Deference Principles in Tax Cases and Unique Challenges of Auer Deference
The Supreme Court of the United States, in Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 55 (2011), confirmed that tax laws are subject to the same deference principles as other federal laws.
In general, these deference principles can be grouped into three levels, commonly referred to as Chevron, Skidmore, and Auer deference. Chevron is often regarded as the strongest level of deference, and can apply where Congress explicitly leaves a gap for an agency to fill and the agency intends for its interpretation to have the force of law. Tax regulations can be entitled to Chevron deference. Skidmore deference, which is limited to an interpretation’s persuasive power, can apply to other IRS interpretations that are thoroughly considered, well-reasoned, and consistent with earlier and later IRS pronouncements. Skidmore deference, which is generally considered a lesser level of deference than Chevron, can apply to revenue rulings and revenue procedures. The last level of deference, Auer, is a special level of deference that can apply when an agency interprets its own regulations. In Auer v. Robbins, U.S. 452, 461 (1997), the Supreme Court accorded deference to an agency’s amicus brief. The theory behind Auer is that an agency is uniquely positioned to interpret any ambiguity in its own regulations. Courts have increasingly placed limitations on Auer and its continuing validity has been questioned by sitting members of the Supreme Court.
At the time, Justice Scalia was the leading member of the Supreme Court advocating for the abandonment of Auer. But he was not alone. Other justices have openly either written about the risks of Auer or indicated a willingness to reconsider the principles of Auer. In addition, all current justices have either written or joined in an opinion that casts serious doubts about Auer or expressed an indication to revisit the deference standard in an appropriate case. With Justice Scalia’s passing, it remains to be seen whether the Court will continue to seek such a case. But considering the increasing wave of limitations being placed on Auer, it would not come as a surprise if further limitations were issued.