judicial challenges that would have been difficult or impossible under Chevron.

For tax controversy practitioners, the end of Chevron deference means that the statutory text is more important than ever. Challenges to Treasury regulations must be grounded in close textual analysis of the Code, supported by legislative history and structural arguments. The Skidmore framework — which gives weight to an agency's interpretation based on the thoroughness of its reasoning, the consistency of its position, and other persuasive factors — will likely replace Chevron as the operative standard for Treasury regulations, though the precise contours remain to be worked out.^[4]

The end of Chevron deference is not the end of regulatory authority. Treasury will continue to issue regulations, and most of those regulations will be upheld by courts. But the balance of power between the executive branch and the judiciary has shifted, and tax practitioners must adjust their approach accordingly.^[5]

References

^[1] Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024) (overruling Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984)). The Court held that the APA requires courts to exercise independent judgment in interpreting federal statutes.
^[2] IRC § 7805(a) (general authority for Treasury to prescribe rules and regulations); National Muffler Dealers Assn. v. United States, 440 U.S. 472 (1979) (pre-Chevron deference framework for Treasury interpretive regulations).
^[3] Mayo Foundation for Medical Education and Research v. United States, 562 U.S. 44 (2011) (applying Chevron deference to Treasury regulations on same terms as other agencies). Loper Bright effectively overrules the deference aspect of Mayo.
^[4] Skidmore v. Swift & Co., 323 U.S. 134 (1944) (agency interpretation given weight based on thoroughness of reasoning, consistency, and persuasive power — but not binding deference).
^[5] See also 5 U.S.C. § 706 (APA standard of review: court shall decide all relevant questions of law and interpret statutory provisions). Loper Bright reaffirms this as the governing standard for judicial review of agency action.