Loper Bright Review Could Impact Federal Agency Regulations

Man standing under a dome made of glass panels.

The ongoing Loper Bright Enterprises v. Raimondo case before the US Supreme Court has garnered significant attention due to its potential implications for the power of federal agencies in drafting regulations.

The outcome of the case could impact the validity and interpretation of US Department of Treasury regulations, potentially leading to significant changes in the tax landscape and challenges for taxpayers.

Implications for tax professionals and the broader regulatory framework remain uncertain.

Loper Bright Enterprises v. Raimondo

The Supreme Court heard oral arguments on January 17, 2024, in a case that questions the validity of a federal regulation imposed by the National Marine Fisheries Service (NMFS) under its regulatory authority administering the Magnuson-Stevens Act (MSA), which governs fishery management in federal waters.

At issue is whether the NMFS can force domestic vessels in the fishing industry to pay the salaries of the federal observers they’re required to carry, even though the MSA only expressly requires such payment in limited circumstances.

The Supreme Court's decision could have significant implications for the extent of federal agencies' power in drafting regulations and may potentially impact the Chevron doctrine.

What Is the Chevron Doctrine?

In 1984, the Supreme Court delivered its landmark decision in Chevron v. Natural Resources Defense Council, Inc., The case established the Chevron doctrine, which outlines a two-step analysis for federal courts when considering challenges to agency interpretations of laws.


The court ruled that if a statute is ambiguous or silent on a particular issue, courts should defer to a federal agency's reasonable interpretation of the statute, as long as it falls within the agency's authority.

In Chevron the court wrote, “… if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”

The Chevron doctrine, derived from this case, is a framework for courts to determine the level of deference to be given to federal agency interpretations of statutes. The doctrine's two-step analysis is:

  • The court determines whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, the court and the agency must give effect to that intent.
  • If the court finds that Congress has not directly addressed the issue, it must determine whether the agency's interpretation is based on a permissible construction of the statute. The court should defer to the agency's interpretation if it is reasonable.

Other Applications of the Chevron Doctrine

Various applications of the Chevron doctrine have shaped  the deference given to federal agencies' interpretations of statutes. An example case in the tax context is Mayo Foundation.

Mayo Foundation for Medical Education and Research v. United States

This 2011 case involved a dispute over whether Mayo’s medical residents at its university hospital medical clinic were exempt from Federal Insurance Contribution Act (FICA) taxes under a specific provision of the Internal Revenue Code (IRC).

Mayo residents took part in a formal and structured educational program and had written exams. This program provided residents additional education in a specialty to become board certified in that field. The residents typically cared for patients, examining and diagnosing them 50–80 hours a week supervised by senior residents and faculty members.

IRC section 3121(b)(10) in general provides an exemption from FICA taxable employment for services performed in the employment of a school, college, or university, if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university.

Treasury’s regulations administrating this section of the IRC provide that the services of a full-time employee are not incident to and for the purpose of pursuing a course of study. Therefore, an employee whose normal work schedule is 40 hours or more per week is considered a full-time employee, “the full-time employee rule”. Under this regulation, a full-time employee resident’s service is “not incident to and for the purpose of pursuing a course of study,” and accordingly, a Mayo medical resident is not an exempt student under IRC section 3121(b)(10).

The Supreme Court concluded that the principles underlying Chevron apply in the tax context and that the Treasury's regulation, which denied the exemption, was a reasonable interpretation of the statute.

This decision allowed the US Treasury to exercise its authority under Chevron in writing tax regulations interpreting and implementing the IRC. The outcome of Loper Bright may have implications for taxpayers considering challenging to the Treasury’s interpretation of  the IRC.

How impactful this case will be in limiting the power of the Treasury in writing regulations remains to be seen. The Loper Bright decision could affect, for example, Treasury’s 2021 Section 199A regulations applicable to agricultural cooperatives. These regulations placed restrictions on the extent to which a cooperative’s earnings qualify for the Section 199A(g) domestic production activities deduction, where the statute and legislative history placed no such restrictions. A favorable outcome in Loper Bright may provide some impetus for Treasury to revisit its Section 199A regulations applicable to agricultural cooperatives.

A Supreme Court decision in Loper Bright should emerge by the end of the court’s current term in June.

We’re Here to Help

For more guidance on the effects of the Loper Bright case or help navigating changes to Treasury regulations, contact your Moss Adams professional.

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