The U.S. Supreme Court’s recent decision to overturn a legal doctrine called Chevron deference marks a significant shift in how federal regulations will be interpreted and applied, with potentially far-reaching implications for donors and the nonprofit organizations they support.
This doctrine, established in a 1984 decision, compels courts to defer to federal agencies’ interpretations of ambiguous laws, essentially giving federal agencies leeway to fill in the gaps in U.S. law. The Court’s decision to overturn this doctrine will help curb the unchecked power of the administrative state and is likely to have wide ranging impact across all economic sectors, including philanthropy.
The Chevron doctrine grants broad power to the IRS and Treasury Department, both of which shape the rules and regulations that govern the tax-exempt space.
In overturning this doctrine, Chief Justice Roberts summarized:
“Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do. The Framers, as noted, anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment.”
Roberts added that the Administrative Procedure Act (APA) requires independent judgment by the courts, not government agencies:
“Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires. … But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”
Three Takeaways for Philanthropy:
- This decision weakens role of the federal bureaucracy: The majority opinion argued that Chevron grants undue power to unelected bureaucrats, allowing them to craft policy through opaque regulations rather than the deliberative legislative process. Associate Justice Clarence Thomas said Chevron “curbs the judicial power afforded to courts, and simultaneously expands agencies’ executive power beyond constitutional limits.”
- This decision paves a path for regulatory stability: Justices concurring with the majority opinion also noted how Chevron created a regulatory environment of uncertainty. Roberts argued that “Chevron fosters unwarranted instability in the law, leaving those attempting to plan around agency action in an eternal fog of uncertainty.” Associate Justice Neil Gorsuch concurred with this opinion, noting “Rather than promoting reliance by fixing the meaning of the law, Chevron deference engenders constant uncertainty and convulsive change.”
In the context of foundations, nonprofits and other tax-exempt entities, this can translate into an ever-shifting regulatory landscape, rife with ambiguity and uncertainty. For groups navigating a complex maze of IRS pronouncements and rulings only to find the ground shift with the next interpretation, such unchecked administrative power stifles innovation. It also makes it difficult for nonprofits to focus on meeting their missions and serving their local communities.
- This decision defends against biased rulemaking: Another important point to note in this ruling is without robust judicial oversight agencies can regulate beyond the scope of law or become susceptible to lobbying pressures, potentially skewing interpretations in favor of certain groups over others. Thomas said “Chevron deference guarantees ‘systematic bias’ in favor of whichever political party currently holds the levers of executive power.” In the world of nonprofits, this could mean regulations crafted to benefit certain organizations or punish those that fall into disfavor with the politicized bureaucracy in Washington D.C.
For four decades, the regulatory litigation system has leaned too heavily toward agency control, leaving many tax-exempt groups struggling in a sea of ambiguity. The overturning of Chevron could usher in a new era of transparency and accountability. For organizations fighting for a regulatory environment that empowers communities to thrive, this decision represents the opportunity to remove barriers of an overreaching administrative state.
