The U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo has significant implications for various federal agencies, including the Treasury Department and the IRS. This ruling directly challenges the longstanding Chevron deference, potentially giving taxpayers better odds when challenging Treasury regulations. This is notably significant in cases where expansive regulations have been issued based on ambiguous delegations of authority, such as those under Section 482.
Recent court rulings have already illustrated this shift, with the U.S. Tax Court undermining some Treasury regulations. For example, in the Varian Medical case, the court found that statutory language entitled the taxpayer to a deduction, sidestepping the pertinent Treasury regulation. Here, the court turned to the regulation only after determining the statute’s clear interpretation, eventually rejecting the Treasury’s regulation as it “contradicts the statutory text.”
While not every case will showcase such clear statutory contradictions, the onus is now on courts to scrutinize the delegations of power granted to the IRS and Treasury. The expansive nature of systems like those under Section 482 often means more rules—and hence more opportunities—for these rules to be tested against “reasoned decisionmaking” standards set by the Administrative Procedure Act.
The breadth of Section 482 regulations makes their validity now precarious. Challenges to these regulations will depend on various factors, including the specifics of the rule, the rationale provided, and how well the rulemaking process accounted for public comments.
Several portions of the Section 482 regulations, particularly recent rules under cost-sharing regulations, are particularly at risk. These rules, which address stock-based compensation costs and platform contribution transactions, are inherently suspect post Loper Bright because they reflect agency efforts to change their positions without any intervening congressional modifications. The risk is that these rules may overstep their delegated authority or attempt to overturn prior court interpretations of Section 482, rendering them vulnerable.
The case is Loper Bright Enterprises v. Raimondo, U.S., No. 22-451, decided June 28, 2024.