Interesting points from ABA Tax Online Presentation on Loper Bright (4/29/26)

I just attended online an ABA Tax Section Program titled: “Navigating Tax Guidance in a Post-Loper Bright World.” The ABA page on the program is here. The panel participants were very knowledgeable.

Early in the program, I asked the following question via the Q&A tool:

Under Loper Bright, if, after using all the tools of statutory interpretation, a judge still cannot determine whether the IRS interpretation or the opposing interpretation is the best interpretation (a state of equipoise on the interpretation), what does the judge do? Should the judge flip a coin, consult, his ouija board, follow his own preferred outcome, etc.?

I have asked a similar question in previous ABA programs, but the question was never answered. In today’s program, the question was answered—that is, at least an answer was proffered. I am not sure it is the right answer but it certainly echoed Loper Bright’s reasoning, such as it is.

So what was the answer? Basically, the answer given by the judge on the panel was that, with good statutory interpretation, the judge will always have something to tilt the judge to the best interpretation. (That is my paraphrasing and advanced apologies if I did not get it exactly right.) Actually, as the question was answered, I think the answer was hedged saying that he did not think it would happen very often (although that is from memory, I may be misremembering, and my notes don’t confirm that).

I think the essence of the answer was an echo of Loper Bright which is just flat-out wrong on the point of continuing possibility of ambiguity (equipoise). Loper Bright claimed by fiat that a judge should always be able to reach a single best interpretation with no need for a default rule such as Chevron deference to the agency interpretation. (For this, one must remember that a condition of Chevron deference was that the statute be ambiguous, meaning that the judge could not determine whether the agency interpretation or an opposing interpretation was the single best interpretation; if the court could determine the best interpretation, Chevron required the court to stop at Step One without any deference.)

9th Circuit 3-Judge Panel Has Three Different Interpretations Illustrating the Stupidity of Loper Bright's Rejection of Deference (9/3/24; 9/7/24)

In Brown v. Commissioner, 116 F.4th 861  (9th Cir. 2024), CA9 here & GS here, the Court rejected Brown’s claim that his offer in compromise had been statutorily eemed accepted under § 7122(f) because, he claimed, the IRS had not rejected the offer within 24-months of the date of the offer. Brown’s claim would have permitted him to settle $50 million+ tax liability for a bare fraction.

 Section 7122(f) provides:

(f) Deemed acceptance of offer not rejected within certain period
Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. For purposes of the preceding sentence, any period during which any tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period.

The Tax Court held that, under the facts, the offer had been rejected within the 24-month period. The Court of Appeals, in a 3-way split opinion (more below) held that Brown loses on the issue, with two judges reaching the result by different interpretations of the law and the dissenting judge reaching a contrary result (Brown wins) on a different interpretation. In other words, all the judges differed in their interpretations of the applicable law, but 2 interpretations favored the IRS and one favored Brown. Brown loses.

The Supreme Court Pronounces the Demise of Deference (6/29/24; 6/1/25)

Added 8/7/24 and revised 10/28/24: I have published the 2024 editions of the Federal Tax Procedure Book, here. I have substantially revised the section dealing with the Demise of Deference as of 10/28/24; the revised version is viewable and downloadable here. In the FTPB 2024 discussion I have added to and refined some of the points in this blog entry.

In Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S. Ct. 2244 (2024), SC Slip Op. here & GS here, the Court (per Chief Justice Roberts) held (Slip Op. 35):

          Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.

I provide in this blog several points about this holding. I divide my discussion into (i) the implications of the demise of deference and (ii) some key points going to the correctness of some claims made in the opinions. I try in this blog entry to address major points. Given the short amount of time I have had to devote to the blog, I may have missed or even misstated some things which I may need to supplement or correct later. I apologize in advance to readers, but this is just too important a development not to do my best to provide in this one place my discussion of key points. 

IMPLICATIONS OF DEMISE OF DEFERENCE.

1. First, we need clear definitions of key terms used in the discussion.

a. Deference. Deference is--well, was--a court accepting an agency statutory interpretation that is not, in the court’s opinion, the best interpretation of the statute.

b. Chevron deference. The discussion of deference has been framed by the 1984 Chevron decision. However, deference with essentially the same features as Chevron was in the law well before Chevron, going back to before the new deal and the enactment of the APA in 1946. See John A. Townsend, The Tax Contribution to Deference and APA § 706 (SSRN December 14, 2023), pp. 5-23)   https://ssrn.com/abstract=4665227 That is not how the Loper Bright Opinion of the Court imagines the pre-Chevron landscape so I will only address this further in the section below dealing with some of the things the majority erred. And, when I use the term Chevron deference, I include that pre-Chevron Chevron-like deference.

2. The Opinion of the Court justifies deference’s demise based on both the APA and the role of courts in the constitutional scheme, as exemplified by Justice Marshall's claim (judicial soundbite) “[i]t is emphatically the province and duty of the judicial department to say what the law is.” Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803).

3. The definition of deference I offered does not help if the court is in legal interpretive equipoise and thus cannot decide the best interpretation of the statute. The Court’s opinion does not appear to even recognize the possibility of legal interpretive equipoise. For example, the Court states (Slip Op. 22, emphasis), that “Courts instead understand that such statutes, no matter how impenetrable, do—in fact, must—have a single, best meaning.”  (See Slip Op.22 (emphasis supplied); see also 23 and 31 (“The statute still has a best meaning, necessarily discernible by a court deploying its full interpretive toolkit.”) Whether legal interpretive equipoise is a possibility is a key point of Justice Kagan’s dissenting opinion. (See e.g., Dissenting opinion Slip Op. 7 (stating that sometimes there is no “fixed single best meaning” (cleaned up) of the statute text).

a. Query: Is the majority’s key assumption of the absence of the possibility of legal interpretive equipoise correct?

Scholar Doubles Down on Erroneous Claim that APA § 706 Precludes Deference (1/23/24; 4/4/24)

Introductory Note 4/4/24 10:00am: This blog post originally addressed a new draft article that Professor Bamzai posted on SSRN: Aditya Bamzai, On the Interpretive Foundations of the Administrative Procedure Act, 31 George Mason Law Review ___ (Forthcoming) (SSRN 4684895 1/17/24), here, Professor Bamzai's article has been published in final.  On the Interpretive Foundations of the Administrative Procedure Act, 31 Geo. Mason L. Rev. 439 (2024), html here and pdf here. I have not compared the draft with the final article, although the final seems to track the arguments made in the draft. I have, however, made certain changes to the blog entry below inspired by the Final. I note those changes in red font. I have no way of knowing whether Professor Bamzai was aware of my article or my blog posts about my article since he does not cite me in his article. I am not surprised Professor Bamzai does not cite my article or me since I circle in a lower administrative law orbit than he does. Finally, I have not attempted to go down some of the tangential rabbit trails Professor Bamzai goes down (such as Professor Dickinson's 1947 parallel articles misinterpreting and misapplyying Dobson, for, on the deference issue, those articles lapsed into the obscurity they deserved).

Now to the original posting on 1/23/24 (as amended on 1/24/24 with changes made today marked in red font):

I recently posted to SSRN an article arguing, in part, that the APA § 706 standard of review for legal questions is a deference standard via the requirement that agency interpretations be set aside only if “not in accordance with law.” § 706(2)(E). The Tax Contribution to Deference and APA § 706 (December 14, 2023 SSRN 4665227), here, hereafter referred to as Townsend Deference APA). In that article, I asserted that a prominent leading article missed or misunderstood key indicators of the meaning of the APA standard of review—“not in accordance with law.” Aditya Bamzai, The Origins of Judicial Deference to Executive Interpretation, 126 Yale L.J. 908 (2017), here.

Specifically, Professor Bamzai

• missed robust deference authority cited in the Final Report of the Attorney General’s Committee on Administrative Procedure (1941) which skewed his conclusion of limited deference authority in the Final Report and as of 1940.

• missed the deferential interpretation of “not in accordance with law” in Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944).

I show in the article that the fair interpretation of the APA’s  “not in accordance with law” standard was the Dobson interpretation to require deference.

Professor Bamzai has published an article on SSRN that is scheduled for publication in the George Mason Law Review. Aditya Bamzai, On the Interpretive Foundations of the Administrative Procedure Act, 31 George Mason Law Review ___ (Forthcoming) (SSRN 4684895 1/17/24), here, hereafter referred to as Bamzai Interpretive Foundations APA. Professor Bamzai's Final is On the Interpretive Foundations of the Administrative Procedure Act, 31 Geo. Mason L. Rev. 439 (2024) 

In this new article (Draft and Final),

• Professor Bamzai again misses the robust statement of deference that he missed in his earlier article. (Townsend Deference APA pp, 5-9.)

• more importantly, although he now identifies Dobson as important to the discussion after ignoring Dobson in the earlier article, he misinterprets the meaning of Dobson.

Justice Sandra Day O'Connor, Tufts, Chevron Deference, Dobson Deference, and APA § 706 (12/2/23)

Yesterday, Sandra Day O’Connor died. See Linda Greenhouse, Sandra Day O’Connor, First Woman on the Supreme Court, Is Dead at 93 (NYT 12/1/23), here. She served many iconic roles in our legal history. I won’t attempt to catalog those roles and her achievements. I present in this blog some of her history in a tax and administrative law context that I hope is of some interest to some readers. 

In 1983, Justice O’Connor burst into my consciousness because of her concurring opinion in Tufts v. Commissioner, 461 U.S. 300 (1983), here. Tufts addressed an issue arising from the then infamous footnote 37 in  Crane v. Commissioner, 331 U. S. 1  14 n. 37 (1947), here. See for an illustrative discussion of Crane’s importance in the tax law in a series on important cases in different disciplines, Vada W. Lindsey, The IRS’s Hollow Victory in Crane v. Commissioner, 331 U.S. 1 (1947), here. (noting that, by itself, Crane may not seem important but its importance ever after is in the term “tax shelter,” which I discuss below)

Crane addressed the issue of how to treat the taxpayer’s disposition of property subject to a nonrecourse debt. The taxpayer there had acquired the property subject to a nonrecourse debt equal to the value of the property; the taxpayer included the nonrecourse debt in the basis for the property, and, while she held the property, had taken depreciation on tax basis including the nonrecourse debt. The taxpayer then disposed of the property subject to the nonrecourse debt. The question was whether, in reporting the tax consequences on disposition, the taxpayer should include the nonrecourse debt and any other consideration (there $2,500 cash) in amount realized. The amount realized is the minuend of the calculation of gain realized; from that minuend, basis is subtracted (subtrahend) to compute gain realized. The Court held that the nonrecourse debt was included in the calculations as follows:

1	Cash (net)	$2,500
2	Nonrecourse debt	$200,000
3	Amount Realized (1+2)	$202,500
4	Less Undepreciated Basis *	($175,000)
5	Yields Gain Realized (3-4)	$127,500

This calculation comports with the actual tax results, where the taxpayer had taken $25,000 in depreciation offsetting other income but had walked away with cash of $2,500 net from dealing in property. The tax books balance by including the nonrecourse debt in amount realized. If the Court had held the amount of the nonrecourse debt was not included in the amount realized calculation, the tax books would not have balanced because the taxpayer would have gained the interim depreciation offsetting other income without some balancing to account for the fact that the debt was nonrecourse meaning the taxpayer never paid for the tax deductions (either in cash or an equivalent amount of offsetting income).

Crane involved property worth the value of the nonrecourse debt at acquisition and disposition. The Court said in fn. 37:

   n37 Obviously, if the value of the property is less than the amount of the mortgage, a mortgagor who is not personally liable cannot realize a benefit equal to the mortgage. Consequently, a different problem might be encountered where a mortgagor abandoned the property or transferred it subject to the mortgage without receiving boot. That is not this case.

Crane and its implications, fn. 37 in particular, spawned many tax shelters (abusive and otherwise) where taxpayers could acquire property subject to nonrecourse debt, claim the tax benefits of a “cost” basis in the property including the nonrecourse debt that would never cost anything, and then, to the extent that the nonrecourse debt exceeded the value of the property, never have a balancing tax entry because not included in calculation of amount realized.

Most of the abusive tax shelters have a familiar theme generally—false excessive valuations of the property with false deductions for depreciation or some other tax benefits (e.g., credits). The current in vogue abusive tax shelter is the syndicated conservation easement, the abusive variety of which depend on grossly excessive valuations to “justify” claimed charitable contribution deductions. In earlier times based on what some read as the implications of Crane, shelter promoters “sold” the opportunity for deductions that would never cost anything (including never being reversed by income inclusions). (Of course, the more “white-shoe” variety of abusive tax shelters, the transfer pricing abuse, involve abusive valuations in transfer pricing.)

Tax Deference Cases–the Rest of the Story in the Interpretation of APA § 706 (11/6/23; 11/8/23)

I susbstantially revised this blog entry because it was not my best writing; I have made it better (I hope), but do not change the trajectory of my original analysis.

As readers of this blog know, the Supreme Court accepted cert in Loper Bright Enterprises v. Raimondo (SEC) (Sup. Ct. Dkt. 22-451, here.) (“Loper Bright”) to consider the following question in the October 2023 term:

 Whether the Court should overrule Chevron or, at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

Chevron is common shorthand for Chevron deference, named after Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). Chevron deference as interpreted (it's all about interpretation) deploys a two step framework before deference may be invoked at Chevron Step Two. Chevron is a hot-button issue for those who fear and/or hate (admitting some possibility to deploy fear and hate at the same time) of the administrative state and libertarians and a broad ragtag group of fellow travelers which, when lumped together, I call deference deniers.

Since the grant of certiorari in Loper Bright, the Court has accepted certiorari in Relentless, Inc. v. Department of Commerce (Sup. Ct. Dkt 22-1219, here ) where the question presented is the same as in Loper Bright. The Court took unusual steps in accelerating cert action on Relentless and even in accepting cert in a carbon copy case to Loper Bright. The speculation is that, given a recusal of one Justice (Jackson) in Loper Bright, accepting cert in Relentless for consideration of the same legal issue on the same relevant facts at the same time would permit the Supreme Court to have a full nine Justice opinion or opinions on the issue for cert. On October 27, 2023, the Court ordered that Amicus Briefs in Loper Bright will be considered in Relentless. (There may be some opportunity for persons who were not amicus in Loper Bright or their attorneys with prudence to file amicus briefs in Relentless, and with the change in Supreme Court rules to permit amicus brief without parties' consents or motion; As with the Amicus Briefs in Loper Bright, the real targets of the Amicus Briefs may not be Supreme Court Justices but rather some amorphous (at least hidden from view0 group with deep pockets to whom they can market themselves for the old-fashioned reason to ultimately, they hope, make money.)

I don’t speculate about what certiorari means other than the Court will consider the question presented unless the court finds a way not to consider the merits issue or narrowly focus on some unimportant issue within the scope of Chevron (a not uncommon dodge for the Supreme Court when a more direct solution would be to DIG the case when it does not want to or can't offer any wisdom that is wise (t least when it can discern that is all it has to offer). I cannot predict any outcome, except that, if the merits, if any, are reached, the pinion(s) may speak to the continuing existence of Chevron deference (perhaps a refinement or limitation as in Kisor.) 

I have just finished drafting an article currently titled Tax Deference Cases–the Rest of the Story in the Interpretation of APA § 706. I sent the draft article to a friend who graciously agreed to read it and offer suggestions.

My article explores the claims made by UVA Law Professor Aditya Bamzai in his article titled: The Origins of Judicial Deference to Executive Interpretation, 126 Yale L.J. 908 (2017), here. As relevant to my article, Professor Bamzai’s claims, highly summarized, are that given the milieu of the Supreme Court cases prior to enactment of the APA in 1946, the state of deference at enactment of the APA was that the APA the in relevant part verbatim text of  706 cannot be read as authorizing a broad form of deference such as in its current iteration is called Chevron deference. Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). (I do not suggest that deference to agency statutory interpretations ever had material features other than those in Chevron—ambiguity in the statute and a reasonable agency interpretation within the scope of the ambiguity.)