Practical considerations for taxpayers and advisers following Loper Bright and Corner Post

Editor: Robert Venables, CPA, J.D., LL.M.

On June 28, 2024, the Supreme Court issued its decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), overruling its 40–year–old precedent set in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Shortly thereafter, on July 1, 2024, the Court issued its decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, 603 U.S. 799 (2024), significantly expanding the statute of limitation for challenges to final agency actions under the Administrative Procedure Act (APA).

Neither Loper Bright nor Corner Post was a tax case; each dealt with judicial review under administrative law principles governed by the APA. However, because U.S. tax law is heavily based on administrative law, both decisions may have profound implications for existing and future administrative guidance issued by Treasury and the IRS.

This item briefly examines the Supreme Court’s rulings in Loper Bright and Corner Post, explores their significance in the context of federal tax policy, and offers practical considerations.

Background: The Chevron doctrine

The Chevron doctrine provided a two–step framework for courts reviewing agency interpretations of statutes. First, courts were to determine “whether Congress had directly spoken to the precise question at issue.” If it had, courts were to “reject any administrative constructions which are contrary to clear congressional intent.” Second, if “the statute [was] silent or ambiguous” on the matter, courts would “defer to the agency’s interpretation if ‘it is based on a permissible construction of the statute,'” even if the reviewing court might have interpreted the statute differently(Loper Bright Enterprises, 603 U.S. at 372 and 379, quoting Chevron).

Chevron became one of the most frequently cited cases in American administrative law. Prior to Chevron, courts were far less deferential to agency interpretations. In Loper Bright, the Court reviewed the evolution of judicial review of agency action, tracing its origins to the New Deal era, and observed, “Nothing in the New Deal era … resembled the deference rule the Court would begin applying decades later [under Chevron]” (Loper Bright Enterprises, 603 U.S. at 390).

Loper Bright: ‘Chevron is overruled’

Loper Bright involved a challenge to a regulation issued by the National Marine Fisheries Service (NMFS), a federal agency within the Department of Commerce. The petitioners, including Loper Bright Enterprises Inc., argued that the scope of the regulation exceeded the NMFS’s authority under the Magnuson–Stevens Fishery Conservation and Management Act. Both the district and appellate courts ruled against the petitioners, with each court citing Chevron in upholding the NMFS’s authority.

The Supreme Court granted certiorari to address whether Chevron should be overruled or clarified. In its decision, the Court concluded that the Chevron doctrine conflicted with the requirement that courts exercise independent judgment when determining whether an agency has acted within the bounds of its statutory authority. The Court rejected the notion that statutory ambiguities are implicit delegations to agencies, stating that “agencies have no special competence in resolving statutory ambiguities. Courts do” (id. at 400—1).

Nonetheless, the Court acknowledged that agency interpretations may still carry persuasive weight. Citing Skidmore v. Swift & Co., 323 U.S. 134 (1944), the Court emphasized that courts may consider an agency’s reasoning, thoroughness, and consistency when assessing its guidance, but such interpretations are not entitled to deference as a matter of course. In overruling Chevron, the Court did not articulate a new standard but appeared to revive the more flexible Skidmore standard for judicial review (see also Walker, “Revisiting Skidmore Deference After Loper Bright,” 238–6 Journal of Accountancy 50 (December 2024)).

Loper Bright: Potential implications for federal tax law

Although Loper Bright was not a tax case, its impact on federal tax administration could be significant. The Internal Revenue Code is implemented through extensive administrative guidance — including Treasury regulations, revenue rulings, notices, and procedures — that may now be more vulnerable to judicial scrutiny.

Nevertheless, the scope of any judicial scrutiny of administrative tax law will depend on whether Treasury acted within its delegated authority, and in numerous instances in the Code, Congress has delegated authority to Treasury. Sec. 7805(a) broadly authorizes Treasury to “prescribe all needful rules and regulations” for enforcing the Code. Moreover, many provisions of the Code include specific delegations of rulemaking authority to the Treasury secretary.

In Loper Bright, the Court stated that when Congress expressly delegates authority to an agency in the statute, a reviewing court’s role is to fix the boundaries of delegated authority and ensure the agency has engaged in “reasoned decision–making” within those boundaries. In apparent anticipation of Chevron‘s demise, the IRS and Treasury have increasingly included detailed preambles with their regulations to demonstrate the reasoning behind the rules and to cite specific statutory authority. To successfully challenge such regulations, taxpayers would need to either refute the agency’s reasoning or argue that the rule exceeds the authority granted under the Code — both of which could be difficult, depending on the strength of Treasury’s preamble.

However, not all Treasury regulations include robust preambles or detailed statutory analysis. Does Loper Bright give taxpayers free rein to challenge any tax regulation, regardless of when it was issued? Generally, no; there is a statute of limitation for bringing a civil action against the United States. However, in Corner Post, the Court would fundamentally shift the consensus understanding of how that statute of limitation applies in the APA context and, in doing so, may have provided an avenue for taxpayers to challenge long–standing administrative tax law.

Corner Post: The statute of limitation in the APA context

Corner Post involved a facial challenge filed against a Federal Reserve regulation issued in 2011. Corner Post is a truck stop that began operations in 2018; it joined as a petitioner in an existing lawsuit filed by two trade associations in 2021 that alleged the Federal Reserve regulation was invalid. At central issue in the case was whether the lawsuit was time–barred under 28 U.S.C. Section 2401(a), which imposes a “catch–all” limitation for civil actions brought against the United States to “within six years after the right of action first accrues.”

In facial challenges, where a regulation is alleged to be invalid in all circumstances, courts have typically held that the limitation period began on the date the rule was issued (referred to in Corner Post as a “defendant–centric” approach). The lower courts had each adopted this view and dismissed the lawsuit, holding that the six–year period of limitation began in 2011, when the Federal Reserve had issued its regulation, and expired in 2017, one year before Corner Post, now a plaintiff in the case, opened for business. The Supreme Court, however, disagreed. In a 6—3 decision, it held that a claim under the APA “first accrues” when the plaintiff is injured by the final agency action, not when the rule is published.

Corner Post: Potential implications for federal tax law

It bears repeating that in Corner Post, the original suit in district court was filed in 2021 by two trade associations and that each trade group had existed for decades prior to the filing. Corner Post was added as a plaintiff after the government sought dismissal of the case. Nevertheless, the Supreme Court held that the statute of limitation had not expired because Corner Post itself was first injured by the agency’s action when it opened in 2018, within six years of the filing of the suit, and its right of first action could not have accrued in 2011, which was prior to its coming into existence when it incorporated in 2017.

In the context of tax, this raises the question: Could Corner Post allow taxpayers to form new entities and challenge older regulations that have not previously affected them? Or could existing entities find “new” taxpayers and add them to a challenge? Justice Ketanji Brown Jackson’s dissenting opinion in the case warned of this possibility. She noted that the majority’s “plaintiff–centric” interpretation of when a claim accrues under the APA could effectively eliminate any meaningful limitation period for facial challenges and cautioned the conclusion allows “every new commercial entity to bring fresh facial challenges to long–existing regulations. … It also allows well–heeled litigants to game the system by creating new entities or finding new plaintiffs whenever they blow past the statutory deadline” (Corner Post, Inc., 603 U.S. at 843—44 (Jackson, J., dissenting)).

Still, the likelihood of such widespread “gamesmanship” remains uncertain. Many long–standing regulations have already been challenged, and bringing a new claim would require a novel legal theory and a willingness to litigate — both of which involve significant cost and risk.

Considerations for tax return positions

Does Loper Bright or Corner Post have any immediately foreseeable practical implications for taxpayers or tax preparers? Or is this all just academic? At this point, it is too early to tell.

In the near term, taxpayers and tax preparers may consider whether Loper Bright and Corner Post offer opportunities to take return positions that are contrary to existing Treasury regulations or other administrative guidance. However, when contemplating return positions, both parties should bear in mind the potential statutory penalties and relevant ethical standards.

At a minimum, any tax return position should at least have a “reasonable basis” to protect the taxpayer from a negligence penalty (Regs. Sec. 1.6662–3(b)(3)). For tax return preparers, there should generally be “substantial authority” (see Regs. Sec. 1.6662–4(d) for requirements to meet the “substantial authority” standard) for a return position to protect the preparer from penalties for understatement of the taxpayer’s liability (Sec. 6694(a)(2)(A)). A return position that meets the “reasonable basis” standard but falls short of “substantial authority” should be disclosed in the tax return using Form 8275, Disclosure Statement. Any return position that is contrary to existing regulations should generally be disclosed on Form 8275–R, Regulation Disclosure Statement, to avoid accuracy–related penalties applicable to taxpayers (Regs. Sec. 1.662–3(c)) and penalties for willful or reckless conduct applicable to return preparers (Sec. 6694(b)(2)(B)).

In addition, tax preparers should ensure compliance with Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), when discussing return positions with their clients and advising them appropriately on adequate disclosure of positions and potentially applicable penalties.

Assessing benefits and costs

The Supreme Court’s decisions in Loper Bright and Corner Post mark a decisive shift in administrative law, curtailing judicial deference to agency interpretations and expanding the timeline for regulatory challenges. While these cases do not directly involve tax law, their influence on tax administration could be considerable. Taxpayers and practitioners should carefully consider the reasoning and statutory authority behind Treasury regulations when taking positions that depart from established guidance. In some cases, it may be worth reassessing prior conclusions or initiating litigation where the potential benefits outweigh the litigation costs. The post–Chevron landscape is still unfolding, but its implications for federal tax policy and practice will be closely watched in the months and years ahead.

Editor

Robert Venables, CPA, J.D., LL.M., is a tax partner with Cohen & Co. Ltd. in Fairlawn, Ohio.

For additional information about these items, contact Venables at rvenables@cohencpa.com.

Contributors are members of or associated with Cohen & Co. Ltd.