The Internal Revenue Service’s interpretation of ambiguous tax laws may no longer be authoritative or binding on taxpayers. In the recent United States Supreme Court ruling of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, on June 28, 2024, the Court overturned a long-standing legal doctrine known as the Chevron deference. Under the Chevron deference courts were required to determine (1): if a federal statute was ambiguous and if so, then (2) deference was made to that federal agency’s interpretation of the law so long as that interpretation was permissible. The effect of the Loper Bright decision to overturn Chevron applies to all federal agencies, including the Internal Revenue Service. The impact of this decision may hinder the ability of the Department of Treasury and the IRS to apply federal tax laws.
In the federal tax context, Congress enacts federal tax legislation, i.e. the Internal Revenue Code. Treasury Regulations are issued by the IRS and Treasury Department to provide guidance for new legislation or to address issues that arise with respect to existing Internal Revenue Code sections. Treasury Regulations interpret and give directions on complying with the law. Under the Chevron doctrine, deference was made to the Department of Treasury and the Internal Revenue Service when issuing federal Treasury Regulations interpreting ambiguous federal tax laws. Now with the Loper Bright decision if a taxpayer seeks to challenge a Treasury Regulation that interprets the Internal Revenue Code and brings a lawsuit, the court will no longer simply defer to the Department of Treasury or IRS’ interpretation but rather the court will need to exercise its own independent judgment as to the best interpretation of the ambiguous statute.
To avoid future ambiguity in tax laws, it is possible for Congress to try and be more explicit in drafting tax laws to avoid ambiguities but as we all know enacting legislation is challenging enough. Only time will tell how the Loper Bright decision will effect the administration of tax laws and which side, the taxpayer, or the Internal Revenue Service, will see more favorable results.
