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Supreme Court ruling could undermine the Treasury Department and the IRS

The Supreme Court’s striking down of Chevron’s deference could complicate the ability of the Treasury Department and the Internal Revenue Service to craft federal regulations central to President Biden’s economic agenda.

The Treasury Department is responsible for implementing major legislation such as the Inflation Reduction Act, including determining who qualifies for billions of dollars in tax credits. At the same time, the IRS has wide latitude to administer the tax code. The agency recently faced criticism for its decision to halt some pandemic relief tax credits to businesses over fraud concerns and delaying the collection of new taxes on digital wallet transactions.

“Taxpayers are likely to challenge the validity of dozens of tax rules, and those challenges are much more likely to succeed,” said Robert J. Kovacev, an attorney at the firm of Miller & Chevalier who specializes in tax litigation and represents companies involved in disputes with the IRS. “For years, the IRS has issued rules that expand its power and limit the tax benefits that Congress intended taxpayers to receive.”

The ruling will also raise new challenges as the Biden administration rolls out its regulations on alternative energy credits, Mr. Kovacev said, because the IRS will not be able to take for granted that courts will adhere to its regulations.

The Tax Policy Center said in an analysis last fall that such a Supreme Court ruling would make it more difficult for an agency like the IRS to set rules for rapidly developing industries such as cryptocurrencies. It would also be more difficult for Congress to fill legislative gaps as lawmakers rush to draft tax legislation.

Critics of the tax agency said Friday they were optimistic 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 IRS interpretations will no longer automatically win in court, as they should, and reasonable interpretations will still have the force of law.”

The Treasury Department and the IRS declined to comment.

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