Discussion with Reporter about Possible Demise of Deference, Now Often Called Chevron Deference (3/28/24)

Yesterday, I spoke with a reporter about the effect of reversal or elimination of Chevron deference would have on tax administration. As readers of this blog will know, that issue is now before the Supreme Court in two cases. Loper Bright Enterprises v. Raimondo (SEC) (Sup. Ct. Dkt. 22-451, here.; and Relentless, Inc. v. Department of Commerce (Sup. Ct. Dkt 22-1219, here). 

I thought some readers might like to engage with some of the points of the discussion. I will bullet point the key points starting with some predicate points to set up the issue of the effect of reversal or elimination of Chevron deference.

• The key predicate step is to define deference. Deference is a court applying an agency interpretation that the court does not believe is the best interpretation of the ambiguous statutory text. Based on my anecdotal research in significant datasets of courts of appeals opinions noising about Chevron, courts often are not concluding that there is a better nonagency interpretation. Best interpretations of otherwise ambiguous statutory text easily pass Chevron’s test that the interpretations be reasonable.
• I say that this is a predicate step, but it points to the final conclusion. If the Supreme Court says that deference is eliminated, that will only affect those cases where the court affirmatively determines that a nonagency interpretation is the best interpretation. Not affected are those cases where the court determines that, within the range of reasonable interpretations of the ambiguous statutory text, the agency interpretation is best reasonable interpretation or the court is in equipoise as to the best reasonable interpretation (unable to determine that any interpretation is best and agency interpretation is as good as nonagency interpretation).
• I did not discuss with the reporter how often a court might be in equipoise as to the best interpretation; some like the late Justice Scalia claimed that he was rarely if ever in equipoise in statutory interpretation; for present, I assume that legal realists know or intuit that a state of equipoise in statutory interpretation is at least a possibility.
• Chevron did not create deference. Deference existed long before Chevron, in Supreme Court cases describing deference as we now describe Chevron deference—(i) ambiguous statutory text; and (ii) reasonable agency interpretation within the scope of the ambiguity. See John A. Townsend, The Tax Contribution to Deference and APA § 706 (December 14, 2023 SSRN 4665227), here (showing these articulated features particularly in tax cases before the APA).
• Reversal or elimination of Chevron deference will affect only interpretations in Treasury regulations (both final and temporary) because (i) Treasury (IRS) and DOJ Tax do not claim Chevron deference (or any other deference) and (ii) courts do not “defer” to interpretations in IRS subregulatory guidance (Revenue Rulings, etc.). In this regard, Skidmore respect is often mislabeled as deference but is not deference. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here.
• If I am right in my conclusion based on anecdotal research and my intuition that courts now do not commonly really defer to agency interpretation (see definition above), then I suspect that eliminating deference (whether called Chevron or not) will not affect many outcomes, certainly not as many as the commotion about Chevron would suggest.
• Eliminating Chevron deference will exponentially increase tax litigation. It has been observed that the mix of administrative law and tax administration is like a lawyer with a hammer who imagines that there are a lot of nails out there that he or she can profitably hammer through litigation at high billing rates. See Bryan Camp, The APA Is Not A Hammer (Procedurally Taxing Blog 6/24/22), here (“Kristin Hickman loves the APA. To channel Jed Rakoff, it’s her Stradivarius, her Colt 45, her Louisville Slugger, her Cuisinart, and her True Love. It’s her Hammer, her righteous Mjölnir. And when you have a hammer, everything looks like a nail. Including ALL Treasury regulations.).
• The question that should be asked is whether the burst of litigation attacking IRS interpretations in regulations will (or should) affect many final outcomes. I think not. But lawyers with this anti-Chevron hammer will certainly try and in the process charge their high fees. The IRS will underwrite those attempts by giving the taxpayers deductions for the high fees they pay their lawyers to go on what is often a quixotic adventure. (Part of the cost-benefit analysis for taxpayers is how many dollars are involved and the benefits of delay (including the audit lobby and the time benefit/cost of delay).)
• I pointed particularly to the commotion about the written supervisor approval requirement in § 6751(b) involving intersection of a poorly written statute (drafted in a highly partisan atmosphere surrounding RRA ’98 apparently without much thought about how it would actually work) and courts trying to make sense from nonsense. Sooner or later (much, much later), the courts will reach some consensus as to the various ambiguous (or nonsensical) terms in the statute or, more likely, either the courts will honor the IRS’s interpretations in final regulations (now in proposed form) or the Supreme Court will have to come in more than once to clean up the mess. See Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (Federal Tax Procedure Blog 1/8/24; 1/15/24), here.
• Section 6751(b) is just one instance where deferring to agency regulations will avoid a lot of unnecessary commotion. Another instance I like to use (although not mentioned to the reporter) are interpretations such as those “deferred to” in United States v. Correll, 389 U.S. 299 (1967) where the agency interpreted the statute’s “away from home” requirement to include sleep or rest, hardly compelled by the statutory text but reasonable for administering the tax system. What happens to the thousands, if not millions, of interpretations buried in Treasury regulations that may now seem to be in play to those with a high-priced hammer?
• Finally, I vented to the reporter my concern that deference is just a battle in the larger war to discredit what is perceived (or claimed for political purposes) to be an evil administrative state. That is a political issue that plays out in many contexts; deference is just one context where politics is disguised with legal and even constitutional overtones (lipstick on the pig). My point is that given the community we have in the United States and where we want to be in the world, a robust administrative state is required. That means that we should honor those who work in that administrative state (military, IRS agents, etc.) and strive to make them better rather promoting a narrative that administrative agencies are enemies, a narrative that can seep through our fabric, even for such things as Chevron deference. 

Added 3/30/24 @ 2:30 pm:

On the last bullet point above, I say something about the corrosive effect of attacks on the administrative state. I offer for further consideration the following by a noted scholar, Lisa Heinzerling of Georgetown Law, here. The offering is The Supreme Court’s Self-Coronation (The Regulatory Review 3/18/24), here. Key parts of her discussion include:

          Litigation in the U.S. Supreme Court has become the right wing’s genteel alternative to open rebellion. The three newest justices, who gave the Court a conservative supermajority, were installed in their posts precisely for the purpose of neutralizing the government. Billionaire-funded advocates declare that the United States is a “shell” of a republic and concede that their goal is to topple the government as it stands. One lawyer helping to wage this assault admits to preferring the Supreme Court as a venue for momentous change because it is “more efficient” than working through the electoral branches of government.

          This radical judicial project is well underway. Based on an aggressive and controversial vision of the constitutional separation of powers, the reconfigured Court, spurred on by well-heeled litigants, has already dramatically changed the structure and authority of the federal government. With each new case, the Court has enlarged its own power while shrinking the power of the other institutions of government.

* * * * 

          Chevron, as Justice Kagan explained at oral argument, is “a doctrine of humility,” a recognition that “agencies know things that courts do not”—about fisheries, about climate change, about pandemics, about the hydrology of wetlands and water pollution, and about all the complex matters that Congress has charged agencies with addressing. But it is not only disciplinary humility that the conservative justices lack; it is any indication that they value or even respect the actual work that agencies do. If you doubt this, read the oral argument transcripts in Loper and Relentless and spot the many times that conservative justices blasted agencies and their personnel.

          Perhaps the most unfortunate consequence of discarding Chevron is that it will mark the Supreme Court’s complete and dangerous transformation into an instrument of the anti-government wing of American politics.