Supreme Court Faces Landmark Decision on Federal Agency Power

May 27, 2024

In a pivotal moment for the administrative state, 2 cases regarding the herring fishing industry have landed on the docket of the Supreme Court, threatening to reshape the landscape of federal agency rulemaking.

You might be wondering what the fishing industry has to do with cryptocurrency. Well, these 2 Supreme Court cases could completely reshape how cryptocurrency is taxed and regulated.

The outcome of these cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, argued on January 17, 2024, could potentially diminish the authority of federal agencies, particularly impacting the Internal Revenue Service (IRS) and other governmental bodies.

Case background: What is the Chevron doctrine?

At the heart of the matter is a rule established by the National Marine Fisheries Service mandating that fisheries in the herring industry bear the expenses of government observers on fishing vessels. The petitioners argue that the government should shoulder these costs instead.

However, this legal battle has evolved beyond the specifics of fishing boat observers and now questions a long-standing Supreme Court precedent known as the Chevron doctrine. This doctrine grants broad powers to federal agencies in the absence of direct congressional guidance.

The Chevron doctrine, established in 1984, empowers federal agencies to create rules with the force of law, as long as Congress has not explicitly addressed the issue in question. This doctrine significantly expanded the administrative state by requiring courts to defer to federal agency rulemaking, reducing the likelihood of legal challenges against those rules.

Chevron is one of the most cited administrative law cases ever decided, with more than 18,000 prior decisions relying on the doctrine.

New challenge to the Chevron doctrine and administrative agency powers

The cases of Loper Bright and Relentless now present a challenge to the Chevron doctrine.

Advocates for overruling Chevron argue that the ruling undermines the traditional role of courts in interpreting statutes, resulting in an overly powerful federal government. They contend that the doctrine allows agencies to flip-flop on regulatory schemes based on political changes, with little judicial oversight.

On the other side, proponents of upholding Chevron, including the 3 liberal Justices of the Supreme Court, emphasize that agencies are better equipped to interpret statutes due to their expertise. They argue that judicial deference to agency decisions keeps judges out of policy-making, leaving that role to Congress and the President.

What does this mean for cryptocurrency regulation?

The potential consequences of overturning Chevron are vast. If the ruling is reversed, it could either completely upend the legal landscape, reopening thousands of cases that relied on Chevron, or lead to a more restrained application of judicial deference to agency decisions. The latter could strike a balance between challenging agency power and maintaining legal consistency.

If the Supreme Court opts to overturn Chevron, it would significantly curtail the power of federal agencies, such as the IRS and SEC, subjecting their decisions to higher judicial scrutiny. This shift could slow down agency rulemaking and force Congress to draft more detailed legislation. For Gordon Law and our clients, an overturned Chevron would offer new avenues to contest unfavorable agency rules.

The impact could extend to emerging areas like cryptocurrency regulation, with potential legal challenges to SEC and IRS rules. We would undoubtedly see fresh legal challenges to the SEC rule defining cryptocurrency as a security, IRS rules which limit crypto accounting methods to First-In, First-Out (“FIFO”) or Specific Identification, and many others. Crypto-related SEC and IRS lawsuits could throw established rules into flux and could tie up these issues for years pending litigation results.

As the Supreme Court contemplates the fate of Chevron, the cases of Loper Bright and Relentless emerge as a catalyst for reshaping the nation’s regulatory framework, promising a future marked by increased litigation and a recalibrated balance of power between the judiciary and federal agencies.

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