William Byrnes' Tax, Wealth, and Risk Intelligence

The U.S. Supreme Court today issued its expected overruling of the Chevron doctrine, which has been relied upon in 70 past Supreme Court decisions and approximately 17,000 in the Appellate and District courts.[1]

Brief Overview of the Chevron Doctrine

In a landmark unanimous decision in 1984, the Supreme Court established the Chevron doctrine. Only six justices participated due to the recusal of Justices Rehnquist, O’Connor, and Marshall.[2] The case, Chevron U. S. A. v. Natural Resources Defense Council, concerned whether a regulation issued by President Ronald Reagan’s administration’s EPA that, in the perspective of environmental groups, watered down the requirements of the Clean Air Act Amendments of 1977, permissibly defined a statutory term. The previous administration’s EPA regulation defined the term differently and had the support of environmental groups.

The Supreme Court, analyzing the statute’s language, ascertained that Congress did not intend a particular regulatory definition and instead intended to grant the EPA broad scope to effectuate the policies of the Clean Air Act.[3] The Supreme Court stated that policy arguments regarding regulatory choices “are more properly addressed to legislators or administrators, not to judges.”[4] When a court determined that Congress has not spoken directly on a statutory issue (the first step of analysis), then the Chevron doctrine established a threshold of deference in favor of an Executive branch agency’s regulatory choices if (the second step of analysis) – (a) the regulatory scheme is technical and complex, (b) the agency considered the matter in a detailed and reasoned fashion, and (c) the decision involves reconciling conflicting policies.[5]

Today’s Decision Overruling the Chevron Doctrine

On June 28, 2024, the Supreme Court published its decision for Loper Bright Enterprises v. Raimondo, Secretary of Commerce, known colloquially as the ‘New Jersey Fisheries case’.[6] A six-justice majority held that the Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and thus, courts may not defer to an agency’s interpretation of the law simply because a statute is ambiguous.[7] A three-justice dissent defended the Chevron doctrine’s allocation of deference to the executive branch based on the presumption that Congress favors an agency exercising the discretion allowed by a statute rather than the courts.[8]

In 1976, Congress promulgated the Magnuson-Stevens Fishery Conservation and Management Act (the “MSA”) to address overfishing in U.S.-controlled waters.[9] The MSA established eight regional fishery management councils each comprised of members of the regional fishing industry, the regional states, and the federal regulatory agency National Marine Fisheries Service (“NMFS”).[10] The MSA requires that fishing businesses allow an observer on fishing voyages to collect data necessary for the conservation and management of the fishery. The MSA specifies three industry groups that must cover the costs of the observer program, of which only one is a regional fishery management council (North Pacific).

In 2020, the NMFS published a final rule initiated by the New England Fishery Management Council (“NE-FMC”)that required New England-based fishing businesses to cover the costs of monitoring the Atlantic herring fishery when the NMFS elected not to do so.[11] The NMFS estimated that such costs would be approximately $710 daily, reducing annual returns to the vessel owner by up to 20 percent.[12] The New Jersey Fisheries case involved herring fishing family businesses who argued the NMFS is not authorized by the MSA to impose these costs upon them because their businesses fall within the non-specified NE-FMC.  

The majority opinion provides an overview of the history of judicial interpretation, beginning with the seminal Marbury case, continuing through the New Deal period, the 1946 enactment of the Administrative Procedures Act, and ending with the present line of Chevron cases.[13] A foretelling statement regarding deference is made in its overview:

“Respect,” though, was just that. The views of the Executive Branch could inform the judgment of the Judiciary, but did not supersede it.[14]

The majority noted that the APA explicitly directs a reviewing court to decide all relevant questions of law, interpret constitutional and statutory provisions, determine the meaning or applicability of terms of an agency’s actions, and set aside agency action, findings, and conclusions not per a statute.[15] The majority concludes: “The deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.”[16]

Thus, the majority decision was: “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.”[17]

Impact on Treasury/IRS Regulations?

On April 8, 2024, the Congressional Research Service (the “CRS”) published an In Focus article regarding “The Possible Elimination of Chevron Deference: Potential Implications for Tax Revenue and Administration”.[18] The CRS stated that without Chevron’s deference, the 2019 Altera regarding the regulations for cost-sharing arrangements may have been decided in favor of the taxpayer.[19] You may find my previous articles about the Altera decision by linking here, as well as my 2017 article about Treasury regulation jurisprudence in light of the Amazon decision by linking here.

The most telling statement of the CRS is that without Chevron deference, Treasury may draft more taxpayer-friendly regulations. Why? CRS states that a survey found that:

88 percent of agency rule drafters either “agreed” or “somewhat agreed” that Chevron made them more willing to adopt “a more aggressive interpretation.”

Well, I must shut down now to prepare our Shabbat meals. But on Sunday, I’ll add more thoughts and analysis about the end of Chevron on tax regulations and, in particular, for transfer pricing.  

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[1] Adam Liptak, Supreme Court Imperils an Array of Federal Rules, NY Times, June 28, 2024. See https://www.nytimes.com/live/2024/06/28/us/supreme-court-chevron/heres-the-latest-on-the-decision?

[2] Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 104 S. Ct. 2778 (1984).

[3] Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 839, 104 S. Ct. 2778, 2780 (1984).

[4] Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 864, 104 S. Ct. 2778, 2792 (1984).

[5] Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 865, 104 S. Ct. 2778, 2792-93 (1984).

[6] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882 (June 28, 2024).

[7] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *1 (June 28, 2024).

[8] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *114 (June 28, 2024).

[9] Pub. L. 94-265 (1976), 90 Stat. 331.

[10] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *18 (June 28, 2024).

[11] 85 FR 7414, 7414. 

[12] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *20-21 (June 28, 2024).

[13] Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803); The Administrative Procedure Act (APA), Pub. L. 79–404 (1946), 60 Stat. 237.

[14] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *26 (June 28, 2024).

[15] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *32-33 (June 28, 2024).

[16] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *38 (June 28, 2024).

[17] Loper Bright Enters. v. Raimondo, Nos. 22-451, 22-1219, 2024 U.S. LEXIS 2882, at *61-62 (June 28, 2024).

[18] See https://crsreports.congress.gov/product/pdf/IF/IF12630/2.

[19] See William Byrnes, An ‘arm’s length result is not simply any result that maximizes one’s tax obligations’, Kluwer International Tax Blog (June 14, 2019),  https://kluwertaxblog.com/2019/06/14/an-arms-length-result-is-not-simply-any-result-that-maximizes-ones-tax-obligations/.