By Over the years, the IRS has enacted voluminous regulations that interpret ambiguous tax code provisions or fill in administrative gaps.
Indeed, IRS regulations dwarf the tax code: the tax code is about 2,600 pages long, while all the rules written by the IRS amount to over 16,000 pages.
Think an IRS regulation is unfair or overreaches? Until now, there wasn’t much you could do about it. A 40-year-old legal rule called Chevron deference (or the Chevron doctrine) required courts to defer to government regulations so long as they were reasonable. After all, the IRS and other federal agencies were the experts.
Because of the Chevron doctrine, courts rarely struck down IRS regulations. Taxpayers just had to live with them. IRS regulations effectively had the force and weight of law.
This is now changing.
In a landmark court decision called Loper Bright Enterprises v. Raimondo, the United States Supreme Court overturned the Chevron doctrine. Regulations enacted by the IRS and other federal agencies will no longer be given automatic deference. Courts will now make their own decisions based on their interpretations of the tax laws passed by Congress.
But don’t assume that any existing regulation is now invalid. The Supreme Court held that its Loper Bright decision applies only prospectively—that is, it doesn’t invalidate or eliminate any existing regulations. The ruling also preserves earlier court decisions that used the Chevron doctrine to uphold regulations.
Nevertheless, IRS regulations are now more vulnerable to legal attack. Here are some possible ramifications:
- There will doubtless be more legal challenges to IRS regulations. Many are already underway. For example, the IRS’s new cryptocurrency regulations will face numerous legal challenges.
- The IRS may enact fewer regulations and rely more on subregulatory guidance such as revenue rulings and procedures, notices, and FAQs. Such guidance was never entitled to Chevron deference.
- With the demise of the Chevron doctrine, the IRS may need to be more restrained when it writes its regulations to avoid having them struck down by the courts.
- The IRS has had a long-standing internal policy that it will not administratively settle disputes with taxpayers based on challenges to the validity of IRS regulations. This could now change. The IRS may prefer to settle such disputes rather than take its chances in court.