Mitchell M. Gans (Hofstra), Does the End of Chevron Deference Mean a Weaker IRS?, 184 Tax Notes Fed. 1503 (Aug. 19, 2024):

The IRS was a powerful adversary when agencies enjoyed deference. Armed with Chevron deference, the IRS could resolve ambiguity in a code section by regulation. The courts deferred to that regulation — giving it “force of law” effect — if found to be reasonable, even if it was not the best interpretation. And even when there was prior inconsistent agency guidance or the regulation was adopted long after enactment of the underlying statute, Chevron nonetheless required deference.

It also permitted agencies, after losing on an issue in court, to adopt a contrary conclusion by regulation and thereby declare victory as long as the court did not hold that the statute was unambiguous — an outcome many found counterintuitive given the normal understanding that courts are the final arbiter in statutory construction. And under Auer v. Robbins, an agency could show up in court and argue that any ambiguity in a regulation should be resolved in its favor if reasonable.

But the tables are turning. In recent years, administrative law has undergone an upheaval that diminishes the power of agencies, including the IRS. Start with Kisor v. Wilkie, in which the Supreme Court in 2019 cut back on Auer deference. A recent Tax Court opinion goes even further, requiring that any ambiguity in a regulation be resolved against the IRS rather than — as under Auer — the taxpayer.

Now, in Loper Bright Enterprises v. Raimondo, the Supreme Court has overruled Chevron. Thus, all agencies will face a more difficult burden in defending the validity of regulations. They will now enjoy only the much weaker Skidmore form of deference that requires the agency to convince the court that its interpretation is persuasive based on various factors — for example, whether the agency has consistently maintained its current position and whether the interpretation was adopted at the time of the statute’s enactment. According to Loper Bright, the court will choose what it deems the best interpretation of the statute, not whether — as under Chevron — the agency had adopted a reasonable one. And because the agencies’ ability to override court decisions was based on Chevron, declaring victory by regulation will no longer be possible.

Before the Supreme Court overruled Chevron (and cut back Kisor), the courts had used various doctrines to limit deference. For example, the Supreme Court had held that agencies were not entitled to any deference if the issue implicated a major question. Indeed, the agency was precluded from taking a position on such a question, absent a clear statement in the statute supporting its position. The courts also began to more aggressively enforce procedural requirements under the Administrative Procedure Act, striking down regulations when the agency failed to respond to significant comments.

To the extent those limitations on deference principles continue to apply, agencies will enjoy less power than they did in the pre-Chevron era. Under Loper Bright, regulations will generally enjoy only Skidmore deference, as they did before Chevron. Yet they will presumably remain subject to the more rigorous enforcement of the APA’s procedural requirements that the courts had developed to constrain agencies using their Chevron-based authority to promulgate regulations having the “force of law.” And on major questions, agencies will receive no deference absent a clear statement. The reversal in administrative law might come as a surprise, but it shouldn’t given the Supreme Court’s commitment to reducing the scope of agency authority.

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