Supreme Court's Loper Ruling: A New Era for Tax Law Interpretation

The Supreme Court recently struck down 40 years of precedent in Loper Bright Enterprises v. Raimondo. The court held the judiciary does not necessarily need to defer to an agency’s interpretation of a statute. Under previous precedent (pursuant to a case called Chevron), the courts gave strong preference to a regulatory agency’s interpretation of a statute.

Why the Loper Ruling Matters

While Loper is not a tax case, a significant portion of tax law comes from administrative sources, including Treasury Regulations, Revenue Rulings, and other IRS publications.

Before Loper, courts often deferred to these administrative sources. Now, in certain circumstances, courts could make their own decisions regarding statutory interpretation.

This opens the door for taxpayers to challenge the Treasury & IRS’s interpretations of law if taxpayers believe their position conforms more closely with the written statute.

Areas of Potential Litigation

It is impossible to predict with certainty the types of litigation that may arise from taxpayers challenging certain regulatory guidance.

Still, it appears probable certain taxpayers and industry groups may bring timely challenges in the following areas:

• Employee Retention Credit
• Affordable Care Act
• Certain aspects of the international tax regime, including foreign tax credits
• The Inflation Reduction Act
• The Research and Development Tax Credit

For each, the Treasury and the IRS have in recent times issued expansive guidance to explain statutory ambiguities and to achieve what the government perceives to be Congressional intent. 

This guidance, in whole or in part, could be vulnerable to challenge in certain jurisdictions under this new Loper precedent, resulting in a court overturning or disregarding the guidance.

What Happens Next Based on the Loper Ruling

Loper will have a lasting impact on administrative law; however, the scale of its affects in the tax world remains to be seen. Some judges indicate they may still defer to the Treasury and IRS’s interpretation of tax statutes.

Additionally, Congress often grants the Treasury Department specific authority to carry out the purposes of a tax statute, and this type of statutory grant may encourage a court to defer to Treasury’s guidance.

When there is no express statutory grant of authority or when the actual statutory text is ambiguous, courts may decide to ignore Treasury and IRS guidance and instead reach their own conclusions on how a tax statute applies to a particular taxpayer’s facts and circumstances.

In the meantime, taxpayers and advisers must still carefully consider existing Treasury and IRS guidance before claiming a particular tax position.