King v. Burwell and Tax Court Review of Regulations

Abstract

The Supreme Court in King v. Burwell declined to apply Chevron deference to a tax regulation in deciding whether Internal Revenue Code section 36B allowed tax credits for taxpayers who enroll in an insurance plan through a federal rather than a state exchange. According to the Court, the question raised by the case was an extraordinary one that required the Court to interpret the statute itself, rather than consider the validity of the tax regulation permitting credits in such situations.

King v. Burwell relied in good measure on FDA v. Brown & Williamson Tobacco Corp., which concluded that the FDA did not have authority to regulate tobacco. There, the Court found that legislation specifically directed at tobacco would “preclude an interpretation of the FDCA [Food, Drug, and Cosmetic Act] that grants the FDA jurisdiction to regulate tobacco products.” Ostensibly, Brown & Williamson was a Chevron Step 1 decision that the statute itself addressed the question before the Court. By enacting other legislation involving tobacco, said the Court, Congress spoke precisely to the question at issue. In King v. Burwell the Court rejected use of Chevron. It thus explicitly recast Brown & Williamson into a so-called Chevron Step 0 case, an initial inquiry into whether Chevron applies at all, and declared an exception to Chevron for at least some cases that involve large, fundamental questions.

For tax law, the response of the Tax Court to King v. Burwell will hold particular importance. The vast majority of federal tax litigation takes place in the Tax Court rather than federal District Court or the Court of Federal Claims. According to statistics from the IRS Office of Chief Counsel, for Fiscal Year 2012, Tax Court cases represented almost 97% of the more than 31,000 docketed federal tax cases and 68% of $97.7 billion at issue. Many of the cases the Tax Court hears involve the validity of tax regulations and other IRS guidance, such as revenue rulings. The consequence of the Tax Court reading King v. Burwell as lowering the level of deference given to tax regulations would be significant.

This short paper looks at the Tax Court’s recent application of Chevron and Brown v. Williamson to speculate as to whether the Tax Court will view the extraordinary case exception from Chevron adopted in King v. Burwell as the limited province of the Supreme Court or as empowering the Tax Court, with a strong sense of its own expertise, to invalidate tax guidance more easily and frequently. While any conclusion is only a guess, it concludes that the Tax Court could well read King v. Burwell as increasing its ability to invalidate regulations.