In summer 2024, the U.S. Supreme Court completed one of its most significant terms in recent memory, with several consequential decisions being released within weeks of each other. In particular, landmark decisions in Loper Bright Enterprises v. Raimondo and Corner Post, Inc. v. Board of Governors of the Federal Reserve System have implications for the long-term future of tax rules. Taken together, those cases represent a shift in the way federal laws will be interpreted by courts. While these cases didn’t directly address tax issues, their impact will be realized during future challenges to tax regulations and administrative guidance.
- Elimination of Chevron deference. Loper Bright overturned the legal framework for reviewing administrative guidance that was previously established in a prior case, Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc. This means that regulations and other guidance will be subjected to heightened scrutiny moving forward. But, some measure of deference remains for carefully considered guidance that adheres to the statute in question. Ultimately, this creates a complex situation with few simple answers as to which regulations may or may not survive legal challenges in the future.
- Tax. It’s generally expected that these developments will impact tax rules in the same manner as other administrative law, given the Court’s 2011 decision in Mayo Foundation v. United States. It may be conceptually possible for courts to review tax rules under a different standard (a return to so-called “tax exceptionalism”). However, that seems very unlikely given the consistently expressed view of a majority block of six justices. Going forward, we can probably expect increased focus on Section 7805(a), a provision that purports to grant general authority to Treasury to “prescribe all needful rules and regulations” for the enforcement of the IRC.
- Corner Post and statutes of limitations. Corner Post significantly reduced the importance of statutory limitations periods in shoring up administrative law stability. It did so by deciding the statutory period that’s principally important in administrative law depends on when rules impact private actors, as opposed to when rules become generally effective. Practically, this means that there may be more opportunities to challenge regulations and administrative guidance.
- What’s next? There are few immediate implications since these cases largely established a process and standard for future challenges to administrative guidance. That process will involve all three branches of government and will take years to develop. Loper Bright is a very significant case that will cast a long shadow into the future. That said, the decision is unlikely to change individual tax positions or filings until future legal challenges to specific forms of guidance are successful in the courts.
Continue reading for a more detailed discussion of these cases, or jump to any of the discussions that interest you most.
- Loper Bright and Chevron
- Corner Post also heralded a shift in the law
- Combined significance of Loper Bright and Corner Post
- What’s next: The APA and tax
- Taxpayers should stay attuned
Loper Bright and Chevron
Loper Bright’s significance is largely in what it took away: it overruled Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc. By putting an end to so-called Chevron deference, the Court has turned back the clock to prior judicial doctrines involving statutory interpretation.
What Loper Bright eliminated: Chevron
For 40 years, we understood under Chevron that administrative agency interpretations and applications of law are often entitled to significant deference during judicial review. Chevron called for a two-step analysis. Where a statute was clear and unambiguous, then that was “the end of the matter.” For such statutes, the courts would simply apply them as they were clearly written in the first step. If, however, the statutes were ambiguous or silent, then a second step would be applied. In the second step, courts would defer to agencies’ interpretations of statutes, provided they were permissible or reasonable. The generous amount of deference built into the second step became known simply as Chevron deference.
The second analytical step under Chevron was widely applied in practice because statutes are often ambiguous or silent as to specific matters. That situation is routine for taxes as Congress often leaves unanswered questions when making changes to the Tax Code. Prior to Loper Bright, this meant that the regulations and administrative guidance promulgated by the Treasury Department were given meaningful deference upon challenge by taxpayers.
What Loper Bright left in place going forward: Skidmore
For better or worse, the Court in Loper Bright didn’t replace Chevron with a new rule. It also didn’t completely eliminate the concept of deference to administrative agencies. In that respect, the Court was careful to say that some level of deference to administrative agencies will remain appropriate, especially as to agency authority that was issued contemporaneously with attendant law and has remained consistent over time. Looking ahead, the Court in Loper Bright did provide a path forward even though it could certainly have said more to help guide the future state of administrative law.
This last point ties to what the Court said about deference 80 years ago in Skidmore v. Swift & Co., a case that was cited favorably, though not extensively, in Loper Bright. Skidmore calls for much less deference to administrative agencies than Chevron did. Under Skidmore, an agency’s interpretation of the law is not controlling on courts and is only entitled to weight proportional to: (1) the thoroughness of its reasoning; (2) the validity of its reasoning; (3) its consistency with earlier and later pronouncements; and (4) all those factors that give it power to persuade. We can expect to hear a lot more about this more thorough form of Skidmore deference in the years to come.
In tax specifically, much more will depend on a multitude of factors that relate to the persuasiveness of Treasury’s guidance. In place of the simplicity and clarity of Chevron, analysis of the authoritativeness of Treasury guidance will now be highly contextual. Some measure of deference to Treasury will continue to exist in a situation where a statute clearly delegates specific authority, attendant regulations are carefully written to remain within the bounds of the delegation, the regulations’ language and policy effects are in line with the statute, and the preamble meaningfully addresses comments with convincing reasoning anchored in statutory language. This sort of situation would represent something like the gold standard of deference. But there are plenty of examples in tax where the substance is far cruder, as it were, than gold.
What Loper Bright said about separation of powers principles
There are rules, and then there are broader concepts underlying rules. Both were at play in Loper Bright, and for that reason, the case has significance beyond just being the case that overruled Chevron.
Chevron rested on a theory of implied delegation. At a basic level, Congress makes policy into law and then, to a constitutionally limited extent, delegates some authority to executive branch agencies, which administer the law. The extent and nature of that delegation was the basic question underlying Chevron and Loper Bright.
The “New Deal” era marked the creation of many new administrative agencies. The Court, in immediate response, carefully guarded the line between Congress’ policy-making power and agencies’ power to administer that law with the nondelegation principle. Chevron, decided some 50 years later, rested on the idea that some measure of authority to interpret the law is necessarily and appropriately delegated from Congress to agencies.
The Court in Loper Bright rejected this idea and announced a conceptual return to the stricter, “New Deal” era understanding of nondelegation. The Court’s holding provides its own perspective on the relationship between Congress and administrative agencies based on Article III of the Constitution. But the Court’s understanding of separation of powers sweeps beyond its own perspective and promises to shift how power is balanced between the branches of government.
It's hard to say how any of this might translate to challenges regarding foundational tax concepts. The Court also recently decided Moore v. United States, and after Moore, we know there are at least four votes on the Court for a realization requirement. It takes four votes to grant certiorari, and if the Court is interested in testing an existing proof of a potential concept for a mark-to-market tax, it could take a case based on Section 877A (the exit tax on expatriation), or perhaps even take a case related to more foundational provisions, like Section 61 or Section 7701(o), which are about the nature of income and economic substance, respectively. These are just possibilities, but for now, it's clear that challenges based on administrative action just got meaningfully easier.
What Loper Bright said about the APA
There is even more to Loper Bright. The decision traced the development of the nondelegation principle from its “New Deal” beginnings through to Chevron, and along the way stopped to emphasize the Administrative Procedure Act (APA). The Court said that when Congress enacted the APA in 1946, it properly defined the lines separating the three branches of government. The Court understood the APA to capture the now-revived “traditional” view of nondelegation. In fact, the Court went so far as to say the APA, at 5 U.S.C. Section 706, “codified” the Court’s foundational decision in Marbury v. Madison, the decision that established the concept of judicial review of laws. The significance of this focus on the APA is addressed in more detail below, as the Court had more to say about the APA in Corner Post.
Corner Post also heralded a shift in the law
Loper Bright was not the only case from this past term that changed well-established law. Corner Post, which as of publication time has received less attention than Loper Bright, upended the consensus understanding of how statutes of limitation work in the APA context. We previously understood that limitations periods are, as the Court put it in Corner Post, “defendant-centric.” But now, in the wake of Corner Post, statutes of limitation are “plaintiff-centric.”
What it replaced
What does that mean? Corner Post itself provides good facts for an illustrative example. Corner Post is a truck stop and convenience store that accepts debit cards as payment. Debit card transactions involve interchange fees. Those fee amounts were capped by an agency, the Federal Reserve Board (Board), through a rule issued under authority granted by an enabling statute that’s part of the Dodd-Frank Act. Corner Post sued, arguing the rule exceeded the scope of authority granted the Board under Dodd-Frank.
Corner Post made a so-called facial challenge to the rule. This relates to the sort of remedy available to it. As the concurring opinion in Corner Post described at length, the APA authorizes vacatur, not just an injunction. This means that when rules are successfully challenged, they simply go away and don’t apply to anyone, not just the plaintiff involved.
The problem standing between Corner Post and this dramatic relief had to with timing. The Board’s rule took effect in 2011, but Corner Post didn’t begin its business until more than six years later, in 2018. That was a problem because the applicable statute of limitations, at 28 U.S.C. Section 2401(a), states that complaints must be filed “within six years after the right of action first accrues.”
All this begged the question the Court grappled with in Corner Post: six years from when? The consensus understanding before Corner Post was that the period runs from the time a rule was issued. This was a “defendant-centric” understanding, mentioned above, under which Corner Post would have lost. But the Court departed from the consensus view and announced a rule that depends on when the plaintiff has been injured by agency action. And so, year one for purposes of the statute is the first year in which a party is impacted by an administrative rule.
The Court based its decision in Corner Post mostly on its plain language reading of 28 U.S.C. Section 2401(a). The Court also referred to the legislative history and its own precedent. But the Court didn’t so much as imply the possibility of deference to the Board. This suggests one of several ties between Loper Bright and Corner Post.
In the tax context, as in others, Corner Post opens up potential challenges to old rules. Rules that have been in effect for more than six years but have impacted businesses and individuals for less than six years may be challenged facially in situations where the default statute of limitations at Section 2401(a) applies. This also leaves open questions. For example, could a group of affiliates, all of which have existed for more than six years, create a new entity with the intention of having that new entity challenge a rule that has been in place for decades? And if Treasury were to regulate that sort of thing, to what extent would its authority be grounded in Section 7701(0) relative to the attendant regulations?
Combined significance of Loper Bright and Corner Post
These sorts of questions suggest some of the combined significance of the two cases. Chevron was foundationally important to administrative law for 40 years. The outcome of any number of cases in this period depended on Chevron deference. Perhaps for this reason, the Court in Loper Bright was careful to say it wasn’t “calling into question” any “prior cases that relied on the Chevron framework.” Yet just a few days later, the Court in Corner Post seemingly invited a potentially limitless number of private actors to challenge a nearly limitless number of administrative rules on the books. The relationship between the two decisions wasn’t lost on Justice Jackson, who dissented in Corner Post.
For one thing, the extent of the potential impact here has to do with the fact that Section 2401, the statute of limitations with the “first accrues” language, applies not only to administrative actions, but to all actions against the government that are not otherwise governed by a different, more specific statute of limitations. The breadth of government functions potentially implicated is therefore tremendous.
For another, the same can be said of the breadth of potential plaintiffs. It’s important to keep in mind that Corner Post, the business, wasn’t directly regulated by the rule at issue in Corner Post. The rule directly touched only payment networks because they make the charges. Merchants, like Corner Post, simply pay the fees. And yet it was Corner Post that sued. This was made possible by the same APA provision, 5 U.S.C. Section 706, that the Court in Loper Bright said codified the separation of powers principles first announced in Marbury.
In short, litigation challenging the administrative rules and guidance just became far more viable because of the de facto elimination of the main statute of limitations in the space, the availability of sweeping relief, and the reduction of deference down from substantial Chevron levels to the more minimal levels contemplated in Skidmore. So, it’s easy to imagine plenty of relatively new businesses that might now see litigation as a path for avoiding established aspects of the administrative law that they see as overly burdensome or costly.
One potentially common challenge might be in situations where a regulation arguably exceeds the scope of its attendant statute. This was the challenge in Corner Post, and in tax this sort of argument could be made to many important areas. Consider, for instance, transfer pricing, where the statute, IRC Section 482, is remarkably concise and general, and the great balance of authority is on the administrative side. The same seems as potentially true of consolidated returns. As for a more recent example, consider the funding rule in the new regulations that attend the recent excise tax on stock buybacks, which may not have an analogue in the statute, IRC Section 4501.
In all this uncertain complexity, we shouldn’t lose sight of Motor Vehicles Association v. State Farm, which promises some amount of stability. In State Farm, an agency made a rule, which an incoming presidential administration decided didn’t make policy sense. The administration rescinded the rule, but the Court considered the rescission arbitrary and capricious, following the APA, and required the agency to engage in more reasoning before rescission. State Farm implies the difficulty future administrations may experience if they were to quickly rescind regulations they find politically disagreeable.
Some additional stability seems to appear in the fact that the Court just five years ago in Kisor v. Wilkie declined to do to Auer v. Robbins (and Seminole Rock) what it did to Chevron. Auer and Seminole Rock provide for Chevron-esque deference in situations where the ambiguity is found in a regulation, as opposed to a statute.
What’s next: The APA and tax
The Court in Kisor held fast to stare decisis considerations, which we can largely expect to significantly slow down the sort of destabilizing litigation that could make it difficult for businesses to reliably predict how they will be governed. Nothing has happened yet, and we shouldn’t be too quick to assume any results.
The tax angle
What exactly is the tax angle in all of this? Neither Loper Bright nor Corner Post was a tax case, so neither case carries any direct, immediate tax consequences.
But tax law is largely administrative law. The IRS is nested within the Treasury Department, which is an administrative agency. And while the Tax Code is extensive, the administrative authority that attends the Code is even more extensive. In tax, there are not only regulations, but also revenue rulings, notices, letter rulings, technical advice memoranda, FAQs — you name it. At one point, tax was understood differently from other areas of law. This was in the era of “tax exceptionalism” under National Muffler Dealers Ass’n., Inc. v. U.S. But since the Supreme Court’s decision in Mayo Foundation v U.S., we know that tax is understood in general administrative law terms when it comes to Chevron-type questions. That could change, given that tax generally tracks administrative law and that administrative law, previously a very stable area of law, is now rapidly evolving. But a return to tax exceptionalism would involve more deference to Treasury and the IRS, not less, and a critical number of six justices on the current Court seem deeply committed to paring down the amount of deference administrative agencies receive.
So, what legislative and administrative efforts might come next in the tax space? Congress could act by, say, trying to codify Chevron. A logical place to do so might be IRC Section 7805. For example, there is a Loper Bright-related challenge to the partnership anti-abuse rule, Treas. Reg. Section 1.701-2. The Service has responded by pointing to Section 7805(a), saying that statute codifies its grant of authority from Congress. Congress could also go the other way. There are some efforts in both chambers of Congress to eliminate agency deference by way of statute.
For its part, Treasury has, it seems, for months or even years been anticipating some of the changes made by Loper Bright and Corner Post. This is seen most explicitly in the increased length of preambles to its regulations. Those preambles explain the Service’s reasoning for acting and could in the future do even more to make express connections to statutory language, especially enabling statutes. Recall that Skidmore deference depends partly on the thoroughness and validity of agencies’ reasoning.
As for the courts, both Loper Bright and Corner Post together strengthen the judiciary’s role in defining the limits of agencies’ power, including Treasury’s power. Yet another recent U.S. Supreme Court case, CIC Services v. IRS, suggests some parameters for potential future challenges. That case involved the Tax Anti-Injunction Act, which bars suits seeking the prevention of assessment or collection. The Court in CIC Services said that an APA-based challenge to a notice was possible, despite the Anti-Injunction Act, because the notice required only informational reporting. Of course, once a taxpayer is beyond the barrier to entry presented by the Anti-Injunction Act because they have received a notice of deficiency, then the de facto elimination of the statute of limitations by Corner Post means old Treasury regulations will be more or less fully at play.
A stronger APA
What about old Treasury regulations that aren’t compliant with the APA? And what about the APA more generally? That Act has been significantly revitalized with several shots in the arm. Loper Bright assigned one of its provisions, Section 706, some constitutional significance. The APA will of course never be as authoritative as the constitution itself. But because we now know this Court sees in the APA a true reflection of the constitution, as positioned there by Congress, the APA’s authoritative value has notably appreciated. To this point, Section 706 is the APA provision that, as the concurring opinion in Corner Post explains, makes vacatur relief available to unregulated parties who experience downstream effects of regulations.
To illustrate what coming APA challenges might look like, it helps to reimagine how another recent case might have gone, had it been litigated just a short time later in a world where we have Corner Post and no longer have Chevron.
We mentioned Treasury regulations, which are subject to APA notice and comment procedures. But plenty of tax guidance isn’t subject to notice and comment. Two examples include notices and revenue rulings. These were at issue in a recent 11th Circuit case, Green Rock v. Internal Revenue Service. The plaintiff in Green Rock was a material advisor to a kind of listed transaction involving conservation easements. A statute, Section 6707A, and a regulation, Section 1.6011-4, created the reportable transaction regime, which imposes disclosure and reporting requirements on taxpayers, and also on material advisors like the Green Rock plaintiff. Both taxpayers and material advisors are potentially subject to penalties for failing to disclose. The specific notice at issue in Green Rock identified certain kinds of conservation easement transactions as presumptively tax-avoidant, listed transactions. The court found the notice to be a legislative rule, essentially because the reportable transaction regime allows for penalties and criminal sanctions. Such rules are subject to notice and comment processes, absent an express exemption from Congress. The court identified no express exemption, despite statutory plain language, and therefore found the notice didn’t apply to the plaintiff.
Corner Post shines some new light on the question of available remedies. The relief for the facial challenge in that case was vacatur, not just the injunctive-type relief awarded in Green Rock. Statutory language wasn’t at issue in Green Rock, but if it had been, then, given Loper Bright, it wouldn’t have gotten much, if any, deference under Skidmore. And if there had been a rule more than six years old at issue, then it seems that under Corner Post, there would be no statutory bar to the extent Green Rock itself had been impacted by the rule for less than six years.
The case also suggests a broader problem the Service may soon begin to experience in a post-Chevron world with a revised, expanded view of statutory limitations periods following Corner Post. Notices and revenue rulings aren’t APA-compliant, and so the Service may begin to issue and rely on them less and may focus more of its efforts on rulemaking. And when it navigates the notice and comment process, it’s likely the Service will make more of an extended, careful effort to express its reasoning in preambles and do what it can to tie its rules to enabling statutes.
Connection to state and local taxes
What about state and local taxes (SALT)? Every state has adopted some version of the APA. And each state of course has its own three branches of government. These basic facts have only limited significance because Loper Bright spoke to how power is separated between federal branches of government, because Corner Post spoke to a federal statute of limitations, and because both cases spoke to the federal version of the APA. So while some big developments have happened at the federal level, there isn’t necessarily anyone listening at the state level. But the states do listen, perhaps ultimately out of comity considerations, to the federal system, and to the U.S. Supreme Court in particular. For this reason, we can expect Loper Bright and Corner Post to have ripple effects on subnational tax issues as well.
An illustrative example in the SALT context might also be helpful. Consider The 2009 Metropoulos Family Trust v. California Franchise Tax Bd. The tax question in Metropolous was about sourcing gain on the sale of intangibles. The concepts underlying that tax question had to do with nondelegation. The taxpayer based its position on a statute, but the court in rejecting this position chose to follow a regulation that suggested a different result, reasoning this was possible because the statute granted the agency “substantive rule-making power.” This may have been bad reasoning under any version of administrative law. But following Loper Bright, this reasoning seems especially suspect, given what Loper had to say about nondelegation. And recall that in Corner Post, the plaintiff sought vacatur, arguing the rule at issue exceeded the scope of the attendant statute and the regulation was therefore invalid. Challenges like those in Metropolous and Corner Post will likely be more common now, at subnational and federal levels alike.
Taxpayers should stay attuned
It will take years before we know the true extent of the changes wrought by Loper Bright and Corner Post. Because neither decision was a tax case and because tax isn’t any different, in concept, from other substantive areas for administrative law purposes, there are no immediate changes required by these two watershed decisions.
Still, in the short and medium terms, it’ll be more crucial than ever to stay apprised of breaking developments in tax controversy, legislation, and administrative action. This will, as a best practice, involve both following breaks in the law and also intelligently predicting those breaks before they occur.
