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Supreme Court’s decision on agency power: How will it impact my taxes?

On Behalf of | Aug 2, 2024 | IRS Updates |

In a landmark ruling, the Supreme Court recently addressed the Chevron deference, a doctrine that has significantly influenced administrative law since its establishment in 1984. This pivotal decision came during the review of two cases, Loper Bright Enterprises v. Raimondo and Relentless v. Department of Commerce, where the justices confined their examination strictly to the Chevron question. This blog explores how this overturning may affect the Internal Revenue Service (IRS) operations and the potential ramifications for taxpayers.

Impact on IRS operations

Due to the highly technical nature of tax law, the Chevron deference has traditionally allowed federal agencies like the IRS considerable leeway in interpreting ambiguous statutes related to their functions. The Supreme Court’s decision to overturn Chevron could lead to notable changes in how the IRS enforces tax regulations. Potential ramifications may include:

  • Increased rigor of judicial review of IRS rulemaking,
  • Decreased autonomy in interpreting ambiguous tax codes,
  • Potential increase in litigation as taxpayers may challenge IRS interpretations more frequently, and
  • Possible delays and increased costs due to more frequent court cases.

Advocates for the change argue the shift could lead to a more transparent, albeit contested, process of tax regulation enforcement, ensuring that IRS interpretations align more closely with the legislative intent rather than agency discretion. Critics counter that the lack of reliance on agency experts will lead to inconsistent results as federal judges who lack expertise in tax and other technical areas attempt to interpret the law.

Potential impact on taxpayers

The Supreme Court’s decision could also have direct implications for taxpayers. With the IRS potentially losing some of its interpretative leeway, taxpayers might experience both benefits and challenges. As there will likely be an influx of cases challenging the IRS, taxpayers may find themselves needing to adjust to new interpretations of tax codes depending on how each court decides the matter. This will likely trigger a need for increased legal assistance to navigate these ongoing changes.

The Supreme Court’s decision to overturn Chevron in the context of Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo marks a significant shift in administrative law, particularly affecting how federal agencies like the IRS interpret and apply statutes. As the implications of this decision unfold, both the IRS and taxpayers must adapt to a new legal environment where the judicial system plays a more active role in interpreting tax laws. Moving forward, it will be essential for all stakeholders to stay informed and engaged with the evolving interpretations and implementations of tax regulations to better ensure compliance and optimize outcomes under the new legal framework.