What Does Overruling Chevron Mean for Tax Professionals?
Chevron deference was in force from 1984 until this week
This month, in Loper Bright Enterprises v. Raimondo, the Supreme Court overruled its prior decision in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc. (1984), ending so-called Chevron deference to federal regulations.
As expected, social media was full of contradictory opinions. Let’s break down the issues and see how they affect the average tax professional.
We will use the Tax Court case Abdo and Farah v. Comm., 162 T.C. No. 7 (2024) to demonstrate important principles concerning this issue. I previously wrote about this case in the EA Journal and will borrow from that analysis for some content below.
What Was Chevron Deference?
In Abdo and Farah, the Tax Court provided this overview of Chevron deference:
In Chevron, the Supreme Court provided the following framework for court review of an agency's authoritative construction of a statute:
When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court,....as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.
Chevron Analysis in Practice
In Abdo and Farah, the Tax Court considered §7508A(d) and the Treasury regulations interpreting it for the first time. The petitioners, who were Ohio residents, received a notice of deficiency with March 2, 2020 as the last date to petition the Tax Court; they mailed their petition on March 17, 2020. Since the Tax Court currently holds that the petition deadline with respect to a notice of deficiency is jurisdictional, the IRS filed a Motion to Dismiss for Lack of Jurisdiction on the grounds the petition was filed late.
The petitioner’s position was that §7508A(d) provided for a mandatory 60-day postponement of the Tax Court petition deadline, and the petition was mailed under §7502 before the postponed deadline date. On March 31, 2020, President Trump issued a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121– 5207, with respect to Ohio because of the COVID-19 pandemic. The declaration identified the disaster conditions as “beginning on January 20, 2020, and continuing.”
The respondent’s position was that Treas. Reg. §301.7508A-1(g) applied to this case, that the regulation is entitled to deference under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), and that the petition was untimely filed since the IRS never postponed the Tax Court petition filing deadline in its COVID-19 postponement guidance. In Treas. Reg. §301.7508A-1(g)(1) and (2), the government interpreted §7508A(d) such that the scope of the mandatory 60-day postponement ties to the IRS’s ultimate exercise of its discretionary authority under §7508A(a) or (b).
The Tax Court held that Treas. Reg. §301.7508A-1(g)(1) and (2) is invalid to the extent it limits §7508A(d) to the non-pension-related time-sensitive acts determined by the IRS under its §7508A(a) authority. Under its reading of the statute, the Tax Court determined that the §7508A(d) 60-day postponement is automatic and mandatory and that the Tax Court petition filing deadline is unambiguously included in that postponement. Thus, the regulation failed the first step in the Chevron analysis, and the regulation could not stand because it was contrary to the statutory text.
Post-Chevron Preview
Judge Buch’s concurrence in Abdo and Farah contemplates the cases’s outcome in a post-Chevron world:
I join the opinion of the Court with only a few additional observations. Following the parties' lead, the opinion of the Court reviews the issue before us under the familiar Chevron two-step framework, Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc. , 467 U.S. 837 (1984), and correctly concludes under that framework that Treasury Regulation Sec. 301.7508A-1(g) is invalid to the extent it limits the acts subject to the mandatory postponement period of section 7508A(d). I note, however, that the continued viability of Chevron is under review. See Relentless, Inc. v. Dep't of Com., 144 S. Ct. 325 (2023) (granting certiorari for the question of whether the Supreme Court should overrule Chevron). And we could reach the same conclusion without our heavy reliance on Chevron.
Over a century of precedent supports the unremarkable proposition that "[a] regulation to be valid must be reasonable and must be consistent with law." Int'l Ry. Co. v. Davidson, 257 U.S. 506, 514 (1922). Before Chevron, it was clear that "regulations, in order to be valid, must be consistent with the statute under which they are promulgated." United States v. Larionoff, 431 U.S. 864, 873 (1977). In recent years, the Supreme Court has held regulations to be inapplicable with only a fleeting reference to Chevron, see, e.g., Sturgeon v. Frost, 139 S. Ct. 1066, 1080 n.3 (2019), or without referencing Chevron at all, see, e.g., Niz-Chavez v. Garland, 141 S. Ct. 1474, 1485 (2021). And the Supreme Court has specifically stated that it "need not resort to Chevron deference . . . [when] Congress has supplied a clear and unambiguous answer to the interpretive question at hand." Pereira v. Sessions, 138 S. Ct. 2105, 2113 (2018).
Regardless of whether the Supreme Court continues to adhere to or overrules Chevron, we would reach the same conclusion here. The Petition is timely under the mandatory postponement period of section 7508A(d), and Treasury Regulation Sec. 301.7508A-1(g) cannot change that result.
Reliance on Treasury Regulations
Properly promulgated Treasury regulations continue to have the force of law post-Chevron. The decision means taxpayers can now more easily challenge unreasonable IRS and Treasury Department interpretations since they no longer receive automatic deference. In contrast, reasonable interpretations consistent with the statutory language will continue to stand.
Treasury regulations and other authorities listed in Treas. Reg. §1.6662-4(d)(3)(iii) can continue to be relied upon for positions taken on tax returns for purposes of avoiding the §6662 accuracy-related penalty and the §6694 return preparer penalty.
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