Chevron’s Fall: The Supreme Court Tightens the Reins on Regulators

By: Sarah Frazier, Attorney at Law

Since 1984, the Chevron doctrine has granted federal agencies deference in interpreting the laws that give them their authority. In June of 2024, the Supreme Court overturned this long standing-principle and held that federal agency interpretations of law are not entitled to any deference. The overturning of the Chevron doctrine begs the question: how will the Department of Treasury (“Treasury”) and the Internal Revenue Service’s (“IRS”) promulgate tax regulations without relying on the doctrine of administrative deference?

Chevron – What was it?

In 1981, the Environmental Protection Agency (EPA) created regulations related to the Clean Air Act, which had recently been amended by Congress. Chevron claimed the EPA’s definition of a certain term from the Clean Air Act was inappropriate. Congress had not defined this term in the Clean Air Act, and the Supreme Court upheld the EPA’s definition.

This case had profound implications for anyone subject to federal agency regulations:

1. Federal agencies had the authority to reasonably interpret statutes and address any gaps left by Congress in the statutes.
2. If the agency’s interpretation was reasonable, courts were bound to defer and would not substitute their own interpretations.

Loper Bright – The New Standard

The National Marine Fisheries Service (NMFS) regulates fishing operations up to 200 nautical miles beyond the U.S. seas. For Atlantic herring fishermen specifically, a NFMS rule under the Magnuson-Stevens Act required fishing vessels to pay a government-approved “observer” to be onboard for fishing trips as the NFMS saw fit – costing “up to $710 per day.”

Lower courts applied the Chevron doctrine and ruled in NMFS’s favor, giving deference to NMFS’s interpretation of the relevant statute due to the lack of Congressional guidance concerning the matter. The Supreme Court disagreed, stating that the Chevron doctrine fundamentally contradicted both the 1946 act granting power to federal agencies and the interpretative role of courts in the United States. The Supreme Court has reasoned that allowing agencies untethered power to interpret statutes usurps the Constitution’s separation of powers doctrine.

Under the Loper Bright standard, courts will independently review the actions of federal agencies to determine whether they are acting within their statutory power.

Looking Forward

Although the Supreme Court did clarify that previous cases decided under the Chevron doctrine should not be overturned because of the Loper Bright ruling, the new standard will likely encourage more challenges to agency regulations. Chevron was cited in tens of thousands of cases since 1984, and Loper Bright has already been cited in hundreds since June of 2024.

It is too soon to say the depths to which Loper Bright will extend in courts, or how exactly federal agencies, such as the Treasury or IRS, will change their approaches to regulating in response to this decision. It begs us to inquire: will the Loper Bright standard lead to greater clarity in the law, or will we be confronted with new uncertainty and inefficiency within the regulatory process? 

The overturning of Chevron means that courts are no longer required to uphold IRS regulations as authoritative interpretations of ambiguous tax statutes. This could lead to reinterpretations and re-litigation of tax issues thought to be previous settled and cause substantial effects on federal revenues. Will it be enough to inspire less ambiguous legislation now that agency interpretations are merely persuasive authorities and no longer binding?

Citations

Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984).
Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024).