chevron-down Created with Sketch Beta.
March 24, 2016 The Tax Lawyer

The Supreme Court’s Deference to Tax Administrative Interpretation

Volume 69, No. 2 - Winter 2016

Jasper L. Cummings, Jr.


    Most tax lawyers have ignored the subject of Chevron deference to regulations because it simply is not relevant to daily practice, unless and until they have a client that is willing and able to contest the validity of a regulation. Meanwhile, academic debates over the meaning of the Supreme Court’s 1984 Chevron opinion raged and lower courts cited the opinion thousands of times, while mostly doing what they would have done anyway. Eventually the Supreme Court applied the Chevron doctrine in some tax cases. As a result, we now know that the supposed extra deference allowed under Chevron is not limited to what we used to call legislative regulations, such as the consolidated return regulations. It can apply to any regulation required to fill a gap in the code that is large enough to infer that Congress intended the Treasury fill it. Therefore, the relatively new discovery in the tax area is that “general authority” regulations written under section 7805 can be due Chevron deference.

    Contrary to the views of some, that does not mean that all of the hundreds of regulations written under section 7805 are due Chevron deference; some remain merely interpretive. The courts believe they can construe the statute just as well as the Treasury, and they retain that power: it is what courts do. But when the gap is great enough, which can be called an ambiguity in the statute, the agency often receives more deference.

    In those cases, the regulation need only avoid being arbitrary and capricious. On the surface that might look like a low threshold, but it need not be. For example, whenever a regulation is supposed to be based on a fact, such as reasonableness or arm’s length conduct between parties, the agency needs to establish that fact to avoid being arbitrary.

    Some believe that being adopted after a process of notice and comment automatically makes a regulation eligible for Chevron deference. It does not. That approach would make the Treasury the master of its own deference determinations and take it away from the courts. Rather, the courts are the ultimate arbiter of whether the statutory gap is great enough to impute a Congressional intent that the agency have a freer hand. Finally, Chevron deference has turned out to have a political overtone. It seems that the justices appointed by Republican presidents are tending to downplay Chevron while the Democratic appointed justices are tending to rely on it more. This makes perfect sense: Democrats are more prone to accord administrative authority to an agency than Republicans.

    This Article is excerpted from a new edition of the author’s book, The Supreme Court’s Federal Tax Jurisprudence, soon to be published by the ABA Section of Taxation. Current editions of The Supreme Court’s Federal Tax Jurisprudence and The Supreme Court, Federal Taxation, and the Constitution, also written by the author, are available at

Read the full article or download the complete issue.