Treasury Regs After Loper Bright

Judicial Review of Treasury Regulations After Loper Bright

The Supreme Court held that "[t]he Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous" Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). Two qualifications in the opinion have shaped the tax cases that followed. First, "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." Second, the Court did "not call into question prior cases that relied on the Chevron framework," because "[t]he holdings of those cases that specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—are still subject to statutory stare decisis despite our change in interpretive methodology." Both qualifications bear on Treasury regulations in particular, because Mayo Foundation for Medical Education & Research v. United States, 562 U.S. 44 (2011) had applied Chevron to regulations issued under the general grant of rulemaking authority in 26 U.S.C. § 7805, which provides that "the Secretary shall prescribe all needful rules and regulations for the enforcement of this title," and Loper Bright displaces that framework. The decisions issued since June 2024 sort into three groups: regulations set aside because the statutory text forecloses them, regulations sustained as the best reading of the statute, and regulations sustained with the aid of Treasury’s persuasive judgment and prior precedent.

Decisions setting Treasury regulations aside have rested on the conclusion that the statutory text forecloses the agency’s reading, so that the regulation fails under any standard of review. Varian Medical Systems, Inc. and Subsidiaries, 163 T.C. 4 (T.C. 2024) held that a fiscal-year taxpayer was entitled under 26 U.S.C. § 245A to the dividends-received deduction for amounts treated as dividends under section 78 during the effective-date gap created by the Tax Cuts and Jobs Act, and that Treasury Regulation § 1.78-1, amended in 2019 to close that gap, "does not alter this conclusion because it cannot contravene the clear statutory text." The court reasoned that "[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority" and that "we may not follow the Executive’s guidance (expressed in a regulation or elsewhere) when (as here) it contradicts the statutory text." The Eighth Circuit reversed a Tax Court decision that had deferred to the blocked-income regulation under 26 U.S.C. § 482 on the same reasoning: 3M Company v. Commissioner of Internal Revenue, 154 F.4th 574 (8th Cir. 2025) explained that Loper Bright "frees courts to adopt the ‘best reading of the statute’: the one ‘the court would have reached if no agency were involved,’" held that for income to be reallocated under section 482 "a taxpayer must have complete dominion over it," meaning money that "could have [been] received," and concluded that the 1986 commensurate-with-income sentence did not displace that requirement: "The grammatical implication is unmistakable: the shorthand references to ‘the income’ in the second sentence are a callback to ‘gross income,’ the only possible antecedent in the statute."

Decisions upholding Treasury regulations since June 2024 have sustained them as the best reading of the statute rather than by deference. New Jersey v. Bessent; Village of Scarsdale v. IRS, 149 F.4th 127 (2d Cir. 2025) affirmed summary judgment for the government in challenges to the final rule under section 170 that requires taxpayers to reduce charitable-contribution deductions by the amount of state or local tax credits received in return for the transfer. The court explained that "[i]n the post-Chevron era, regardless of whether a statute is deemed to be ambiguous or unambiguous, interpretation of the statute is a question of law, and accordingly, it is the court, and not the administrative agency, that determines its meaning," examined the quid pro quo principle in the section 170 case law for itself — a payment "generally cannot constitute a charitable contribution if the contributor expects a substantial benefit in return" — and concluded that "the Final Rule correctly interprets I.R.C. § 170 as applied to Appellants’ tax-credit programs." The Tax Court has taken the same approach to the transfer-pricing rules: Facebook, Inc. & Subsidiaries, 164 T.C. 9 (T.C. 2025) upheld the 2009 cost-sharing regulations under section 482 after stating the standard directly: "When considering the validity of a regulation, ‘[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.’" Exercising that judgment, the court concluded that the regulations "are not invalid merely because they impose a limit on the expected return" on intangible development costs at a discount rate reflecting market-correlated risks, while separately rejecting the Commissioner’s specific valuation inputs as unreliable.

Where the statute does not resolve the question, Treasury’s consistent and longstanding interpretations retain persuasive weight, and Chevron-era holdings sustaining specific regulations remain binding through statutory stare decisis. Carlisle G. Gill & Wendy S. Gill, No. 13385-17 (T.C. Jun 16, 2026) upheld Treasury Regulation § 1.41-4A(d), which defines when research is funded and therefore excluded from the section 41 research credit. The court observed that "[i]n reaching a conclusion on the validity of a regulation we may give ‘[c]areful attention to the judgment of the Executive Branch,’" that Treasury’s views "constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance," and that the weight of that judgment "depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." The court noted that "Congress has delegated authority to Treasury under section 7805(a) to define criteria for Congress’s funded research exclusion found in section 41(d)(4)(H)," concluded that the regulatory requirements are "reasonably related to and otherwise consistent with the intent of section 41(d)(4)(H)," and rejected the contention "that the Supreme Court’s decision in Loper Bright undermines the prior decisions that relied on Treasury Regulation § 1.41-4A(d) and their effects as precedent in these cases." That persuasive-weight analysis is not automatic: 3M Company v. Commissioner of Internal Revenue, 154 F.4th 574 (8th Cir. 2025) declined to credit the Commissioner’s reading of section 482 under Skidmore "when the agency recently invented it and the statute has another ‘be[tter] reading.’"

Under these decisions, review of a Treasury regulation proceeds in a fixed order. The first question is whether the statutory text answers the question directly: where it does, the regulation cannot alter the result — whether the conflict involves an effective date, as with Treasury Regulation § 1.78-1, or the meaning of an operative term such as income in section 482 — and the regulation is simply not applied. The second question, where the statute is genuinely ambiguous, is whether the regulation reflects the best reading, the one the court would reach if no agency were involved; a regulation that does, such as the section 170 final rule or the 2009 cost-sharing regulations, is sustained on the court’s own construction rather than on the agency’s authority. The remaining questions concern the sources of weight that survive: a statutory direction to the Secretary to prescribe regulations implementing a particular provision is respected as a delegation whose boundaries the court polices, the general rulemaking grant in section 7805(a) supports guidance that persuades in proportion to its thoroughness, reasoning, and consistency — and does not persuade when the position is a recent litigating invention — and holdings that sustained particular regulations under Chevron continue to bind through statutory stare decisis, so the change in interpretive method operates chiefly on regulations, including recently issued or recently amended ones, that no court had previously sustained.