Tax Court on Default Rules in Statutory Interpretation-Herein Also of Chevron, Loper Bright and APA § 706(2(A) (11/14/25)

In Apache Corp. v. Commissioner, 165 T.C. ___ No. 11 (11/1325), reviewed opinion, the Court addressed the momentous (to some) issue of whether a taxpayer electing not to carryback some categories of net operating losses (NOLs) can reserve in the election to carryback other categories of NOLs. The opinions in Appache may be viewed on the Tax Court Docket Sheet for Case # 25984-22, here, at #56, on my Google Drive here, on GS here [to come], and on TN here.  I must say that I have neither worried nor lost sleep over that issue, either before or after this opinion. As respects the issue actually decided in Apache, I am agnostic which may be an admission that I have not really dug deeply into the issue. So, I don’t propose here to deal with the merits of the issue decided.

I want to address the methodology in reaching the majority opinion and Judge Buch’s concurring opinion.

Judge Buch’s concurring opinion (Slip Op. 22-23) is very short. If I may summarize a very short opinion:

(i)          the statutory text is inconclusive on the competing interpretations which are equally plausible, phenomenon I describe as statutory ambiguity where a best interpretation cannot be made; and

(ii)        where the statute is ambiguous, courts are “inclined to rely on the traditional canon that construes revenue-raising laws against their drafter.”

The majority determines that the statutory text is not ambiguous but then says (Slip Op. 18-19) that the default rule Judge Buch relies on should carry the day even if the text were ambiguous (calling it a “tiebreaking principle"). As stated, this supposed principle, sometimes stated as a canon or maxim of interpretation, operates like the rule of lenity that construes criminal statutes in favor of a defendant, which is a default rule in cases of ambiguity. See e.g., Ryan D. Doerfler, The "Ambiguity" Fallacy, 88 Geo. Wash. L. Rev. 1110, 1116 (2020) (referring to Chevron and lenity as default rules); Intisar A. Rabb, The Appellate Rule of Lenity: Responding to Abbe R. Gluck & Richard A. Posner, Statutory Interpretation on the Bench: A Survey of Forty-Two Judges on the Federal Courts of Appeals, 131 Harv. L. Rev. 179, 194 N. 77 (2018) (Same re lenity).

That interpretive methodology in ambiguity is a default rule similar to the Chevron default rule prior to Chevron’s demise in Loper Bright. As readers of this blog and observers in general know, Loper Bright overruled Chevron and thus the Chevron default rule does not apply in a state of ambiguity as between two or more interpretations, one of which is an agency interpretation qualifying for Chevron deference (generally notice and comment interpretive regulations).

So, the question is what Loper Bright may require if the court is in equipoise and one of the possible interpretations in the scope of ambiguity is a notice and comment regulation. All Loper Bright tells us is that Chevron deference is overruled and that the introductory language of § 706(a) requires that a court reach an independent conclusion as to the interpretation. The problem with this reading of § 706(a) is that it still fails to address the state of equipoise in which a court is unable to reach the best interpretation. Loper Bright infers that a court can always interpret out ambiguity to reach a single best interpretation.

I posit that the notion that statutory interpretation can interpret out ambiguity in all cases is nonsense. Sometimes ambiguity cannot be eliminated, just as Judge Buch and the majority as an alternative holding so say. Some default rule is necessary to resolve a statutory interpretation issue in a state of ambiguity.

Can a court use the interpretive methodology Judge Buch and the majority as an alternative holding state in Apache? That might mean that, in interpretive ambiguity, the ambiguity must be resolved against the agency interpretation. Possibly, but I don’t think that that is a necessary conclusion. And it is a nonsensical conclusion.

I suggest that there are alternative constructs that might apply.

First, § 706(a)(2)(A) textually says that the agency interpretation can be “held unlawful” and “set aside” only if “not in accordance with law.” What does “not in accordance with law” mean? The best evidence of the APA meaning of that statutory text is the Supreme Court’s interpretation of the same language as a standard of review of Tax Court opinions. In Dobson v. Commissioner, 320 U.S. 489 (1943), just over 2 years prior to the APA, the Supreme Court held that the standard required deference to Tax Court interpretations of law. So, was that the authoritative interpretation of those precise words when those precise words were incorporated into § 706(2)(A)? The answer is yes. I defy anyone to show that the “not in accordance with law” adopted in the original APA bills in 1945 (but not previous proposals) came from anywhere other than the text interpreted in Dobson and meant anything other than that Dobson holding as to the meaning of the text. Moreover, that is the straightforward textual reading of the words, for the agency action (here interpretation) can only be held unlawful and set aside if the court can affirmatively determine that the action is not in accordance with law. A court cannot so determine in a statute of interpretive equipoise. (In effect, this imposes upon a party arguing against an agency interpretation a burden to persuade the court that the agency interpretation is affirmatively wrong.)

Second, I am skeptical of the full bore application of the interpretive canon cited by Judge Buch and the majority to support interpretation in equipoise against the IRS in the particular case. As Justice Cardozo noted long ago (Burnet v. Guggenheim, 288 U.S.280, 286 (1933):

The respondent invokes the rule that in the construction of a taxing act doubt is to be resolved in favor of the taxpayer. United States v. Merriam, 263 U.S. 179; Gould v. Gould, 245 U.S. 151. There are many facets to such a maxim. One must view them all, if one would apply it wisely. The construction that is liberal to one taxpayer may be illiberal to others. One must strike a balance of advantage.

I am reminded of Karl Lewellyn’s famous analysis of maxims (aka canons) that "there are two opposing canons on almost every point." Karl N. Llewellyn, Remarks on the Theory of Appellate Decisions and the Rules or Maxims About How Statutes Are to Be Construed, 3 Vand. L.Rev. 395, 401 (1950).

Let me use one simple (perhaps simplistic) example. Suppose that the IRS had not questioned Apache’s carryback of the NOLs in question and the Apache in a later year sought to carryforward those same NOLs after the statute of limitations had closed on the carryback years. Setting aside duty of consistency, denial of double deductions, or the mitigation provisions (§§ 1311-1314), could Apache have insisted on an interpretation that required such NOLs to be carried forward prospectively only?

And, from an even broader perspective, resolving doubts in favor of a taxpayer in a particular case will push the tax burden to other taxpayers. So just count me as skeptical on the supposed interpretive methodology claimed by Judge Buch and the majority as an alternative holding.