The Supreme Court’s knockdown of Chevron deference could complicate the ability of the Treasury Department and the Internal Revenue Service to craft federal regulations that are central to President Biden’s economic agenda.
The Treasury Department is responsible for implementing major pieces of legislation such as the Inflation Reduction Act, including determining who qualifies for billions of dollars worth of tax credits. At the same time, the I.R.S. has vast leeway to administer the tax code. The agency has faced criticism recently for its decision to halt some pandemic relief tax credits to businesses because of concerns about fraud and delaying collection of new taxes on digital wallet transactions.
“Taxpayers are likely to challenge the validity of dozens of tax regulations and those challenges are much more likely to prevail,” said Robert J. Kovacev, a lawyer at the firm Miller & Chevalier who specializes in tax litigation and represents businesses engaged in disputes with the tax agency. “For years the I.R.S. has issued regulations expanding its power and restricting tax benefits that Congress intended taxpayers to receive.”
The ruling will also present new challenges as the Biden administration rolls out its alternative energy credit regulations, Mr. Kovacev said, because the I.R.S. will not be able to take for granted that courts will defer to its regulations.
The Tax Policy Center said in an analysis last fall that such a Supreme Court decision would make it harder for an agency such as the I.R.S. to write rules to address industries that are quickly evolving, such as cryptocurrencies, and that it would be more difficult to fill in the gaps for Congress when lawmakers rush to write tax legislation.
Critics of the tax agency said on Friday expressed optimism the ruling would limit its powers.
“Today’s decision will level the playing field for taxpayers and government agencies,” said Joe Bishop-Henchman, executive vice president at the National Taxpayers Union Foundation. “Unreasonable I.R.S. interpretations will no longer automatically win in court, which is as it should be, and reasonable interpretations will still have the force of law.”
Treasury Department and the I.R.S. did not immediately have a comment.
