Loper Bright’s Motivated Mistreatment of Statutory Ambiguity and Best Interpretations (8/28/25)

On August 26, 2025, I gave a talk to a Houston tax group, the Wednesday Tax Forum. The paper I circulated was a high-level summary of a longer article that I have submitted for publication in the ABA Tax Lawyer in Spring 2024; the submitted article addresses the tax implications of Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 377-378 (2024), see Preliminary Print here. I link that summary here so that readers may download if they wish. Note that the linked summary is redlined to show changes that I made shortly after giving the talk. I will not attempt to further summarize the arguments.

I address in this blog entry the overarching claim that I make. The domain of Chevron was a state of ambiguity where the court was not able to determine whether the agency interpretation or an opposing interpretation was the best interpretation. I call that state interpretive equipoise to relate it to the more familiar concept of factual equipoise where a factfinder is unable to determine whether a critical fact exists or not. In a state of factual equipoise, the factfinder resolves the issue by holding against the party bearing the burden of persuasion on that fact. In a state of interpretive equipoise, the court cannot find that either the agency interpretation or the opposing interpretation is the best interpretation. Chevron resolved the case in that state of interpretive equipoise, effectively placing on the opponent of the agency interpretation a burden to persuade the court that its opposing interpretation was “best.”

Why did Chevron tilt in favor of the agency interpretation in a state of interpretive equipoise? First consider the alternatives. Would it be acceptable for courts to decide in equipoise by flipping a coin, consulting a ouija board or soothsayer, or some other unprincipled way of resolving the ambiguity? Of course, that would not be acceptable. Still, courts must resolve interpretive issues in equipoise in some way. Chevron offered that way. I will address below why that is a principled resolution based on the APA, but I ask first what Loper Bright offered in lieu of Chevron to resolve cases of interpretive equipoise?

Loper Bright offers nothing for interpretive equipoise other than the ill-considered notion that courts can always interpret out all ambiguity to derive the single best interpretation. That would be nice if it made logical sense or experiential sense. Courts have the same interpretive skills after Loper Bright that they had under Chevron where they were admonished by Chevron’s famous footnote 9 to use those skills to avoid ambiguity where possible. Nevertheless, in some cases, ambiguity remained. I submit that cases of ambiguity—interpretive equipoise—will remain under Loper Bright. Loper Bright offers no guidance on what a court does where, using its best interpretive skills in de novo review, ambiguity exists.

Traditional Skidmore will not solve the problem of interpretive equipoise. Traditional Skidmore simply requires courts to respect agency interpretations in determining the best interpretations. The phenomenon I address here is where, after using all of those tools of interpretation (including Skidmore), the court cannot determine, as between the agency interpretation and the opposing interpretation, which is the best interpretation. Both interpretations must be in play—that is reasonable within the scope of the statutory ambiguity—but neither is the best interpretation. In that state of play, Loper Bright offers no way to resolve the case.

Of course, I say traditional Skidmore. Skidmore has traditionally been called Skidmore deference even though it was not deference but simply a consideration in reaching the best interpretation. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here. It is possible that, post-Loper Bright, courts may reimagine Skidmore to fill some of the conceptual space on the spectrum between respect and deference, sort of more than respect but less than deference, if that is a possible thing, say deference “light.” I can’t offer anything meaningful on that possibility.

I can offer an APA-qualified resolution in cases of interpretive equipoise. APA § 706(2)(A), here, permits a court to “hold unlawful and set aside” an agency action, here interpretation, only if it finds the agency action “not in accordance with law.” As worded textually, that  text permits an opponent of an agency interpretation to prevail only if it meets a lawfinding burden of persuasion permitting the court to find affirmatively that the opponent’s proffered interpretation is the best interpretation. Certainly, a textualist should be hard pressed to read the text alone to avoid an agency interpretation where the court is in a state of interpretive equipoise not permitting it to find that the agency interpretation is “not in accordance with law."

Moreover, based on my research into the APA and its antecedents, I am fairly confident that the “not in accordance with law” was incorporated into APA § 706(2)(A) to authorize deference. That language had never been included in any of the proposed legislation for administrative procedure before the introduction in 1945 of what became the APA finally enacted in 1945. The key prior proposals were the Minority Recommendation for the Final Report of Attorney General’s Committee on Administrative Procedure (1941) and the ABA Proposal in 1944. Did it just appear out of the blue in the APA legislation when introduced in 1945? The answer is an easy NO!

The text “not in accordance with law” came from the statutory review standard definitively interpreted in a then-famous tax case, Dobson v. Commissioner, 320 U.S. 489 (1943). Dobson dealt with the proper standard of review of Tax Court interpretations of law. Dobson held that Tax Court interpretations of law should be affirmed unless “clear-cut” errors of law, a deference standard where the interpretation was not a clear-cut error of law. Dobson had two reasons for deferring to Tax Court legal conclusions. First, the statute creating the Tax Court said that the Tax Court was an agency, thus permitting the Court to apply deference normally applying to agency interpretations. Second, the statute created the standard of review—“not in accordance with law.” That statutory standard of review required deference where the Tax Court interpretation was not clear-cut error (interpretive equipoise).

So, applying that interpretation to the same text in APA § 706(2)(A), a court in statutory equipoise can  and should apply the agency interpretation, if it cannot find that the agency interpretation is “not in accordance with law.” A court cannot make that lawfinding if it is in statutory equipoise as between the agency interpretation and the opposing proffered interpretation.

JAT Further Nuance:

1. On the same issue of interpretive equipoise, among its false claims, Loper Bright’s opens with the following (603 U.S., at 377-378):

Since our decision in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984), we have sometimes required courts to defer to “permissible” agency interpretations of the statutes those agencies administer—even when a reviewing court reads the statute differently.

Remember that Chevron never got to and certainly never cleared Chevron Step One unless the statute was ambiguous requiring that the court be in interpretive equipoise. If a court were able to determine that the best interpretation is other than the agency interpretation, the statute is not ambiguous and the court never “deferred” under Chevron to a not best agency interpretation.

2. Loper Bright makes other false claims in order for it to make what is in the final analysis a policy statement with political overtones about the administrative state. I won’t go into those here, but I want to develop further the ambiguity issue. Loper Bright suggests that courts can and should be able to interpret out ambiguity. That is nonsense. There are many statutes that are just ambiguous whatever the interpretive tools and theories a court applies.

For example, I defy anyone to make a credible assertion that there is a single best interpretation of IRC § 6751(b). Section 6751(b) was enacted in 1998, but did not raise its ugly head prominently in litigation until after 2010. Bryan Camp, Lesson From The Tax Court: A Practical Interpretation Of The Penalty Approval Statute § 6751 (Tax Prof Blog 1/13/20), here (noting that § 6751(b) is a “poorly written statute,” that the drafters were “woefully ignorant of tax procedure,” and discussing leading cases such as Graev and Chai).

Since around 2010, as desperate litigants sought a get out of penalty free card, they have been making Hail Mary claims that the IRS failed to satisfy § 6751(b). And, since there was no agency guidance, courts have been all of the interpretive space trying to figure out a best interpretation so that they can apply it in cases before them. Certainly, courts can’t do it from the text of the statute alone, which for a textualist court would suggest that they should just hold that the statute means nothing and does not affect IRS penalty assertions.

Even courts with a textualist bent now use purpose and legislative history to tease out some real or imagined meaning to the § 6751(b) text. This is a classic situation for the agency, with its expertise and unique knowledge about how the system works, to fill in the blanks and make sense of the statute. Treasury has done so in Regulations 301.6751-1(b), here, effective December 23, 2042. Are the regulations the single best interpretations of the statutory text? I doubt it. Rather, the regulations make reasonable (but not the only) choices in filling in the blanks with particular attention to the system we have. The courts should not read Loper Bright as a mandate to substitute their own supposed “best” interpretations for the interpretations made in the regulations.

I suggest courts take their cue from a pre-Chevron tax deference case, United States v. Correll, 389 U.S. 299, 306-307 (1967), here, a unanimous opinion, where the Court deferred to the agency regulations interpretation requiring “sleep or rest” to meet the “away from home” statutory text. Correll said:

          Alternatives to the Commissioner's sleep or rest rule are of course available. Improvements might be imagined. But we do not sit as a committee of revision to perfect the administration of the tax laws. Congress has delegated to the Commissioner, not to the courts, the task of prescribing “all needful rules and regulations for the enforcement” of the Internal Revenue Code. 26 U.S.C. § 7805 (a). In this area of limitless factual variations, it is the province of Congress and the Commissioner, not the courts, to make the appropriate adjustments. The role of the judiciary in cases of this sort begins and ends with assuring that the Commissioner’s regulations fall within his authority to implement the congressional mandate in some reasonable manner.

Perhaps a better illustration of statutory ambiguity is the statutory § 482 standard “commensurate with income” standard added in 1986 and the IRS’s “blocked income” regulations interpreting that standard. That issue could be presented in 3M Companies v. Commissioner, 160 T.C. 50 No. 3 (2023) (reviewed opinion), TC here, on appeal to the Eighth Circuit (Case No. 23-3772 Docket Entries here.) In 3M, the issue is whether the IRS can allocate royalty income to 3M based on § 482’s commensurate with income standard. In sustaining the allocation, the Tax Court relied significantly on Chevron. On appeal, Loper Bright was decided after the initial briefs were filed. The parties then filed separate briefs on the impact of Loper Bright. 3M’s Supplemental Brief is here; the Commissioner’s Supplemental Brief is here. 3M’s Supplemental Brief does not mention § 7805(a); the Commissioner’s Supplemental Brief mentions it once only perfunctorily as follows (pp. 15-16):

[T]his Court, consistent with the decisions of other courts, has long held that “the Commissioner has broad discretion under § 482 . . . .” Liberty Loan Corp. v. United States, 498 F.2d 225, 229 (8th Cir. 1974); accord Wilson v. United States, 530 F.2d 772, 776 (8th Cir. 1976). Moreover, section 7805(a) of the Code authorizes the Secretary to “prescribe all needful rules and regulations for the enforcement of this title [26],” which includes regulations under § 482. Treasury has issued  regulations under § 482 since 1934. (Add. 75.)

(Full disclosure: I represented the Government in Liberty Loan, here, while with DOJ Tax Appellate.)

Shortly after the 3M Supplemental Briefs were filed, oral argument, here (audio and transcript), was held on October 22, 2024. Both sides’ arguments are outstanding; I recommend them for those interested in appellate advocacy in tax cases. At the conclusion of oral argument, a judge, presumably the presiding judge, said (at 44:13): “The case is submitted and we will try to reach a decision as soon as possible.” It is now 10+ months with no decision.

The key issue is the effect of Commissioner v. First Security Bank, 405 U.S. 394 (1972), here, which held that the IRS could not apply § 482 to allocate income from one corporation to sister corporations in a holding company because the sister corporations could not, under federal law, receive the income. In 3M, the Brazilian related company could not pay the royalty income under Brazilian law, a law apparently designed to prevent erosion of the Brazilian tax base through paying royalties to the parent. The parties stipulated that the income could have been paid (but did not pay) to 3M as dividends; presumably, the parent could have treated the dividends as royalties compensating for its intangible contributions. The Commissioner argues that the 1986 commensurate with income standard added to § 482 in 1986 is broad enough to overcome foreign prohibitions and the effect of First Security. So, strictly speaking, the IRS is not asserting a Brand X argument which likely would fail with the ostensible Loper Bright’s rejection of Chevron deference.

Most importantly, the IRS has adopted its legal position in the so-called “blocked income regulations” interpreting the commensurate with income standard enacted in 1986. That means that the Court could possibly find that the “commensurate with income” text is ambiguous as to whether it permits the “blocked income regulations” interpretation—i.e., both the agency interpretation and 3M’s interpretation are within the scope of the statutory ambiguity with neither being the best interpretation (and, correspondingly, there is no best interpretation). If the Court were to find there is no best interpretation, what will it do? Oh, I suppose, the court could make its best guess as to a best interpretation. (Which as a guess rather than not be the stuff of which best interpretations are made.)

3. The foregoing, of course, raises the issue of whether § 7805(a) is an express or implied grant of interpretive authority to Treasury and the IRS to interpret Code provisions that must be honored under Loper Bright. The jury is still out on that as a stand-alone issue, but if courts first address the issue in the context of the § 6751(b) regulations, they should answer that question in the affirmative. And, if courts determine that § 7805(a) is an express or implied grant of interpretive authority, Loper Bright will mean nothing for interpretive tax regulations and some test like the Chevron test will apply.

Readers may be interested in a variant of the issue of the effect of Loper Bright on § 7805(a). In Liberty Global v. United States, ___ F.4^th ___ (10^th Cir. 8/22/25), here, the Court determined the best reading of the statutes involved based upon the IRS’s reading of the regulations. I won’t get into that in more detail, but suffice it to say that it deals with overall foreign losses which to me are fairly impenetrable without inordinate effort. In any event, Liberty Global’s brief, here, argued (pp. 33 and 43) that the statutory silence in § 904(f)(3)(A) meant that, under  § 7805(a), Treasury could fill up the details in regulations and in effect had done so in Liberty Global's favor. The Government’s brief, here, does not address the issue. The Tenth Circuit’s decision does not address the issue, deciding the case on its reading of the statutory text. The reason I think the taxpayer’s argument is interesting is that the normal posture is for taxpayers to attack agency interpretive authority rather than argue for agency interpretive authority.

4. The foregoing also raises the issue of whether pre-Chevron deference survives Loper Bright. Loper Bright was specific in finding that its reversal of Chevron deference was based only on its presumption of congressional delegation from ambiguous text. Pre-Chevron deference required ambiguity but also required other factors such as longevity and contemporaneity or, as in Correll making reasonable line-drawing choices. Read literally, Loper Bright might require a return to pre-Chevron deference. Among the pre-Chevron deference cases was Correll, discussed above, that made reasonable line-drawing choices among other possible reasonable choices.