Following Up on Loper Bright’s Potential for Reshaping Tax Law 

Recasting Regulations has covered several developments related to the impact of Loper Bright on tax law and administration in recent weeks.  To start, we highlighted an event hosted by the NYU School of Law’s Graduate Tax program, which explored the end of Chevron deference on future review of Treasury regulations.  And we published a guest essay by Tyler Martinez, Director of Litigation for the Taxpayer Defense Center at the National Taxpayers Union Foundation (“NTUF”).  These and other developments underscore that Loper Bright’s impact on the tax space is proving broader than many initially predicted.  Courts, regulators, and academics are all reassessing presumptions about the IRS’s regulatory authority and the mechanics of judicial review of tax regulations. 

Let’s start with Tyler Martinez’s essay.  Beyond celebrating the positive change that Loper Bright will create for taxpayers, his piece provided several key examples of cases in which the end of deferential review has had—or will have—a real impact on practical outcomes.  The Eighth Circuit, for example, reversed the Tax Court last year in 3M v. Commissioner, striking down the IRS’s blocked-income regulation as inconsistent with the underlying statute.  In the end, the taxpayer was refunded $5.2 million, reflecting both taxes paid and statutory interest.  And there are other cases on the horizon—such as Wepplo v. Commissioner, which concerns COVID-era interest abatement and tax deficiencies—where Loper Bright could be just as impactful in ensuring the primacy of statutory text over the IRS’s regulatory interpretations. 

The relevance of Loper Bright for the disposition of Wepplo is particularly acute because the IRS claims the Tax Code’s general “housekeeping” authority (I.R.C. § 7805) provides it with broad power to engage in regulatory implementation of its own design.  Yet, while the Loper Bright Court was clear that sometimes the best reading of a statute is that it authorizes an agency to exercise regulatory discretion, it remains hotly contested whether such a generalized delegation as Section 7805, which was arguably intended for interpretive or procedural rulemaking, can function as an express delegation of legislative rulemaking power.  So far, courts seem to have been skeptical of the IRS’s position, as recounted in the press and as argued in NTUF’s amicus brief in Wepplo.   

A new IRS notice also suggests Loper Bright may be driving deregulatory efforts at the IRS.  That notice, which revokes over seventy guidance documents, is intended to implement Executive Order 14219, “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative.”  While the notice does not identify Loper Bright as the grounds for withdrawing any specific guidance document, it is no secret the case plays a significant role in the design and operation of Executive Order 14219.  Indeed, the principle of regulations reflecting the “best reading” of the law has become a guiding principle for the current Administration’s regulatory reform agenda.  (Readers who are interested in understanding the scope and scale of such post-Loper Bright deregulatory efforts should explore our regulatory tracking website!) 

Finally, the debate has begun to reshape academic literature on tax administration.  Earlier this summer, for example, we highlighted a research paper by Professor Blaine Saito of (Ohio State University), which takes a somewhat pessimistic view on the impact of Loper Bright on tax law. Last month, Professors Connor Clarke and Noah Marks published a paper in Tax Notes Federal, entitled “Tax Exceptionalism After Loper Bright,” which explores whether the fall of Chevron deference has any bearing on the relevance of Mayo Foundation and National Muffler for judicial review in the tax-law context.  From that article’s introduction: 

We highlight the Tax Court’s renewed interest in National Muffler as a relevant precedent on the judicial review of tax regulations, and we provide a framework for that renewed interest — namely, that National Muffler can be traced back to pre-APA precedents and that the reasoning bears a close family resemblance to the deference regimes that the Supreme Court recently blessed in Loper Bright.  Section IV turns to two broader consequences of this analysis.  First, there is no inherent conflict between the supposedly tax-specific pre-Chevron deference practices and the historical inquiry that Loper Bright tees up.  Second, we highlight a substantial — and largely unexamined — body of pre-APA tax case law that offers courts and practitioners a resource newly relevant for the inquiry Loper Bright now demands.  

This article is not a full-throated endorsement of National Muffler, nor do we suggest that the Supreme Court has changed its inclination on whether there should be “an approach to administrative review good for tax law only.”  Instead, we intend to show that a large body of judicial thinking that applies to the review of tax regulations — once seemingly and emphatically discarded by Mayo — necessarily takes on new relevance and complexity in the wake of Loper Bright.  

These are only some of the recent examples of Loper Bright’s growing influence in tax law.  Be sure to continue following our coverage of how courts, Congress, agencies, and the academe are repositioning themselves in the wake of Chevron’s overruling. 

Ryan P. Mulvey is senior policy counsel at Americans for Prosperity Foundation.