Skidmore v. Swift & Co. Archives | TAX CONTROVERSY 360

3M Co. v. Commissioner: IRS shipwrecks hard on the shoals of Loper Bright

by Edward L. Froelich | Oct 16, 2025 | Appellate Courts, Court Procedure Matters, Transfer Pricing Resource

3M Co. v. Commissioner, 136 AFTR 2d 2025-, (8th Cir.) (Oct.1, 2025), is perhaps the most significant tax case to date that implements Loper Bright’s instruction regarding evaluation of an agency’s exercise of delegated authority.[1] The unanimous panel held that:

The Internal Revenue Services’ (IRS) adjustment imputing additional royalty income to 3M from its Brazilian affiliate was invalid because it was outside the authority delegated by Internal Revenue Code Section 482.
The underlying regulation, Reg. § 1.482-1(h)(2) (the blocked income regulation), was invalid for the same reason.

The IRS’s change of tack

Those following the US Court of Appeals for the Eighth Circuit’s consideration of the case were aware that the Court had asked the parties to file supplemental briefing on the impact of the Loper Bright decision, which was handed down after the US Tax Court’s decision. The focus of the Tax Court dispute was whether the blocked income regulation was a valid implementation of the statute under Chevron and the Administrative Procedure Act. A plurality of that court agreed it was.

In its briefing before the Eighth Circuit, the IRS pivoted[2] and argued that even if the Court determined that the blocked income regulation was invalid, Code Section 482 provided direct authority to the IRS to make adjustments to income. The IRS maintained that it did not need a regulation to support the adjustment in the case. Moreover, the IRS argued, where adjustments relate to the transfer of intangible property (such as here), its authority was only constrained by the requirement that the adjustment conform to the income commensurate with that attributable to the intangible.[3] Because the parties agreed that the higher royalty would have been paid to an unrelated party, slip op. at 2, the IRS maintained it was authorized to make the adjustment to 3M’s income.

No one can be taxed on income they can’t have

The IRS’s maneuver did not deter the Eighth Circuit from carefully following the mandate it had received via Loper Bright to evaluate whether the agency’s exercise of authority was within its statutory mandate. In other words, even if the IRS could act without a regulation to make adjustments under Code Section 482, the exercise of its authority under that section must remain within the confines of the statute: “[I]t is still our job to ‘fix[] the boundaries of [that] delegated authority’ based on the statute’s text, as we have done today.” Slip. op. at 11 (quoting Loper Bright). Viewed through this lens, the Eighth Circuit found that the adjustments asserted by the IRS were well outside the authority granted by Code Section 482. Because the blocked income regulation purported to exercise the same extra-statute authority, it too was found deficient.

According to the Eighth Circuit, Code Section 482’s broad delegation to the IRS by its terms is limited to making adjustments where necessary to avoid evasion or distortion of income. However, in Comm’r v. First Sec. Bank of Utah, N.A., 405 U.S. [...]

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Senate Attempts to Repeal Chevron Deference

by Macdonald Norman and Robin L. Greenhouse | Jul 31, 2017 | Court Procedure Matters, Trial Courts, Uncategorized

In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. 467 US 837 (1984), the Supreme Court of the United States established a framework for assessing an agency’s interpretation of statutory provisions. First, a reviewing court must ask whether Congress “delegated authority to the agency generally to make rules carrying the force of law,” and whether the agency’s interpretation was promulgated under that authority. United States v. Mead Corporation, 533 US 218, 226–27 (2001). Delegation may be shown in a variety of ways, including “an agency’s power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent.” Id. at 227. If an agency has been delegated the requisite authority, the analysis is segmented into two steps.

Under step one, the reviewing court asks whether Congress has clearly spoken on the precise question at issue. See Chevron, 467 US at 842. If so, both the court and agency must follow the “unambiguously expressed intent of Congress,” and the inquiry ends. Id. at 842–43.

If the statute under review is ambiguous or silent, the reviewing court moves to step two: whether the agency’s interpretation is based on “a permissible construction of the statute.” Id. at 842. This inquiry asks whether the interpretation is reasonable and not “arbitrary, capricious, or manifestly contrary to the statute.” Chevron, 467 US at 843; see also Judulang v. Holder, 565 US 42, 53 n.7 (2011); Encino Motorcars, LLC v. Navarro, 579 US ____, 136 S. Ct. 2117, 2125 (2016). If the agency’s interpretation passes muster, then the agency’s interpretation is given Chevron deference, and afforded the force of law. The Chevron two-part analysis applies to tax regulations issued by the United States Department of the Treasury and the Internal Revenue Service. Mayo Foundation for Medical Education & Research v. United States, 562 US 44, 55 (2011). (more…)

Update on Deference to IRS Positions

by Jonathan D. Lockhart, Jeffrey M. Glassman and McDermott Will & Emery | Apr 20, 2016 | Court Procedure Matters, IRS Guidance, Trial Courts, Uncategorized

As we discussed here, and in our recent article in The Federal Lawyer, deference to Internal Revenue Service (IRS) pronouncement is an important issue for taxpayers and their advisors. Our prior writings dealt generally with the three levels of deference in tax cases and how they have been applied by the courts. A recent Tax Court case looks at the level of deference owed to statements in preambles to tax regulations.

In Estate of Morrissette v. Commissioner, 146 T.C. No. 11 (Apr. 13, 2016), the taxpayer cited to the preamble to regulations dealing with split-dollar life insurance arrangements. Those regulations dealt with two mutually exclusive regimes for taxing these types of arrangements entered into after September 17, 2013. The preamble to the regulations included an example that was structurally identical to the arrangements at issue in the Tax Court case. In reviewing the preamble, the court noted that while it had previously been unpersuaded by a preamble, it believed that the preamble was a statement of the IRS’s interpretation of the statute and therefore should be judged under the “power to persuade” standard in Skidmore v. Swift & Co., 323 US 134, 140 (1944). The Tax Court found that the preamble was consistent with the taxpayer’s interpretation of the statute and contrary to the IRS’s position, and found the logic of the preamble to be sound.

The Tax Court’s statements regarding Skidmore deference are important for taxpayers, both in planning and defending transactions. In prior cases, the Tax Court has held that the IRS is “obligated to follow” its “published administrative position” and treated such positions as a concession as to the proper result, e.g., Dixon v. Commissioner, 138 T.C. 173, 188 (2013). A preamble to a regulation could be viewed as a published administrative position, given that it is part of a Treasury Decision that is published in the Internal Revenue Bulletin and the IRS’s position is that the Internal Revenue Bulletin is the “authoritative instrument of the Commissioner.” Treas. Reg. § 601.601(d). It is unclear whether the taxpayer in Estate of Morrissette argued that the IRS was obligated to follow the preamble.

Taxpayers that wish to rely on preambles to regulations, or that are defending against an IRS position based on a preamble, need to be aware of these arguments in planning and defending their transactions. To the extent the preamble is supportive of a position and contains a persuasive and sound analysis, one could argue that Skidmore deference applies. Under this argument, the IRS should not be able to disavow its interpretation of a statute or regulation. Additionally, taxpayers may wish to argue that under the principle announced in Dixon and prior Tax Court cases, the statements in a preamble constitute a concession by the IRS to which it is bound. A similar analysis should be undertaken if the preamble is contrary to the taxpayer’s position.