In the 10 months after the Supreme Court overturned Chevron deference, the companion decisions in Loper Bright and Relentless have become a constant presence in the tax world. In Loper Bright, the Supreme Court rejected judicial deference to agencies' statutory interpretations and directed courts to "use every tool at their disposal to determine the best reading of" ambiguous statutes. The aftermath of Loper Bright is particularly prevalent in the Tax Court. Taxpayers have cited Loper Bright in motions for reconsideration and in motions for partial summary judgement, and the court has requested supplemental briefing on the impact of Loper Bright. 

The Tax Court's first major post-Chevron regulation validity challenge, Varian Medical Systems, Inc. v. Commissioner, 163 T.C. No. 4 (2024), did not provide much of an indication of how the court might apply Loper Bright. Varian did not require a close interpretation of Loper Bright because the court found that the regulation clearly contradicted the statutory text. This was not the case, however, in Weston v. Commissioner, T.C. Memo. 2025-16, and Hamel v. Commissioner, T.C. Memo 2025-19 (Hamel II). While it is still too early to understand fully how Loper Bright will impact the Tax Court's approach to substantive validity challenges, Weston and Hamel II provide some early clues.

In Weston, the Tax Court addressed a challenge to the validity of Treas. Reg. § 1.165-1(d)(3), which covers theft-loss deductions. The court upheld Treas. Reg. § 1.165-1(d)(3), relying on the legal analysis contained in a prior case, Ramsey Scarlett & Co. v. Commissioner, 61 T.C. 795 (1974). Specifically, noting that Loper Bright explicitly provided that previously decided cases are still subject to stare decisis, the Tax Court declined to separately evaluate the validity of the regulation. It is interesting to note that the case that analyzed the regulation, Ramsey Scarlett, was decided before the Supreme Court issued Chevron. While perhaps more telling than Varian, Weston still leaves a high degree of uncertainty.

The February 2025 decision in Hamel II provides a bit more insight into the Tax Court's approach. Hamel I, first decided by the Tax Court in June 2024, addressed the period of limitations under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) partnership audit regime for assessments of tax attributable to partnership items. In Hamel I, the court held that the period of limitations on assessment with respect to the taxpayers remained open because they were unidentified partners under section 6229(e), relying in part on Treas. Reg. § 301.6223(c)-1T. The court rejected the taxpayer's challenge to Treas. Reg. § 301.6223(c)-1T based on Gaughf Properties, L.P. v. Commissioner, 139 T.C. 219 (2012), a pre-Loper Bright case in which the Tax Court upheld the regulation's validity, citing Chevron. In July 2024, the taxpayer moved for reconsideration to assess the impact of Loper Bright, if any, on Gaughf Properties and, in turn, Hamel I. The Tax Court agreed to reconsider the issue and, in Hamel II, the court reaffirmed its original conclusions. 

First, the Tax Court rejected the taxpayer's argument that Loper Bright overrules or abrogates Gaughf Properties. As it did in Weston, the court cited the Supreme Court's direction in Loper Bright that the demise of Chevron deference "do[es] not call into question prior cases that relied on the Chevron framework." 

Second, the Tax Court held that Treas. Reg. § 301.6223(c)-1T was within statutory rulemaking authority granted to Treasury. The court discussed the analysis set forth in Loper Bright for rules issued pursuant to congressional delegations of authority. It held that Treas. Reg. § 301.6223(c)-1T was within Treasury's delegation of authority, citing as support the general delegation of rulemaking authority in section 7805(a), along with additional rulemaking authority under the TEFRA partnership regime in section 6230(k), and the deferential standard for reviewing Treasury regulations in the pre-Chevron case National Muffler Dealers Association v. United States, 440 U.S. 472, 476-77 (1979). The court also found that Treas. Reg. § 301.6223(c)-1T was the product of reasoned decisionmaking. While the court acknowledged that the notice of proposed rulemaking that accompanied the regulation did not specifically address Treas. Reg. § 301.6223(c)-1T, it noted three indicia of reasoned decisionmaking: (1) a statement in the notice that the purpose of the regulation package was to provide clarity to partners and partnerships on the treatment of partnership items under TEFRA; (2) the notice requested comments and provided an opportunity for public hearing; and (3) the general discussion of the TEFRA regime in the notice. Based on these findings, the court held that the best reading of section 6229(e) "is consistent with the regulatory requirements of Temporary Treasury Regulation § 301.6223(c)-1T."

Weston and Hamel II provide some early insight into the Tax Court's approach to applying Loper Bright. There are several cases with validity challenges pending in the Tax Court, including Schwarz v. Commissioner (hobby loss regulations under section 183), Foothill Packing, Inc. v. Commissioner (regulations under section 6330), and Siemens USA Holdings, Inc. v. Commissioner (regulations under several Tax Cuts and Jobs Act (TCJA) provisions). In addition, there are cases pending on appeal from the Tax Court that will also affect the court's approach, including 3M Co. v. Commissioner in the Eighth Circuit and Tribune Media Co. v. Commissioner in the Seventh Circuit. We will continue to watch the court's approach to substantive validity challenges as it decides these and other cases to come. 

For more information, please contact:

Brian S. Gleicher, bgleicher@milchev.com, 202-626-1589

Samuel A. Lapin, slapin@milchev.com, 202-626-5807

Omar M. Hussein, ohussein@milchev.com, 202-626-1578

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