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The Demise of Chevron Will Result In Increased Treasury Regulation Challenges

The Demise of Chevron Will Result In Increased Treasury Regulation Challenges

According to Law360, many tax practitioners had been eagerly awaiting the decision in the Loper Bright case because the IRS has long relied on the Chevron doctrine, established in a 
1984 opinion to defend tax regulations in litigation.

The Supreme Court decided to weigh in on the fate of Chevron last year after fishing industry plaintiffs in the Loper Bright case and a similar one called Relentless v. Department of Commerce asked the justices to overturn Chevron to undermine a 2018 National Marine Fisheries Service rule that required fishers to pay part of the cost of having federal compliance monitors aboard their ships.

In Siding With The Fishing Groups, A Majority Of Justices
Held That Chevron Improperly Prioritized The Executive Branch's Legal Interpretations Over The Judicial Branch.

Chevron deference was "misguided because agencies have no special competence in resolving statutory ambiguities. Courts do," the Supreme Court's majority opinion said.

In response to the opinion, U.S. Tax Court Judge Elizabeth Ann Copeland, speaking On June 28, 2024 at New York University School of Professional Studies' tax controversy forum in New York said Treasury and the IRS do have special competence in tax law. 

The Tax Court, She Said, Will Continue To Give 
Considerable Credence To The Agencies' Rules.

Meanwhile, practitioners said the decision will likely embolden more people to file lawsuits against tax regulations they dislike because the IRS no longer has Chevron to lean on.

"Now the IRS will have to defend its regulations on the merits based on what the tax code actually says," said Rob Kovacev, a member at Miller & Chevalier Chtd said.

However, while the Loper Bright decision provides ammunition for taxpayers to dispute regulatory interpretations they disagree with, Tom Cullinan, who was counselor to former IRS Commissioner Chuck Rettig and is now with Chamberlain Hrdlicka White Williams & Aughtry, said that outcome may come at the cost of reduced tax certainty.

One option for the IRS to try to quickly provide some certainty and clarity on tax laws is to issue so-called subregulatory guidance such as notices, announcements, revenue rulings and revenue procedures. 

However, such regulatory guidance does not have the force of law, Michelle Abroms Levin, shareholder at Dentons Sirote, said.

Subregulatory guidance can also be "susceptible to a challenge because there won't be as much of a record to support it unless the IRS makes the record internally," Levin said.

Another option for taxpayers seeking certainty about tax laws and regulations is to challenge them in court and let the judges decide, she said. But there's no guarantee they will get the answer they want, Levin said.

Moving forward, practitioners said, when promulgating rules, the IRS may have to build upon its recent process of actively soliciting public feedback and providing an elaborate explanation in the preamble to regulations explaining why the agency wrote the rules the way it did. 

The IRS has pursued this process in response to recent losses in several lawsuits that challenged tax guidance, such as the listing notices on syndicated conservation easements, for failure to follow the public comment requirements under the Administrative Procedure Act.

JUST IN: The U.S. Supreme Court vacated and remanded on July 2, 2024 a decision denying a whistleblower award to a tipster who reported an improper $60 million tax deduction to the IRS, saying the D.C. Circuit should reconsider its decision following the high court's ruling that overturned the Chevron doctrine.

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Read more at: Tax Times blog

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