For 40 Years, Tax Lawyers Relied on Treasury Regulations. The Rules Just Changed.

Chevron Falls, Courts Rise, Opportunities Knock

During the 16 years I taught income tax law to lawyers here in the Birmingham area, there were certain principles I could explain with confidence.

One of them was this: if Treasury issued a regulation interpreting an unclear tax statute, and that interpretation was reasonable, courts were generally going to uphold it.

That principle shaped tax practice for decades. Tax lawyers, accountants, and businesses relied on it every day. Congress passed the law, Treasury filled in the details, and courts usually gave Treasury the benefit of the doubt when the statute left room for interpretation.

I wouldn't teach it that way today.

The reason is a Supreme Court decision from 2024 that changed one of the most important rules governing federal agencies — including the IRS and Treasury Department.

The End of Chevron Deference

For 40 years, the rule was known as Chevron deference. Under that doctrine, when Congress wrote an ambiguous statute, courts generally deferred to an agency's reasonable interpretation of that statute.

In the tax world, that meant a Treasury Regulation did not have to be the only possible interpretation of the law. It simply had to be a reasonable one.

In Loper Bright Enterprises v. Raimondo, the Supreme Court eliminated that approach.

Now, courts decide for themselves what a statute means. Treasury's interpretation still matters, but it no longer receives automatic deference. Judges will look at Treasury's reasoning, but they are no longer required to accept it simply because it is reasonable.

That is a major change.

A Real-World Example: The Keysight Case

We now have a clear example of what that change means.

In Keysight Technologies, Inc. & Subsidiaries v. United States, the Court of Federal Claims struck down a Treasury Regulation involving the GILTI provisions of the Tax Cuts and Jobs Act.

The details are complicated, but the basic issue was straightforward: Treasury believed taxpayers were taking advantage of a gap in the law and issued a regulation to prevent what it viewed as an unintended result.

The court disagreed.

Before Loper Bright, Treasury's broad authority to issue regulations might have been enough to save the rule. After Loper Bright, that is no longer the case. The court looked closely at the statute itself and concluded that Treasury had gone beyond what Congress actually authorized.

The result was a Treasury Regulation being invalidated — something that was much harder to accomplish under the old rules.

Why This Matters to Businesses and Taxpayers

For many years, the phrase "the regulation says so" was often the end of the conversation.

That is no longer true.

If a Treasury Regulation affects your business — how deductions are calculated, how income is characterized, whether a credit is available, or how a transaction is treated — the question is no longer simply whether the regulation is reasonable.

The question is whether Treasury actually had authority from Congress to issue that rule and whether the regulation represents the best reading of the statute.

That change creates both opportunities and uncertainty.

Some IRS positions that taxpayers have lived with for years may now be open to challenge. At the same time, taxpayers who have relied on existing regulations may find that some areas of tax law are less settled than they once appeared.

After teaching tax law for 16 years (and practicing it for many more years than that), I find this one of the most interesting developments I have seen. A rule that was once a foundation of tax practice has disappeared, and we are beginning to see what replaces it.

If your tax planning depends on a Treasury Regulation — especially one that seems to go beyond what Congress actually wrote — it may be worth taking a fresh look. The answer may not be as simple as it once was.