How much deference should courts give Treasury regulations?  Until 2011, courts answered that question differently from how they evaluated deference to regulations issued by other federal agencies.  In that year, however, the Supreme Court decided that Treasury regulations should be treated the same way as all federal regulations. Mayo Foundation v. United States, 562 U.S. 44 (2011).  That meant that Treasury regulations would be evaluated under the standard the Supreme Court had created in 1984 in Chevron U.S.A. Inc. v. Nat’l Res. Def. Council, 467 U.S. 837 (1984).

Last year the Supreme Court decided to change it’s general approach to how and when it would defer to regulations issued by federal agencies.  In Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), the Court said it would no longer follow the approach it had adopted 40 years prior in Chevron.  [Snark: not that the Supreme Court has ever really followed Chevron.  For an excellent demonstration of how Chevron was honored more in the breach than in the execution, see Ann Graham, Searching For Chevron In Muddy Watters: The Roberts Court And Judicial Review Of Agency Regulations, 60 Admin. L. Rev. 229 (2008) (reviewing all cases in a single term).

So what is Loper-Bright’s impact on how courts should review Treasury regulations?  That’s the lesson we learn in Judge Weiler’s thoughtful opinion in Alan Hamel and Estate of Suzanne Hamel v. Commissioner, T.C. Memo. 2025-19 (Feb. 15, 2025) (Judge Weiler).  There the taxpayers asked the Tax Court to reconsider a prior opinion where it had upheld a Treasury regulation under the Chevron standard.  In the course of rejecting the request, Judge Weiler teaches us how the Tax Court seems poised to interpret Loper-Bright as returning the law to it’s pre-Mayo status.  Tax exceptionalism alert!

Details below the fold.

Law: Deference to Non-Tax Agency Interpretations
Trigger warning: this is a very, very high level and reductionist skim of the evolution of the law.  Terabytes have been written about this evolution.  I welcome any and all corrections of any errors or omissions a reader believes I have committed.

For today’s purposes we can look at three key dates relevant to how courts approach the deference question for regulations issued by agencies other than Treasury: 1944 (Skidmore), 1984 (Chevron), and 2024 (Loper-Bright).

1944: Before Chevron courts used what I now like to call a Wobbly Table of Factors (WTF) test to evaluate non-tax agency interpretations of statutes (whether made through regulations or otherwise).  I used to call it an indeterminate multi-factor test, but WTF is punchier and keeps my students’ attention.

The Supreme Court case most often cited for this test is Skidmore v. Swift & Co., 323 U.S. 134 (1944), even though that case did not involve a regulation but rather involved what we would now call sub-regulatory guidance.  But it was still an agency interpretation of a statute.  The issue there was whether a fire-fighter who was required to stay at the fire-house to be on-call even though they were not on duty could count those hours as working hours for purposes of computing over-time.  Justice Jackson acknowledged that the statutory text did not cover the situation and explained why and how much courts should defer to the agency—here a fairly small office headed by an “Administrator”—charged with administering the Fair Labor Standards Act statute.  Here’s the money quote:

“We consider that the rulings, interpretations, and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”

Note how this is not a very deferential test.  And no factor is more important than any other, nor is there any ordering rule.  It’s a Wobbly Table.

This is the test courts used to evaluate deference to agency interpretations of law, whether that interpretation was via regulation or other form.  In contrast, regulations that created programs or were carrying out specific delegations of authority from Congress to apply the law to particular factual situations received more deference.  See generally the classic Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L. J. 511.  That distinction—problematic as it might be—was baked into the Administrative Procedure Act (APA) in 1946.  The APA typed regulations as either “interpretative” or “legislative.”  That distinction had various consequences for promulgation of regulations as well as for judicial deference. 

1984: This is the year of Chevron.  There, the Supreme Court replaced the Skidmore WTF test with a multi-step flow-chart inquiry to evaluate the deference courts would give agency interpretations.  Justice Stevens wrote that evaluation of a federal regulation required a 2-step inquiry that privileged and protected the judiciary’s traditional role to say what the law is while creating legal space and flexibility for agencies to act without having to run everything though the courts.

Chevron Step 1: the Court reads the statute to see if the issue before the court is answered by the statute’s text.  Wrote Stevens: “If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law, and must be given effect.”  467 U. S. at 843, n. 9.

Chevron Step 2: if the statute is unclear or ambiguous, the Court then reads the agency’s regulation to see whether the regulation is a “reasonable” interpretation of the unclear statutory text.  This second step is the “defer to agency” step where the Court does not substitute its judgement for the agency but instead conducts a deferential review very similar to the abuse of discretion review that appellate courts sometimes give trial courts. 

Later Supreme Court cases added various qualifications to this basic 2-step approach.  See e.g. United States v. Mead Corp., 533 U.S. 218 (2001).  For the academic treatments, you can feast your eyes on Stephen Breyer Judicial Review of Questions of Law and Policy, 38 Admin. L. Rev. 363 (1986) (explaining “Step Zero”).  And also see David Weisbach’s excellent article, Tax Exceptionalism,  77 Tax L. Rev. 1 (2023) (reviewing history).

Basically, after Chevron, courts deferred to agency interpretations, whether promulgated in the form of regulations or otherwise, based on a determination of whether the agency was exercising Congressionally delegated power and the agency interpretation (again, whether through regulation or other form) was “was promulgated in the exercise of that authority.” Mead, 533 U.S. at 227.

Many courts recognized that judicial deference to agencies really ran on a continuum from no deference to something like abuse of discretion deference.  An example of the former is Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988), where the Court blew off an agency interpretation “advanced for the first time in a litigation brief.” Id. at 212.  But often the standard of review was not central to the court’s evaluation.  See e.g. Bullcreek v. Nuclear Regulatory Comm’n, 359 F.3d 536, 541 (D.C. Cir. 2004) (evaluating regulations for licensing spent nuclear fuel storage facilities and concluding the regulations were valid whether reviewed under Skidmore, Chevron or de novo standard of review). See also David Zaring, Reasonable Agencies, 96 Va. L. Rev. 135, 171 (2010).  I really like how Ninth Circuit explains this continuum in Wilderness Society v. United States Fish & Wildlife Service, 316 F.3d 913 (9th Cir. 2003).

2024: This is Loper-Bright.  Various commercial fishers brought two separate lawsuits, both objecting to a regulation promulgated by the Department Commerce that required them to pay for the government’s cost of monitoring their herring-fishing activities.  The regulation had been issued under the Magnuson-Stevens Fishery Conservation and Management Act (MSA).  In each case, all four of the lower federal courts (two district courts, the First Circuit and the D.C. Circuit) held for the government, relying on Chevron Step 2 and finding that the regulation at issue was a reasonable interpretation of the MSA under the flow-chart analysis of Chevron.

The Supreme Court reversed the lower courts, with Justice Roberts writing (or re-writing) an extensive history of judicial review, emphasizing the rule (or slogan) from Marbury v. Madison that “it is emphatically the province and duty of the judicial department to say what the law is.”

Justice Roberts explains that this rule is baked into the APA’s statutory command in §706 that “the reviewing court—not the agency whose action it reviews—is to decide all relevant questions of law and interpret statutory provisions.” Slip Op. at 21 (cleaned up but emphasis in original).

Justice Roberts then goes on to dump on the Chevron doctrine for a variety of reasons to support his conclusion that “Chevron cannot be reconciled with the APA” Id.  Justice Roberts ends his parade of horribles with this emphatic declaration:

“Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.” Slip Op. at 35.

Importantly, Justice Roberts then cautions readers not to conclude that every court opinion in the last 40 years relying on Chevron is now subject to reversal:

“[W]e do not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—are still subject to statutory stare decisis despite our change in interpretive methodology. See CBOCS West, Inc. v. Humphries, 553 U. S. 442, 457 (2008). Mere reliance on Chevron cannot constitute a ‘special justification’ for overruling such a holding, because to say a precedent relied on Chevron is, at best, just an argument that the precedent was wrongly decided.”  Slip Op. at 34.

Law: Traditional Deference to Treasury
Up until the Mayo decision in 2011, courts evaluated Treasury regulations under a standard that had evolved since 1862, long before Congress enacted the Administrative Procedure Act (APA).  For boring details, you can read my article, A History of Tax Regulation Prior to the Administrative Procedure Act, 63 Duke L.J. 1675 (2014).  Under that standard, courts were instructed to use a WTF test similar to Skidmore to evaluate whether or not they would defer to Treasury’s regulation.

The Supreme Court blessed this standard in Nat’l Muffler Dealers Ass’n, Inc. v. United States, 440 U.S. 472 (1979), where Justice Blackmun explained the WTF test this way:

“We [defer to a Treasury regulation] because Congress has delegated to the Secretary of the Treasury and his delegate, the Commissioner of Internal Revenue, not to the courts, the task of prescribing ‘all needful rules and regulations for the enforcement’ of the Internal Revenue Code. 26 U.S.C. § 7805 (a).  That delegation helps ensure that in this area of limitless factual variations like cases will be treated alike. It also helps guarantee that the rules will be written by “masters of the subject,” United States v. Moore, 95 U.S. 760, 763 (1878), who will be responsible for putting the rules into effect.

“In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner’s interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent re-enactments of the statute. See Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501 (1948); Helvering v. Winmill, 305 U.S. 79, 83 (1938).”

Sorry for the long quote, but I wanted readers to see that how the Nat’l Muffler Court creates this WTF test and compare it to Skidmore.  Notice how the WTF test looks at various factors, none of which are privileged or necessarily determinative.  That’s what makes the Table Wobbly.  In this sense, the Nat’l Muffler WTF test is very similar to the not-very-deferential test courts had long used in reviewing other agency interpretations under Skidmore v. Swift & Co., 323 U.S. 134 (1944).

In 2011 the Supreme Court decided that courts should no longer use the Nat’l Muffler WTF test when reviewing interpretations of tax statutes by Treasury.  This is the famous Mayo case.  There, the question was whether the salaries of medical residents—medical school graduates who were continuing their education as paid apprentices—were subject to Social Security taxes. The applicable regulation said they had to do that.  The Mayo Clinic obeyed the regulation, then sued for a refund of the Social Security taxes it had paid.  It urged the Court “to apply the multi-factor analysis we used to review a tax regulation in National Muffler, 440 U. S. 472.”  562 U.S. at 55.

The Supreme Court said no: it held that it would use the same test for Treasury regulations as it used for all other regulation from all other agencies.  The money quote is “we are not inclined to carve out an approach to administrative review good for tax law only.” 562 U.S. at 55.  The Court has a nice discussion on the difference between the Nat’l Muffler “multi-factor analysis” (aka WTF test) and the Chevron flow-chart.  Applying Chevron, the Court upheld the regulation’s conclusion that medical residents had to pay Social Security tax.

I love the irony of this case.  It’s one of those “be careful what you ask for” cases, much like Crane v. Commissioner, 331 U.S. 1 (1947).  In Mayo it was the government that was arguing for “Chevron” deference because it perceived that as a more lenient standard than the traditional Nat’l Muffler WTF test.  What the government did not apparently consider was that if Treasury regulations were going to be treated like all other regulations on the question of deference, that meant they could be subject to also being treated like all other regulations on the question of issuance.  Making that connection has been the import of Professor Hickman’s work.  See e.g. Kristin E. Hickman, Administering the Tax System We Have, 63 Duke L.J. 1717 (2013) (arguing that Mayo should be read as rejecting what she terms “tax exceptionalism” not just on the question of deference but also from all administrative-law requirements, including promulgation of regulations). It has found considerable traction in the courts, as Professor Weisbach explains in his great “Tax Exceptionalism” article.

So the question after Loper-Bright is this: what deference will courts give to Treasury regulations, and on what theory?

Today’s Lesson gives a possible answer.

Facts:
It’s a little bit tricky here, but the basic issue in this case was whether the Loper-Bright decision undermined the Tax Court’s prior approval of a Treasury regulation concerning the limitation period for making an assessment against a partner after the conclusion of a partnership audit.  Let’s take a look at the procedural history to see.

The IRS issued NODs to the Hamels on March 21, 2021.  The NODs proposed to assess tax deficiencies of about $2 million, and an additional $800,000 in §6662(a) and (h) penalties, for the Hamels’ 1996 and 2001 tax years.

Yeah, you read that right.  You are doubtless wondering why those years were even still open.  It’s because the Hamels’ deficiencies were linked to the audit of a partnership they were involved with, called Palm Canyon.  The IRS opened an audit for Palm Canyon’s 2001 tax year, sent the FPAA in 2005 and the Tax Court sustained the FPAA in 2009.  Palm Canyon X Invs. LLC v. Commissioner, T.C. Memo. 2009-288.  For some reason the appeals process was not finally resolved until the D.C. Circuit affirmance became final in May of 2018 (sorry, the D.C. Circuit judgment is unreported).

The Hamels’ argued that the SOL for the deficiencies asserted against them had run by the time the IRS issued the 2021 NOD.  Generally the IRS has three years from the date of a return to audit it.  §6501(a).  However, under the old TEFRA partnership auditing rules, when adjustments to a taxpayer’s individual return are sufficiently connected to an audit of a partnership to which they belong former §6229(d) kicked in to extend the SOL for the individual taxpayer until 1 year after the last court decision became final.

The Hamels’ argument was that the NOD against them was out of time because it was issued more than three years after the D.C. Circuit’s opinion in Palm Canyon became final.

The government pointed out, however, that former §6229(e) had a special rule for situations where the individual taxpayer was not properly identified as a partner during the TEFRA partnership level proceeding.  In such cases, the statute provided that the limitation period would keep running until one year after a partner was properly identified as being associated with a partnership.  The specific statutory language was that the one year period was triggered by “the date on which the name, address, and taxpayer identification number of such partner are furnished to the Secretary.”

The applicable regulation hopped right on that passive voice in the statute! It required that the required information must be provided to the IRS by the taxpayer.  See former Temporary Treasury Regulation §301-6223(c)-1T—if you can find it!  The government argued that the Hamels were not properly identified as partners of Palm Canyon because they had never submitted the paperwork required by the applicable Treasury regulation to identify themselves as partners.

So that is what teed-up the issue on deference.  The Hamels admitted they never submitted the paperwork but argued that the IRS already had sufficient information to know that they were partners.  So someone had told the IRS and that triggered the additional 1 year under the statutory text.  Heck, the IRS had even used that information to keep them in the loop during the partnership proceedings!  So it should not matter that they did not cross the “t’s” and dot the “i’s” by submitting the documents required by the regulation.  They argued that the regulation was contrary to the statutory text and the Court should not defer to it.

The Hamels argued all of this in 2021, before the Loper-Bright case.  Judge Weiler issued a decision on June 3, 2024—before Loper-Bright—rejecting their argument and holding that the regulation was fine and proper under relevant Tax Court precedent.  Hamel et al v. Commissioner, T.C. Memo. 2024-62.

In turn, that precedent, Gaughf Properties  v. Commissioner, 139 T.C. 219 (2012), aff’d 738 F.3d 415 (D.C. Cir. 2013), had upheld the regulations using a Chevron analysis.

In light of Loper-Bright the Hamels asked the Tax Court to reconsider its opinion on the validity of the Treasury regulation.  Judge Weiler obliged but still concluded that the Court would defer to the regulation.  The reason(s) why are our Lesson.

Lesson: Back to National Muffler?
As I read Judge Weiler’s opinion, he gives three reasons why the Tax Court will still defer to a Treasury regulation after Loper-Bright.

First, he explains that if the Tax Court has issued a binding precedential opinion, Loper-Bright does not require the Court to reverse or re-visit that decision.  Stare Decisis still prevails.  He quotes the language that I quoted above from Justice Roberts’ opinion to support his conclusion .  See Op. at 5. (“we reject petitioner’s first contention that the Supreme Court’s decision in Loper Bright undermines our decision in Gaughf Properties and its effect as precedent in this case.”)

Second, he explains that the Court will now use the Nat’ Muffler WTF test. “After considering Loer-Bright, we find no reason to alter our conclusion here in this case.  For the Supreme Court has noted that courts should generally defer to and uphold Treasury regulations which implement a congressional mandate in some reasonable manner.  Nat’l Muffler…”  Op. at 7 (emphasis added).

Applying that test, Judge Weiler concludes that “In this case it is not difficult to conclude that Treasury engaged in some level of “reasoned decisionmaking” when deciding to promulgate Temporary Treasury Regulation §301.6223(c)-1T.” Op. at 8.

So … tax exceptionalism alert!!  While the Nat’ Muffler WTF test is similar to the Skidmore, it’s not exactly the same, particularly in light of how Congress sometimes gets quite detailed in throwing regulating duties to Treasury.  That’s Judge Weiler’s third point.  He explains that Congress here “expressly delegated rulemaking authority to Treasury to promulgate by regulation the partnership information required under the Code.”  That is, Treasury was not relying solely on its general authority in §7805 but was instead relying on specific authority in former §6230(k) to promulgate the regulations at issue.

This takes us back to the very traditional notion of two types of Treasury regulations: interpretative and legislative.  Interpretative regulations are those that “interpret” statutory text under the general authority in §7805 to make all needful regulations.  Legislative regulations are those that are issued under an explicit and pointed command from Congress.  For those who want more on this, feel free to read Bryan Camp, A History of Tax Regulation Prior to the Administrative Procedure Act, 63 Duke L. J., 1675 (2014).

Bottom Line: To me, Judge Weiler’s opinion points us back to the state of the law prior to Chevron, where the Supreme Court had carved out a specific line of precedents for when to defer to Treasury regulations.  It is not difficult to square this with the Mayo shibboleth that all agencies will be treated alike because both Nat’l Muffler and Skidmore are very similar WTF tests.  But both tests permit the question of deference to Treasury regulations to be analyzed differently than other agencies because of the various ways Congress tells Treasury to implement various statutory texts. 

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.  He invites readers to return on the first Monday of each month (or Tuesday if Monday is a federal holiday) to TaxProf Blog for another Lesson From The Tax Court.  

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