Tax Court in Reviewed Opinion Rejects Chevron and State Farm Attack on § 482 Blocked Income Regulation (2/10/23; 2/15/23)

In 3M Companies v. Commissioner, 160 T.C. ___ No. 3 (2/9/3) (reviewed), TA here and GS here, the Court sustained the IRS so-called blocked income regulations. The opinions (opinion of the court and concurring and dissenting opinions) cover 346 pages. The following is the page breakdown.

• Opinion of the court by Morrison, joined by Kerrigan, Gale, Gustafson, Nega, Ashford, and Marshall): pp. 1-273, with 208 footnotes
• Kerrigan concurring (joined by Gale, Paris, Ashford and Copeland): pp. 275-280, no footnotes
• Copeland concurring in the result joined by Kerrigan, Gale and Paris: pp. 281-286, 1 footnote
• Buch dissenting joined by Urda, Jones, Toro, and Greaves: pp. 287-305, 9 footnotes
• Pugh dissenting, joined by Foley, Buch, Urda, and Toro: p. 306, 1 footnote
• Toro dissenting, joined by Buch, Urda, Jones, Greaves, and Weiler (307-346, 33 footnotes

Judge Toro offers (p. 309 n. 2) this helpful and short statement describing the function of the opinion of the court: “Following the Court’s tradition, I refer to the opinion by Judge Morrison, which received 7 votes (out of 17) from active judges, as the opinion of the Court.” The opinion of the court is not a majority opinion, so what gives? For more on this phenomenon, see Kandyce Korotky, All for One, and Five for Sixteen? When the Tax Court’s “Majority” Opinion Isn’t (Procedurally Taxing Blog 4/10/18), here. [Note: in a subsequent Order in Coca-Cola v. Commissioner (Dkt. No. 31183-15 Order dated 2/14/23), a case on hold pending the outcome of 3M, Judge Lauber asked the Coca-Cola parties to file briefs addressing some issues remaining open after the 3M opinions and describing the 3M split among the judges as follows: "On February 9, 2023, a Court-reviewed opinion was issued in the 3M case, rejecting by a 9-8 vote the taxpayer's Chevron and APA arguments and upholding the validity of the “blocked income” regulation. See 160 T.C. No. 3 (2023)."]

I think it will be most helpful to readers just to offer the Syllabus at the beginning of all the opinion of the court. The Syllabus summarizes the opinion of the court (not the concurring and dissenting opinions): 

Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (2/9/23)

Many observers have noted that the Supreme Court has avoided Chevron deference in recent years. E.g., Isaiah McKinney, The Chevron Ball Ended at Midnight, but the Circuits are Still Two-Stepping by Themselves (Notice & Comment 12/18/22), here. The Supreme Court has affirmed so-called Auer deference for agency subregulatory interpretations of ambiguous regulations. Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019). (Auer deference is now sometimes called Auer/Kisor deference.) But the Supreme Court has not deployed core Chevron deference recently, although one prominent scholar has said that Kisor was an affirmation of Chevron deference. Cass R. Sunstein, Zombie Chevron: A Celebration, 82 Ohio St. L.J. 565, 570-571 (2021) (“If Kisor was right, it would be easy to conclude that Chevron was also right, and for exactly the reasons given by the Court in that case.”) Still, I suspect that the Supreme Court’s Chevron avoidance is to avoid reflexive deference and more rigorously apply the tools of construction to find no ambiguity at Chevron Step One (without mentioning Chevron).  See e.g., Isaiah McKinney, At the Supreme Court, Chevron Deference Has Morphed into the Application of the Tools of Construction (Notice & Comment 2/9/23), here.

Not all Justices avoid Chevron. Justice Gorsuch has lamented Chevron in dissenting opinions. E.g., Buffington v. McDonough, 143 S. Ct. 14 (2022), here, discussed at Justice Gorsuch's Newest Rant on Chevron and the Administrative State (Federal Tax Procedure Blog 11/7/22; 11/8/22), here. This ranting is just a continuation of his famous claim on the 10^th Circuit that Chevron was the “elephant in the room * * * [permitting] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers' design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1153 (10th Cir. 2016) (concurring to his own majority opinion apparently because he could not get the other judges on the panel to join his rant).

With Chevron falling  into desuetude on the Supreme Court, others have noted that the Chevron action is in the lower courts, noting particularly the Courts of Appeals. Chevron is Supreme Court authority that has not been overruled; logically, Chevron should be used by Courts of Appeals in appropriate cases.

I recently tested a one-year dataset of possible Chevron applications in the Courts of Appeals. Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here. That data set included no Court of Appeals opinion where the Court said it was deferring to a less persuasive agency interpretation. In each instance where a Court of Appeals invoked Chevron in outcome determinative way, it simply declared the agency interpretation reasonable at Chevron Step Two. Of course, agency interpretations that are the best interpretations are reasonable. So, when a court stops at merely declaring the agency interpretation reasonable, it has not determined that the agency interpretation was not the best interpretation and was deferring anyway.