We all love a good “David and Goliath” story.
But when Goliath happens to be the agency that enforces the tax code, it’s especially satisfying to see the playing field start to level out.
The Loper Bright ruling is making waves — and it could reshape how your tax disputes are fought in court for years to come. Especially if you’ve ever felt like the IRS was playing with a stacked deck.
In short, the ruling essentially tossed out the “Chevron deference” rule.
Since 1984, the Chevron ruling dictated that when tax laws were murky, courts generally left the decision up to the IRS’s interpretation. A Chevron deference would typically follow two steps once a dispute made it to court:
- The court would determine whether or not Congress had directly spoken to the given issue in previous cases.
- If there is no clear statute that applies to the case, the court would then decide whether or not the IRS’s interpretation is a “permissible construction” of the ambiguous statute.
To put it more simply… Congress may write the laws, but the IRS, with its 16,000+ pages of regulations, fills in the blanks. And if you, the taxpayer, disagreed, the courts often said, “Well, the IRS probably knows what they’re doing.” Not exactly a fair fight, right?
Loper Bright has shifted the balance. Courts no longer have to automatically defer to the IRS’s interpretation when a law isn’t crystal clear — they’ll now weigh in more directly. As the Supreme Court ruled, it’s up to the courts, not the agencies, to interpret the laws. This opens the door for your tax representative (that’s me) to actually argue against those head-scratching IRS interpretations with more weight.
So, there are 3 questions about the Chevron ruling I should answer…
- What does this mean for Mount Vernon taxpayers (like you)? The IRS can’t just rely on vague rules like the Chevron deference to justify penalties anymore. A well-crafted argument during a tax audit now carries more weight. Plus, experts predict a surge in tax litigation as a result of this shift, which means the IRS might be more willing to settle to avoid court. This doesn’t mean tax law has become the Wild West overnight. But it does mean that I, as your go to Westchester County tax pro, can now challenge certain IRS interpretations with more traction — especially when the law leaves room for debate.
- Where are we likely to see the biggest battles? There will likely be more intense dispute resolution processes related to tax penalties, interest calculations, self-employment rules, and those tricky deductions like R&D credits and ERC claims. By taking much of the decision-making power away from agencies like the IRS, there is also a risk of inviting more legal chaos. Without Chevron ruling the courtroom, disputes may take longer to battle out. More equal sides means a longer game.
- What should you do next? For your next steps relating to this ruling, you’ll want to understand exactly how it affects your current dispute. You have more power now, but you’ll need to understand just how to wield it. Give me a call, and we can talk about how this ruling impacts your specific situation. And of course, I’ll keep you informed as things change; this is going to be a wild ride as courts figure out how to apply this new standard.
One important thing to note, this ruling is not retroactive. So past cases decided under Chevron are not overturned.
Also, while the IRS loses Chevron deference, they still have Skidmore deference, which is based on the agency’s interpretation being “persuasive, compelling, and well-reasoned.” You should also know that when Congress specifically directs the Treasury to make regulations, those regulations still carry a lot of weight.
The change of the Chevron ruling certainly levels the playing field – a playing field that has looked a little more like a slope in past years. The IRS’s influence in legal interpretation just took a step back — and that gives you, the taxpayer, a stronger voice in court.
But, in this new landscape, with less uniformity and potentially fewer regulations, will the IRS adapt, or will they continue to push boundaries, forcing even more cases into the courts?
Either way, I’m here in your corner.
calendly.com/l-karam/prospect-schedule
Here to give the “Davids” out there a fair shot,
Lynn Karam