Conservation Easements and Anti-Chevron Deference Arguments

The Supreme Court heard oral arguments this week regarding whether the longstanding Chevron deference doctrine should be discarded.  Most observers believe the Court is going to overrule the whole kit and kaboodle.  From the SCOTUS Blog:

It has been nearly 40 years since the Supreme Court indicated in Chevron v. Natural Resources Defense Council that courts should defer to an agency’s reasonable interpretation of an ambiguous statute. After more than three-and-a-half hours of oral argument on Wednesday, it seemed unlikely that the rule outlined in that case, known as the Chevron doctrine, will survive in its current form. A majority of the justices seemed ready to jettison the doctrine or at the very least significantly limit it.

The court’s ruling could have ripple effects across the federal government, where agencies frequently use highly trained experts to interpret and implement federal laws. Although the doctrine was relatively noncontroversial when it was first introduced in 1984, in recent years conservatives – including some members of the Supreme Court – have called for it to be overruled.

You can listen to the interesting arguments here and here.  Meanwhile, taxpayers are taking notice.  In Brooks v. Commissioner, the taxpayer is appealing the Tax Court’s disallowance of a conservation easement deduction, asserting that the Service’s interpretation and application of the law and regulations pertaining to the deduction is just way too much and should be overruled.  From the reply brief:

As shown in the Appellants’ Opening Brief (the “Brief”) and not disputed in the IRS’s Response (the “Response”), the regulatory scheme Congress and the Secretary of the Treasury (the “Secretary”) created for conservation easements strikes a delicate balance. It provides the tax benefit and written statutory and regulatory guidance needed to encourage conservation easements, while imposing reporting requirements and procedures to prevent fraud and abuse. It does not deputize the IRS to change the Rules, either by announcements intended to chill donations or enforcement policies that take advantage of the flexibility that was intentionally written into the Rules.

The Tax Court erred by allowing the IRS (as part of its often-laudable efforts to collect taxes) to impose unwritten, transient, and hyper-technical interpretations of the Rules, to apply them retroactively, and, in so doing, to upset the balance. Indeed, the Tax Court’s ruling adds significant weight to the IRS’s ongoing efforts to inhibit conservation easement deductions by institutionalizing aggressive interpretations of the Rules in audit guides given to agents, reasserting positions that have been rejected by other Circuit Courts, improperly and summarily labeling categories of conservation easements as tax avoidance schemes, and, as a whole, by convincing the public that the “IRS risk” of making a conservation easement donation is just not worth it.

These strategies do not just impermissibly damage the Brooks, who, in good faith, engaged qualified professionals to make a conservation donation more than 16 years ago. If affirmed, they will inevitably undermine Congressional will by chilling conservation easements to a level properly registered on an absolute zero, Kelvin Scale. The potential consequences of IRS action against a donation — daily compounding interest, double digit penalties, and the legal fees needed to fight the IRS in a specialized area of the law — are simply too high to risk if the IRS can “shift the regulatory sands” underneath donors. The Response highlights the risk to the donating public. Indeed, its arguments about baseline documentation exemplify how the Opinion threatens the entire regulatory scheme. 

You can read taxpayers’ opening brief here, and the government’s response brief here.  The reply brief doesn’t explicitly address Chevron deference, but it is easy to see that Taxpayer’s are insisting that no deference be shown.  It will be interesting to see how the Fourth Circuit reacts to that argument in light of the impending demise of the Chevron doctrine.  

darryll k. jones