Transfer Pricing, Supreme Court Loper Bright, Section 482

---

Summary

• In the last four years, the Supreme Court has entered a range of decisions which have effected something of a revolution in administrative law.
• Transfer pricing is the system of allocating the income of multinational enterprises among different countries in which those enterprises operate.
• For over a century, this process has been governed by extensive regulations promulgated under a very brief and elliptical statutory provision, section 482 of the Internal Revenue Code.
• This Article explores whether and the extent to which the recently articulated Supreme Court doctrines, particularly those of Loper Bright and West Virginia, could be invoked to invalidate all or part of the extensive regulations under section 482.

Luis Alvarez via Getty Images

Jump to:

---

---

Abstract

In the last four years, the Supreme Court has entered a range of decisions which have effected something of a revolution in administrative law. Foremost among these are a group of decisions in the 2021 Term dubbed the “Major Questions Trilogy,” culminating in the decision in West Virginia v. EPA, 597 U.S. 697 (2022). These establish the “major questions doctrine.” Equally significant is the decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), which overruled the doctrine of Chevron, U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984), concerning deference to administrative agencies. Transfer pricing is the system of allocating the income of multinational enterprises among different countries in which those enterprises operate. For over a century, this process has been governed by extensive regulations promulgated under a very brief and elliptical statutory provision, section 482 of the Internal Revenue Code. This Article explores whether and the extent to which the recently articulated Supreme Court doctrines, particularly those of Loper Bright and West Virginia, could be invoked to invalidate all or part of the extensive regulations under section 482.

---

---

---

---

I. Introduction

In its last four terms, the Supreme Court has rendered a series of decisions which have effected remarkable changes in U.S. administrative law. In the 2021 Term, these included a series of cases, dubbed the “Major Questions Trilogy,” which affirmed and reified the so-called “major questions doctrine” (MQD). The MQD holds that when a Court reviews an agency regulation that affects an economically or politically significant facet of the polity, congressional authority for the regulatory initiative must appear with exacting clarity.

In its 2023 Term, the Court rendered another trio of decisions, albeit on discrete doctrinal topics, which transformed the doctrinal landscape of judicial review of agency action. The most noted of these is the Loper Bright Enterprises v. Raimondo decision overruling and eliminating the so-called Chevron doctrine (Chevron, U.S.A. v. Natural Resources Defense Council), which had mandated substantial judicial deference to agency action. In its 2024 Term, the Court addressed the nondelegation doctrine, reaffirming the historic “intelligible principle” rule but refraining from the kind of sweeping revisionism that characterized the decisions of the earlier three terms.

As of the time of writing this Article, the Court is now in the midst of the 2025 Term, and no final decisions have been rendered that further reshape administrative law. But it appears certain that pending decisions will effect such further impact. Two pending matters virtually assure further development. The first is the celebrated tariff decision, Trump v. V.O.S. Selections, Inc. That matter turns principally on a statutory question under the International Economic Emergency Powers Act (IEEPA) as to whether authority granted to the President to “regulate . . . importation” of goods encompasses a power to impose tariffs. But the parties’ briefs and the November 5, 2025 oral argument indicated that both the MQD and nondelegation doctrines are likely to play some, and perhaps prominent, roles in the precedent that emerges from the proceeding. The second is a series of cases involving efforts by the new President to remove, without cause, officers of what have been considered “independent” agencies, notwithstanding statutory provisions limiting the President to removing those officers for cause.

One major area of policy, which has long been governed by extensive regulatory provisions derived from a very short and elliptical statutory provision, concerns the allocation of corporate income tax base among various national jurisdictions in which a multinational enterprise (MNE) operates. The statutory provision involved is section 482 of the Internal Revenue Code, under which extensive regulations have been promulgated since the mid-1960s. The linchpin of these regulations, since 1934 to 1935, is the “arm’s length standard,” set forth in the regulations but not mentioned in the statute.

But the contrast between the simplicity of the textual provisions authorizing the regulations and the complexity and detail of the regulations themselves is itself the kind of circumstance which the decisional avulsions of the past few years seem directed at examining, if not limiting. In particular, the area seems one to which the terms of the MQD—an area of political and economic significance subject to a regulatory regime born of a brief and highly unclear statutory text—direct attention. Although the regulatory regime is of long standing and touches foreign affairs, the context of the question is far different from the contexts that gave rise to the extant MQD decisions. Notwithstanding this, and although the transfer pricing area is one of the most heavily covered in the professional tax press, there was virtually no suggestion in that press that the MQD might apply to transfer pricing. The situation was different after Loper Bright. That press then came to be littered with discussion by taxpayer representatives, leading tax reform and pro-government commentators, and academic commentary considering the extent to which the transfer pricing regulations in toto might be subject to scrutiny, or, indeed, even invalidation, absent Chevron deference and under Loper Bright. And serious attention is now paid to the comprehensive question of the consequences of Loper Bright for the tax law generally, including to transfer pricing.

The discussion herein takes the view that questions both about particular issues arising under the transfer pricing regulations and about the arm’s length standard are serious under both the MQD and Loper Bright. The discussion herein also takes up the implications of these doctrinal areas for transfer pricing in turn. The understanding here is, reflecting the nascent literature under Loper Bright, that any meaningful challenge to the general arm’s length standard would have enormous practical implications for tax policy; that it is decidedly unclear how a determination that the standard was unlawful would ever be implemented; and that these circumstances militate strongly against the likelihood that those regulations would be overturned or abandoned.

It is nevertheless the case that both MQD and Loper Bright by their own terms seem to impact the transfer pricing area. It is important to confront those considerations and to confront the implications of distorting the new doctrines to avoid even the severe difficulties their application might pose. This is true even if this effort serves only to highlight difficulties with the doctrines when they are realistically applied to an area of policy where their implications may not be apparent or manageable. These issues are explored within.

II. The ‘New’ Administrative Law

A. “Major Questions”

1. Evolution of the Doctrine

The MQD is a species of “clear statement” rule which has two prongs. The first is whether the regulatory initiative involved is one of certain “extraordinary cases,” dependent upon “[e]xtraordinary grants of regulatory authority,” i.e., whether the case presents a “major question.” The second is whether, if the case does present such a question, Congress has provided “more than a merely plausible textual basis for the agency action,” thus whether the agency can point to “clear congressional authorization” for the power it claims.

The doctrine is of strikingly recent vintage, a circumstance frequently invoked to impeach its legitimacy. In its reified form as a clear statement rule, it dates only from 2022 in the West Virginia v. EPA decision, where the Chief Justice characterized the case flatly as a “major questions case,” and where the Court referred explicitly to “the major questions doctrine.” Even its prominent antecedents, forming “this body of law,” date only from the mid-1990s. A brief review of the evolution of the doctrine, however, addresses some of the claims about its youth and justification.

The MQD originated and emerged in the context of the revolution in administrative law occasioned by the Supreme Court’s 1984 decision in Chevron.

The earliest “major questions” (MQ) cases arose in 1994 and 2000. In MCI Telecommunications Corp. v. American Telephone & Telegraph Co., the Supreme Court overturned a Federal Communications Commission (FCC) ruling that its statutory authority to “modify” tariff posting requirements under the Federal Communications Act gave the FCC the authority to eliminate the requirement altogether for “non-dominant” telephone service carriers. In FDA v. Brown & Williamson Tobacco Corp., the Court overturned an FDA ruling that it could regulate tobacco products under its statutory authority to regulate “drugs.” In both decisions, the Court supplemented lengthy discussions of ordinary statutory interpretation with language about demanding statutory clarity in “extraordinary” cases. The MQ rubric thus first emerged as an “exception” to, or limitation on, Chevron deference.

It was, however, even in its infancy something more than that. By the end of the decade of the 1990s, some of the earlier univocal enthusiasm for Chevron had begun to wane, conceivably even on the Supreme Court. As early as 1999, support for reviving some limits on congressional delegations began to appear, some from highly regarded scholars. Most importantly, in United States v. Mead Corp., the Court itself limited Chevron to circumstances in which the agency actions had the “force of law.”

These developments provoked scholarship which simultaneously reflected some qualification of Chevron enthusiasm and enshrined some recognition of the significance of the MQ rubric/rhetoric. In 2001, Professors Thomas Merrill and Kristin Hickman published a lengthy article posing a wide range of scenarios to which the application of Chevron was uncertain, in anticipation of the Supreme Court’s consideration of Mead. Professors Merrill and Hickman dubbed these circumstances as involving Chevron “Step Zero,” an inquiry preliminary to the two-prong analysis into whether Chevron applied at all. The Step Zero formulation formed the title of a 2006 article by Professor Cass Sunstein, and it was in that article that Professor Sunstein first identified and labeled the MCI/Brown & Williamson principles as MQ issues.

During the first decade and a half of the new century, the Supreme Court’s activity with respect to MQ was limited. This ended with the 2014 and 2015 Terms. In Utility Air Regulatory Group v. EPA, the Court held that statutory authority to include “any air pollutant” under the review process of the Clean Air Act could not be extended to greenhouse gases. Justice Scalia’s opinion for the Court conducted a Chevron Step One analysis concluding that the statute was not ambiguous, but then concluded by invoking MCI/Brown & Williamson principles, in language quoted frequently since: “When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’” the Court “expect[s] Congress . . . to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’”

A year later, in King v. Burwell, the Court held valid an Internal Revenue Service (IRS) interpretation allowing tax credits to participants in Federal Affordable Care Act (ACA) exchanges in spite of statutory language seemingly limiting the credits to participants in state ACA exchanges. The opinion by the Chief Justice explicitly invoked MQ rhetoric, but, in doing so, explicitly set aside the Chevron two-step procedure and thus seemed to be explicitly embracing (at a minimum) a Step Zero approach. The Court held:

When analyzing an agency’s interpretation of a statute, we often apply the two-step framework announced in Chevron. . . . This approach “is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.” “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.
The Court continued and said the question before it was one “of deep ‘economic and political significance’ that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly.”

The case was taken not only to embrace a Step Zero approach but to go beyond that to articulating a new “canon” or “clear statement” rule independent of such considerations. Professor Sunstein identified “two major questions doctrines,” namely a “weak” Chevron exception doctrine and the “strong” newer canonical principle, which the professor likened to a modernized nondelegation doctrine.

Like Jane in the Three Faces of Eve, however, the strong version came to dominate and exclude the rival versions of the theretofore schizoid diktat by the 2021 Term. Shortly before the Term actually began, in August 2021, the Court vacated a stay of a district court order invalidating a nationwide moratorium on evictions orders by the Centers for Disease Control and Prevention (CDC). The Court’s per curiam opinion emphasized that “[w]e expect Congress to speak clearly when authorizing an agency to exercise powers of ‘vast economic and political significance.’” In January 2022, the Court decided two further COVID-related cases, with contrasting results. The Court granted stays of injunctions against orders by the Secretary of the Department of Health Human Services (HHS) and the Center for Medicare and Medicaid Services (CMMS) requiring providers of Medicare and Medicaid services to ensure that covered staff were vaccinated. On the same day, the Court reversed the denial of a stay of an order of the Department of Labor and the Occupational Safety and Health Administration (OSHA) imposing a nationwide vaccine mandate. The Court’s per curiam opinion quoted the earlier Alabama Ass’n of Realtors v. Department of Health & Human Services language and found that the relevant provisions of the Occupational Health and Safety Act of 1970 did not “plainly authorize” the Secretary’s action.

In West Virginia v. EPA, the Court, in an opinion by the Chief Justice, held that the nationwide Clean Power Plan regulating emissions from coal and natural gas-fired power plants was not authorized by section 111(d) of the Clean Air Act. There the Court began with an explicit and extended discussion of the content and background of what it expressly labeled the MQD, making clear that it was the “strong” form of which it spoke. It cited or quoted virtually all the identifiable MQ precedents—its earlier decisions in NFIB and Alabama Ass’n of Realtors; Brown & Williamson and MCI; Utility Air; and King v. Burwell —and concluded that “in certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent make us ‘reluctant to read into ambiguous statutory text’ the delegation claimed to be lurking there.” The Chief Justice said:

As for the major questions doctrine “label[ ],” it took hold because it refers to an identifiable body of law that has developed over a series of significant cases all addressing a particular and recurring problem: agencies asserting a highly consequential power beyond what Congress could reasonably be understood to have granted. Scholars and jurists have recognized the common threads between those decisions. So have we.
In Biden v. Nebraska, decided the following year, the Court held that the authority under the Higher Education Relief Opportunities for Students (HEROES) Act to “waive or modify” the application of provisions to student financial assistance did not authorize President Biden’s $430 billion student loan forgiveness program. The Court’s opinion, again by the Chief Justice, first relied on conventional statutory interpretation to find that the “waive or modify” language did not “authorize the kind of exhaustive rewriting of the statute that has taken place here.” As an alternative holding, the Court relied on West Virginia v. EPA to find that the “economic and political significance” of the agency action was “staggering by any measure,” that it could not “believe that the answer would be yes” to the question whether Congress “pass[ed] the HEROES Act with such power in mind.”

2. Reaction to the Decisions

The MQD trilogy provoked an enormous volume of commentary, almost all of it critical. One critique characterized the MQD as “unfounded,” “unbounded,” and “confounded,” neatly defining categories to which the various criticisms might be assigned. “Unfounded” might define what we designate the theoretical element of the critique. Commentators questioned the doctrine’s status as a “canon” or “clear-statement rule,” and in that light emphasized its recent emergence. The doctrine is seen as a radically deregulatory tool, and one that threatens democratic values by elevating judicial authority to invalidate congressional delegations of authority to agencies. Many commentaries question any link between the MQD and the Nondelegation Doctrine, the Vesting Clauses, and the separation of powers, emphasizing that the values those principles embody have at most tenuous links to “majorness.”

“Unbounded,” at the same time, might define what we might designate as the practical element of the critique. This criticism was shared almost universally; all commentary recognized that the Supreme Court had left both “prongs” of the doctrine with little definition. Most problematic was the question of what made a question “major” or, in the Chief Justice’s words, “extraordinary.” Justice Gorsuch’s West Virginia v. EPA concurrence listed factors, but the opinion commanded only two votes. Most commentators understood the Court to be practicing “strategic ambiguity,” but most also wondered what its basis for the strategy was, or, in any event, the wisdom of the strategy.

But scholarly attention to the doctrine was not really new. In the early 2000s, the MQ cases had received a degree of attention which, if not by all standards extensive, was in disproportion to the reach and range of the actual decisions that had been rendered at that time. What was very different, however, first in response to the mid-twenty-teens decisions introducing the “strong” form of the doctrine, and much more emphatically in response to the MQD trilogy, was the reaction of litigants and jurists in the lower federal courts. In the days of MCI, Brown & Williamson, and Gonzales, there was little activity in the lower courts in reaction to the novel Supreme Court rulings, even with respect to Chevron exceptions. Beginning in 2018 and 2019, litigants began to assert the doctrine with some frequency in the lower courts, and after the trilogy and especially West Virginia v. EPA, the trickle became a torrent.

With the focus here on a particular legal area, our emphasis will be on the features of MQD which entail “unboundedness.” The distinction between theoretical and practical is here, as elsewhere, somewhat arbitrary, as the two overlap ineluctably. The principal problem here is that the decisions generating the doctrine have almost all been areas of contemporary political focus—tobacco, climate change, COVID, assisted suicide—which agencies have sought to address under aged statutes. The terms of the doctrine’s two prongs, however, are not limited, at least not visibly, to such situations: they speak of “major” or “extraordinary” matters, and unclear statutes, but this is not conceptually confined to current regulatory initiatives. Initiatives taken in the remote or distant past may be of extraordinary importance and may have been undertaken under vague or indirect statutory authority. Can they be tested now? What about having been previously judicially accepted by courts unaware of the terms of any MQD? What if they were “major” when adopted, but no longer are? Or vice versa? These are addressed within. In addition, there are questions that may be raised about the “domain” of the MQD, just as Professors Merrill and Hickman suggested with respect to Chevron in 2001, as one commentator has already suggested. Can or should we talk of a “major questions Step Zero?” Some of these “domain” questions may be counterparts to those posed by Professors Merrill and Hickman with respect to Chevron; others may be particular with respect to the MQD.

3. The 2025 Term Tariff Proceedings

As is widely known, in its early days, the 2025 Trump Administration imposed a wide range of frequently high tariffs on imports from virtually all countries exporting to the United States. The tariffs were challenged in court. Both of the two trial courts involved granted injunctions; one against enforcement of the tariffs entirely, the other against imposition of the tariffs on the plaintiffs before the court. In V.O.S. Selections, Inc. v. United States, the Court of Appeals vacated the nationwide injunction when it otherwise affirmed the decision of the Court of International Trade. In the Learning Research, Inc. v. Trump proceeding, the District Court itself granted a stay of its plaintiff-specific injunction.

The Federal Circuit’s per curiam decision rested principally on a conventional interpretation of the statute, not on the MQD. But even its statutory analysis invoked a species of “clear statement” rule akin to the MQD. The Court emphasized that other statutes which have been held to confer on the President the power to impose tariffs “indicate[d] that whenever Congress intends to delegate to the President the authority to impose tariffs, it does so explicitly, either by using unequivocal terms like tariff and duty, or via an overall structure which makes clear that Congress is referring to tariffs.” But beyond its conventional analysis, the Court also explicitly based its ruling on the MQD. It held that the Government’s position “also runs afoul of the major questions doctrine,” that “not once before has a President asserted his authority under IEEPA to impose tariffs on imports or adjust the rate thereof,” and that “[t]he Executive’s use of tariffs qualifies as a decision of vast economic and political significance.” It added that it “discern[ed] no clear congressional authorization by IEEPA for tariffs of the magnitude of the Reciprocal Tariffs and the Trafficking Tariffs.”

The Administration’s petition for certiorari cited five reasons why the MQD had “no purchase here.” The response briefs of all three groups of plaintiffs emphasized at length that the MQD militated in favor of construing the IEEPA provision at issue against the government. At oral argument, the Court expressed considerable skepticism concerning the reasons cited by the Government for minimizing the application of the MQD, and two were noted with some emphasis: the question of the application of the doctrine in the foreign affairs or security context, and the question of the extent to which the doctrine applied only to “unheralded and transformative” powers.

The principal significance of the MQD at the oral argument, however, seemed not to center on the Government’s proffered reasons for limiting the doctrine, but rather on the extent to which a ruling in favor of the plaintiffs may depend upon application of the doctrine. Although it is treacherous to ever assume that the Justices (or judges in any court) are expressing their ultimate views of a case at oral argument, to many observers (including this author), the Justices appeared to divide into three groups, with the “liberal” bloc represented in only one, but the “conservatives” represented in each of the three. The first group comprised the three liberals and Justice Barrett: they appeared inclined to accept the plaintiffs’ interpretation of the statute without reliance on the MQD or any other “quasi-constitutional” principle (such as constitutional avoidance). These Justices proceeded from varying ideological stances, particularly with respect to the MQD: Justice Barrett reflected her view of the MQD as predominantly a device for textual interpretation rather than a separation of powers principle; Justice Kagan reflected on the relevance of the MQD, but only to a very limited extent; while Justice Jackson was willing to invoke legislative history expressly, though she adverted to the fact that such a mode of analysis is not (currently) in “vogue.”

A second bloc, consisting of many of the more conservative Justices, was willing to entertain the possibility of resolving the statutory question in favor of the government. This group included Justices Alito, Thomas, and Kavanaugh. Justice Alito questioned the private plaintiffs’ counsel concerning tariffs that might be used with objectives other than raising revenue. He gave examples of fees that might be imposed to regulate admission to a park that might be overcrowded; of threatened tariffs designed to secure agreement from a foreign power, which produce the agreement and are thus never imposed; and tariffs imposed on a foreign country with which military conflict was threatened, but whose reliance on U.S. export markets made the tariffs sufficient to deter or avert armed hostilities. Justice Thomas repeated these concerns in further questioning of the private plaintiffs’ counsel.

These arguments addressed the main contention regarding the text made by the first group and the Court of Appeals: that when Congress intends to confer tariff power (because such power is “revenue-raising”), Congress does so explicitly. But Justice Alito’s and Thomas’s questions do so only obliquely—the implication is that to the extent tariffs have non-revenue purposes, perhaps the explicit or clear statement demand should not apply. But that latter premise, stated thus broadly, is unproven, and plaintiffs’ counsel strained to demonstrate that the government had itself not advanced the point—and, moreover, none of the Justices expressly embraced it. The only Justice who appeared consistent and clear about interpreting the statute to permit the tariffs was Justice Kavanaugh. He did this by repeatedly referring to and discussing what he called the “Nixon precedent,” meaning the exactions involved in the United States v. Yoshida International, Inc. decision. Justice Kavanaugh was emphatic in saying that he was not relying upon Yoshida itself, and implying that Congress in enacting IEEPA had done so with Yoshida in mind and was in that sense ratifying its ruling. Justice Kavanaugh downplayed the “quasi-constitutional” issues (including the MQD). As to MQ, Justice Kavanaugh avoided any reference to his Consumers’ Research concurrence and its position that the MQD did not apply in a foreign affairs context, but instead relied on “Nixon precedent” grounds to find that the Administration’s interpretation of IEEPA was not “unheralded,” thereby precluding the application of the MQD.

Between these two groups were Justice Gorsuch and the Chief Justice. These two Justices appeared inclined to decide the case adversely to the government, but under the MQD (or perhaps nondelegation), not on purely statutory grounds. Justice Gorsuch raised the statutory argument noted above, which, in contrast to the arguments implied by Justices Alito and Thomas, directly addresses the text of the statute. He noted that section 1701(a)(1) permits the regulation and other actions by the President authorized under section 1701(a)(1)(B) by means of “licenses, instructions, or otherwise,” and that (1) tariffs can easily be analogized to license fees; and (2) the “or otherwise” is open-ended and might authorize tariffs. The suggestion was later taken up as a serious matter by Justice Barrett; the point was placed front and center by counsel for the state plaintiffs in his opening statement; and it was argued at some length by the Solicitor General in his rebuttal submission.

But at length it did not appear that Justice Gorsuch’s intention was to resuscitate the government’s position with respect to the textual issue. His real motivation was revealed immediately, when counsel responded to the question of license fees by saying that the authority to use them must not be “open-ended.” The Justice replied, “It seems like you’re putting a major questions thumb or an interpretive lens thumb on the plain text there. Is that fair?” Counsel replied, “You could call it major questions,” and, tellingly if not especially strategically, “it’s like Justice Barrett said in Nebraska versus Biden the most natural way of understanding what this statute is about.” When the argument returned moments later to “licenses or otherwise,” Justice Gorsuch was more explicit: “‘Regulate’ is a capacious verb. And—and then you’ve got the ‘otherwise’ language as well, which we’ve sort of discussed. And just on the plain language, forget about the backdrop of major, do you need major questions to win? I kind of—I kind of think you might.”

The Chief Justice spoke at the argument more sparingly than any of the Associate Justices and may have been the most difficult to read. This may not be surprising because it is likely he will be a member of whatever majority renders the decision, and his vote may be crucial in forming a majority. But notable of what he did express was that, unlike any of the others, he said virtually nothing about textual arguments, confining himself mostly to the question of the MQD, and the competition between the fact that the issues involved both Congress’ Article I power (revenue) and the President’s Article II authority (foreign affairs). How he leaned seemed to depend upon whom he was questioning. In questioning the Solicitor General, he emphasized congressional authority; in questioning private plaintiffs’ counsel, the opposite. On balance, however, he seemed, in connection with possibly all of the rest of the Court, to be weighing the congressional taxing power more heavily in this context. This is true even with respect to Justice Kavanaugh, conspicuously so silent about his earlier expressed insistence that the Court would not apply the MQD in the context of foreign affairs or national security.

In sum, the argument in the highly visible tariff cases highlighted some real uncertainty—or division—in the Court about the MQD. A near-majority of the Court is plainly more than a little cool to the controversial doctrine. This includes Justices Kagan, Sotomayor, and Jackson, to whom the doctrine appears to be all but toxic; and Justice Barrett, who both expresses and exhibits reservation about it. Another near-majority is known to support the doctrine vigorously, although two members of this bloc (Justices Thomas and Alito) signaled little enthusiasm for it in a context where its application would be in derogation of presidential power, while the other two (the Chief Justice and Justice Gorsuch) appeared willing or likely to embrace it in a context where their doing so might prove pivotal to the outcome of the decision. In between the two blocs stands Justice Kavanaugh, who supports the doctrine, although he has voiced support for a major limitation on it, and who in the case itself showed little appetite for invoking it in a context where other Justices seemed to believe it may be decisive.

B. Loper Bright and Deference

The content of the doctrine of Chevron USA, Inc. v. Natural Resources Defense Council (NRDC) is described above, along with a brief sketch of the arc of the “ Chevron era.”

1. The Loper Bright Decision

The Chevron era ended abruptly at the close of the Court’s 2023 Term, when the Court overruled its 1984 decision in Chevron v. NRDC in Loper Bright Enterprises v. Raimondo. Two features of the Loper Bright opinion stand out: (1) that it rested on statutory, not constitutional, grounds; and (2) that the Court was careful and explicit in preserving some role, albeit loosely defined, for judicial deference to agency views in determining the “best reading” of statutes.

The Chief Justice states at the outset that the Court had granted certiorari to decide whether Chevron should be “overruled” or “clarified,” a signal of some ambivalence on the part of the Court about the fate of “deference.” Chief Justice Roberts’s opinion begins with a largely historical discussion of the Court’s monistic view of statutory terms necessarily having a single “best” interpretation. He starts by citing passages from the Federalist that it would be the function of courts to interpret the laws, leading to the recognition by the famous passage from Marbury v. Madison that “[i]t is emphatically the province and duty of the judicial department to say what the law is.” But he quickly qualifies this by recognizing that the Court had “recognized from the outset . . . that exercising independent judgment often included according due respect to Executive Branch interpretations of federal statute,” which he said was thought “especially warranted” when the Executive interpretation “was issued roughly contemporaneously with enactment of the statute and remained consistent over time,” and reflected respect for the mastery officers might command. But he said, “‘[r]espect,’ though was just that” the views of the Executive “could inform the judgment of the Judiciary but did not supersede it.”

That established from the outset certain distinct emphases of the decision. First, the decisive conception of a “single best” interpretation, to be determined by judges. Second, the vague ambivalence about deference generally. Third, the vitality of considering contemporaneity and consistency in determining the “best” interpretation (and, implicitly, in imposing some limit on deference).

The core of the opinion is the conclusion that “[t]he deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.” The Court noted that prior to Chevron, the courts “generally continued to review agency interpretations . . . by independently examining each statute to determine its meaning.” It emphasized that the Court eventually decided the Chevron decision rested on the presumption that ambiguity in the statute meant that Congress wished the agency, rather than courts, to possess what degree of discretion such ambiguity permitted.

The Court found that Chevron “defies the command of the APA that ‘the reviewing court’—not the agency . . . —is to ‘decide all relevant questions of law.’” The Chevron regime was “the antithesis of the time honored approach the APA prescribes.” The Court said that the presumption that ambiguities constitute a delegation did not cure the defect: “[p]resumptions have their place . . . but only to the extent that they approximate reality,” and Chevron ’s presumption “does not, because ‘[a]n ambiguity is simply not a delegation of law interpreting power.’” The Court noted that courts resolve ambiguities in statutes when no agency interpretation is involved, that that courts “understand that such statutes, no matter how impenetrable, do—in fact, must—have a single, best meaning,” for “[t]hat is the whole point of having written statutes.” The Chief Justice said that “agencies have no special competence in resolving statutory ambiguities,” but “Courts do.”

But even in this exegesis, the Chief Justice qualified the discussion by resurrecting some role for Congress in delegating authority on agencies:

In a case involving an agency, of course, the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion. Congress has often enacted such statutes. For example, some statutes “expressly delegate[ ]” to an agency the authority to give meaning to a particular statutory term. Others empower an agency to prescribe rules to “fill up the details” of a statutory scheme, or to regulate subject to the limits imposed by a term or phrase that “‘leaves agencies with flexibility,” such as “appropriate” or “reasonable.”

When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The Court fulfills that role by recognizing constitutional delegations, “fix[ing] the boundaries of [the] delegated authority,” and ensuring the agency has engaged in “reasoned decisionmaking” within those boundaries. By doing so, a court upholds the traditional conception of the judicial function that the APA adopts.
The Chief Justice closed with a paragraph discussing the effect of Loper Bright on the myriad precedents (of both the Supreme Court and the lower courts) which had relied upon Chevron. The decision stated the Court did “not call into question prior cases that relied on the Chevron framework,” and that the “holdings of those cases that specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—are still subject to statutory stare decisis despite our change in interpretive methodology.”

Justice Thomas filed a concurring opinion, fully joining the majority opinion, but adding his view that Chevron violated the separation of powers by forcing the Judiciary to abdicate the “Judicial power,” and by conferring on the Executive powers forbidden to it by the Constitution. Justice Thomas had expressed these views in prior separate opinions. Justice Gorsuch filed a concurring opinion, which concentrated on the question of stare decisis.

2. Reaction

The earliest scholarly responses to the Loper Bright decision identified a wide range of issues arising out of the overruling of Chevron, including, as identified in the NYSBA tax report, a whole range of issues specific to the tax law. Here, however, two issues may be emphasized. The first is the question of post- Loper Bright deference. As the dominant scholarly response to the MQD trilogy was hostility, the dominant response to Loper Bright was an expression of hope that the decision would be as limited as possible, consistent with its terms. Plainly, many scholars, some long time adherents of Chevron, had hoped the decision would have opted for clarification, rather than overruling. But the decision substituted for the (irrebuttable) presumption that ambiguity constitutes a delegation to interpret, the option of finding of an actual delegation to the agency “to interpret” the statute, giving rise (possibly) to a doctrine of “delegation to interpret” and preserving a role for “ Chevron ’s legacy.”

The scope of this “delegation to interpret” raises questions of its own. First and foremost is how the courts should go about finding any such delegation. And most pointedly, there is the question whether the “delegation to interpret” must be explicit with language effecting it, or whether implicit delegations are permitted. Secondary to this is the question of what kind of deference is in order when any “delegation to interpret” is involved. Some of the adherents of a broad “delegation to interpret” assume that once such a Loper Bright delegation is identified, the deference is the same as under Chevron: any “reasonable” interpretation is acceptable. That position would seem difficult to sustain, in light of the statements in Loper Bright that “statutory interpretation, if it is not the best, it is not permissible,” and echoing other Supreme Court precedents, that “the whole point of having written statutes” is that “every statute’s meaning is fixed at the time of enactment.”

In any event, if the two positions are taken together—implicit delegations are honored, and Chevron -type deference is accorded—it results in a post- Loper Bright environment that is not substantially distinguishable from the results under Chevron. This seems an unlikely outcome in the post- Loper Bright world.

The second major range of questions concerns the fate and authority of a considerable range of precedent established during the Chevron era which does not and cannot operate in the same way in the post- Chevron world. As noted, Chief Justice Roberts addressed the question of Chevron -based precedent only glancingly, stating that the “holdings of those cases that specific agency actions are lawful” are still “subject to statutory stare decisis.” The only thing that statement clearly says or implies is that a decision that an agency action upheld under Chevron —for instance, the Clean Air Act interpretation upheld in Chevron itself—cannot be challenged by a private party. But a number of decisions in the Chevron era may raise questions because of their relation to the Court’s now discarded methodology, even if those decisions were not predicated on Chevron itself.

Professor Merrill, for instance, posits a set of circumstances where the Supreme Court has “announce[d] a standard of review . . . [which] is then disapproved in favor of the Chevron doctrine,” followed by the overruling of Chevron. Merrill likens the situation to the question of state statutes held unconstitutional when the decision so holding is later overruled, as what happened with state anti-abortion statutes that were never repealed in the Roe v. Wade era, and sometimes held to “spring back to life” after the Dobbs decision. The question is whether the standard of review discarded under Chevron “springs back to life” after Loper Bright.

Professor Merrill identifies the tax law ruling in National Muffler Dealers Ass’n v. United States, which announced a standard for courts to apply in reviewing tax regulations, as the “clearest example of how this might come up.” The standard in the National Muffler opinion ** seemed to heavily involve questions of consistency and contemporaneity. Those factors were heavily disparaged as irrelevant to Chevron review by Justice Scalia’s 1996 opinion in Smiley v. Citibank N.A.

In Mayo Foundation for Medical Education & Research, the Court expressly eschewed any special standard of review applicable in the tax area and held that National Muffler should no longer control judicial review of tax regulations, but rather that such regulations should be reviewed under Chevron. Professor Merrill raises the question whether post- Loper Bright, the National Muffler standards should be thought applicable in tax matters; or whether, on the other hand, tax matters should be subject to any general approaches developed under Loper Bright. Professor Merrill concludes suggesting “caution in resurrecting pre- Chevron standards of review like National Muffler.” The New York State Bar Tax Section raises the same question, with the same general conclusion that Mayo Foundation likely survives Loper Bright. But it too expresses some doubt about even that conclusion.

C. Nondelegation

1. The Consumers’ Research Decision

In FCC v. Consumers’ Research, the Supreme Court upheld an FCC program adopted under the Telecommunications Act of 1996, for providing “universal service” to rural, lower-income, and other favored customers. The program called for the establishment of a fund to which all carriers providing interstate telecommunications services are required to contribute, with this Universal Service Fund paying for subsidies to designated populations and facilities in need of improved access to communications services. The FCC delegated administrative functions for calculating the required amounts of the contributions to a not-for-profit private party. The Court of Appeals for the Fifth Circuit held that the Congressional delegation of the power to determine and collect the contributions did not constitute an improper delegation of legislative power to the FCC, and that the delegation of functions by the FCC to the private entity did not violate the “private nondelegation” doctrine. But the Court held that the combination of the two together constituted a “double-layered” delegation that violated the constitutional nondelegation doctrine.

The Supreme Court reversed by a six-to-three vote. The opinion was authored by Justice Kagan and joined by the Court’s other two liberal Justices and three “centrist” conservatives, the Chief Justice and Justices Kavanaugh and Barrett. Justices Kavanaugh and Jackson wrote separate concurring opinions. Justice Gorsuch authored a dissenting opinion, joined by Justices Thomas and Alito.

The opinions for the Court and the dissenters focus primarily on the question of the delegation of authority to the FCC. The Court upheld and reaffirmed the “intelligible principle” standard of J.W. Hampton, Jr. & Co. v. United States. The Court rejected the argument that the contribution scheme represented a tax, and that a special nondelegation rule should apply for revenue-raising legislation, requiring that Congress impose some “definite” or objective upper limit upon the amount a delegated agency is authorized to impose. The Court held that the statutory rules describing the funds the FCC is authorized to raise and defining the range of matters on which it is authorized to spend collectively supplied an “intelligible principle” confining the agency’s authority sufficient to satisfy constitutional requirements.

Two provisions of the statute authorize the FCC to fund “advanced” or “additional” services. In a footnote to its opinion, the Court said it had “no occasion to address any nondelegation issues raised” by the two provisions, arguing that neither the petitioners nor the Fifth Circuit had “advance[d] any arguments that are specific to those provisions.”

Justice Gorsuch’s dissent did not question the “intelligible principle” doctrine, but argued that the statute did not satisfy it, as he disagreed that the provisions invoked by the majority provided sufficient guidance to the agency to meet constitutional requirements. The dissenters’ restraint was somewhat surprising because in 2019 in Gundy v. United States, Justice Gorsuch issued a well-known dissent arguing that the principle should be abandoned, and set forth a three-part test to replace it. That opinion was joined by the Chief Justice and Justice Thomas. Justice Alito in Gundy voted with the majority but said in a separate concurring opinion that he thought Justice Gorsuch’s views warranted serious consideration. Justice Kavanaugh did not take part in the Gundy decision, but in a separate opinion in 2019, stated that Justice Gorsuch’s Gundy arguments “warrant[ed] further consideration.”

Thus, there appeared to be five Justices inclined to revisit the “intelligible principle” notion. The Consumers’ Research case presented a perhaps awkward context to review that principle, because it involved a program whose objective (provision of nationwide “universal service,” and protection of rural and lower income customers) has widespread support, is noncontroversial, and has been pursued in one form or another in the near century since the first Communications Act was adopted. It might have been possible for the Court to repudiate the “intelligible principle” test while still upholding the program under Gundy or some other alternative; or, as the dissent suggested and assuming the case was decided in line with the views of the dissent, Congress could have easily cured the perceived defect in the scheme by amending the statute to impose a cap on FCC assessments.

2. The Kavanaugh Concurrence

In these circumstances, perhaps the most salient and significant opinion in the case was the relatively short concurring opinion of Justice Kavanaugh. This opinion is almost surely the one with the most significant implications for the extent to which the prior efforts of the Court—the MQD and the Chevron overruling—will be applied, extensively or narrowly. Justice Kavanaugh began by a historical review of nondelegation, with a few surprising twists. He first emphasized the widely accepted view that, from the standpoint of the nondelegation principle, all delegations are delegations to the President, not to agencies, because in his view, the agencies are subordinate officers of the President. He described delegations as having begun with the earliest statutes enacted by Congress (from the 1790s). He then said that the President “ordinarily exercises ‘executive Power’ under Article II when implementing legislation—even if he employs discretion or policymaking authority when doing so and even if the Executive Branch issues legally binding regulations.” The delegation idea is to “correspond” to “the practicalities of legislative and executive action.”

To address a question of degree and ensure that the President is exercising executive power when implementing legislation, the Court . . . adopted the “intelligible principle” test.
. . . .
. . . The intelligible principle test has had staying power—perhaps because of the difficulty of agreeing on a workable and constitutionally principled alternative, or because it has been thought that a stricter test could diminish the President’s longstanding Article II authority to implement legislation.
He then added three principles flowing from this analysis. The first was that, echoing both the majority and dissenting opinion, that “the degree of agency discretion that is acceptable varies according to the scope of the power congressionally conferred.” Second, he suggested that “many of the broader structural concerns have been substantially mitigated by this Court’s recent case law in related area,” citing “in particular” the MQD and the overruling of Chevron. Third, and perhaps surprisingly because the issue was in no way raised by Consumers’ Research, he said that “in the national security and foreign policy realms, the nondelegation doctrine (whatever its scope with respect to domestic legislation) appropriately has played an even more limited role.” He proceeded to argue that “the major questions canon has not been applied by this Court in the national security or foreign policy contexts, because the canon does not reflect ordinarily congressional intent in those areas.”

Justice Gorsuch, for his part, issued a thorough opinion detailing why he did not believe that the provisions of the Communications Act established constitutionally sufficient limitations on the scope of the FCC’s discretion. But some sense of deflation appeared in the opinion, born seemingly of disappointment that, in spite of the promise sparked by his Gundy opinion, the possibility of limiting “intelligible principle” jurisprudence did not command a majority of the Court. Nevertheless, the Justice found reason to “hope” that “today’s misadventure” would “not stand the test of time,” and that the Court, even as it “swallows a delegation beyond anything yet seen in the U.S. Reports,” also “signals, unmistakably, that there are some abdications of congressional authority, including in the very statute before us, that the present majority isn’t prepared to stomach.” Justice Gorsuch characterized footnote 9 of the Court’s opinion, refusing to uphold the delegations in sections 254(c)(3) and (h)(2), as a “remarkable footnote,” in which the Court was “unwilling to say aloud that any part of § 254 fails the intelligible principle test, neither can the Court bring itself to bless such a lavish delegation of taxing authority,” which left the respondents “free on remand, or in a future proceeding, to renew their attack on the constitutionality of whatever contributions the FCC demands for its subsection (c)(3) and (h)(2) programs.” This he characterized as “in itself a notable development,” which “marks the first time in a long time the Court has confronted a statutory delegation and found no way to save it.”

Justice Gorsuch concluded that he could “imagine worse outcomes than those small steps toward home,” though he said, “we can and should do better,” and that “[w]hen it comes to other aspects of the separation of powers, we have found manageable ways to honor the Constitution’s design.”

3. The Effect of the Tariff Proceedings

The grant of certiorari in V.O.S./Learning Research took place just over two months after the Court decided Consumers’ Research. As noted above, all of the petitioners in Learning Research and the two groups of respondents in V.O.S. raised the question of nondelegation, and the four judges of the Federal Circuit who joined the Court’s majority but also issued “additional views,” held that the government’s interpretation of the IEEPA provision would violate the nondelegation principle. Both the course of briefing and the oral argument, together with the background particularly of Consumers’ Research, make it very unlikely that the tariff decision will be grounded on nondelegation. At the same time, the evidence from the proceeding, and the oral argument, suggest that reports of the death of the nondelegation revival effort, based to whatever extent on Consumers’ Research, may be overstated.

To begin with, Justice Gorsuch, the main spear carrier of that effort, came to the oral argument armed with some arguments or insights rarely if ever heard previously, with regard to both nondelegation and the MQD. There were three of these, all advanced during the first set of questions posed by Justice Gorsuch during the argument. Of the three, one is applicable primarily to the MQD, one applicable solely to nondelegation, and the third applicable equally to both. The argument applicable primarily to the MQD was the second one (in time) advanced by the Justice: that were there to be an exception for matters of foreign policy or national security, the exception could swallow the rule, as almost any matter could be recast as one involving foreign policy. The example emphasized was the matter of climate change, the issue involved in West Virginia itself.

The argument applicable to both was the first (in time) articulated by the Justice. This too involved the notion of a foreign affairs limitation on either of the doctrines. Justice Gorsuch asked what, if such limitations are recognized, would be the content of whatever is left of the doctrine in relation to foreign affairs or national security. With respect to nondelegation, the question is acute. The intelligible principle standard, in connection with which such a limitation is recognized by Supreme Court precedent, is to begin with recognized as extraordinarily lenient: what is to be left of it if a standard watered down from even that mild starting point is to be imposed? Justice Gorsuch continued with a reductio ad absurdum about such “exceptions” by asking whether delegation would or could be acceptable even if it amounted to abdication: “what would—what would prohibit Congress from just abdicating all responsibility to regulate foreign commerce, for that matter, declare war, to the President?”

But the Justice’s third (in time) point, applicable only to nondelegation, was perhaps most telling. The Justice noted that the Solicitor General had “emphasize[d] that Congress can always take back its powers.” But the Justice asked whether “we have a serious retrieval problem here because, once Congress delegates by a bare majority and the President signs it—and, of course, every president will sign a law that gives him more authority—Congress can’t take that back without a super majority.” Only a “pretty rare President” is “ever going to give that power back.” He stressed that “Congress, as a practical matter, can’t get this power back once it’s handed it over to the President,” creating a “one-way ratchet toward the gradual but continual accretion of power in the executive branch and away from the people’s elected representatives.”

Justice Gorsuch’s picture of horrors is of course overdrawn. The Solicitor General countered with the example of the Congress’ termination of the COVID emergency, with the President’s consent, and identified “the ability for a sort of political consensus against a declared emergency” as a general matter. That notwithstanding, the potential for a “one-way ratchet” leading to ever increasing concentration of authority in the Executive, and for thus permanently disrupting the delicate balance the Framers established and the Constitution embodies, is a powerful and persuasive image bound to play a role in all future deliberations concerning nondelegation.

But Justice Gorsuch appeared to be conducting operations on two fronts. The three points he made during his first series of questions: he was the last of the Justices to speak, and waited almost an hour into the Solicitor General’s presentation to do so. Those three points appeared aimed at Justice Kavanaugh and that Justice’s Consumers’ Research concurrence, with its limitational views of nondelegation generally, of Loper Bright and the MQD as a “far enough” inroad on the administrative state, and of a foreign affairs exception to the MQD. But Justice Gorsuch was also combatting Justice Kagan and the majority opinion in Consumers’ Research. This appeared to be the motive for his later emphasis (questioning the private plaintiffs’ counsel) on the flush language of section 1702(a)(1), and the directive that the President could take the measures specified by section 1702(a)(1)(B) through “licenses, instructions, or otherwise.” The suggestion was that the tariffs could be recharacterized as the equivalent of “license fees,” and that as such might be authorized by the statute.

This argument had never—as the private plaintiffs’ counsel strained to point out—been advanced by the government. But Justice Gorsuch may have had in mind the passages in Justice Kagan’s Consumers’ Research opinion where she rejected reliance on any distinction between license (or other) fees and taxes as a basis for differential standards concerning delegations of revenue-raising power. In lieu of employing any such conception, the Consumers’ Research opinion, while accepting that delegations of the power to compel exactions had to be subject to some limitation or “cap,” held that a qualitative limitation was sufficient even in the absence of any “quantitative” limit, and found such a limitation in the requirement in the statute before the Court that the revenues collected be “sufficient” for the purposes specified by that statute. But the search for a “qualitative” limit seems to resurrect (and to suffer the same defects Justice Kagan ascribed to) the fee/tax distinction. The fee/tax distinction depends on the uses to which the revenue raised is put: if the revenue benefits the general fisc, it is a tax; if it has special purposes, it is a fee. But the “qualitative” limit is defined by the purposes to which the revenue is put—the same consideration which might make the exaction a fee under the fee/tax rubric—and the same set of considerations which Justice Kagan had asserted leads to a “morass.”

By emphasizing the “license fee” argument—on which Justice Gorsuch gave no indication he would really rely to uphold the tariffs—the Justice may have been plotting to draw Justice Kagan into repartee which would reveal this anomaly in the Consumers’ Research principles. If that was a strategy, it did not work, for Justice Kagan never took that bait. At the same time, she did not have to, because earlier in the argument the weakness of the Consumers’ Research “qualitative limits” approach had already been quite adequately exposed. In an exchange immediately prior to Justice Gorsuch’s taking the microphone, Justice Kagan queried the Solicitor General on what feature of the tariff initiative might supply a “qualitative limit” on the claimed presidential tariff power. She conceded in her question that Consumers’ Research might serve as a feeble precedent: that decision involved “a much smaller tax which dealt with many fewer taxpayers,” and “most of the opinion was given over to showing that there was, in fact, a ceiling on the tax, not a quantitative one, but a qualitative one.” The Solicitor General responded essentially that the IEEPA had “constraints appropriate for the context, which is internationally arising emergencies.” Justice Kagan replied that “you yourself think that the declaration of emergency is unreviewable,” or at least “the kind determination that this Court would grant considerable deference to the–to the President on,” so it “doesn’t seem like much of a constraint.” This exchange at once both adds something and dilutes the “qualitative limits” gloss on “intelligible principle.” The qualitative limit must itself be a justiciable matter (addition), and there are other and further limits the courts will apply before accepting a “qualitative limit” as sufficient (dilution).

Thus, in three respects the proceedings in V.O.S./Learning Research appear to give some life to nondelegation doctrine generally. First, there is a demand that courts in addressing a nondelegation challenge, identify a basis for distinguishing delegation from abdication. Second, there is a demand that the development of doctrine account for (and presumably preclude) the “one-way ratchet” accumulating power in the Executive and destroying the constitutionally constructed checks and balances. Third, the “qualitative limits” notion of Consumers’ Research, specific to delegations of taxing and revenue powers, has critical weaknesses which appear both (1) to ensure that the principle will be strictly limited narrowly construed; and (2) to suggest that the principle may not survive at all.

The extent to which these considerations influence the future course of nondelegation will depend considerably—though perhaps not entirely—on the shape of the decision rendered by the Court. But there is solid reason to conclude, perhaps irrespective of the final decision in the tariff cases, that, while Consumers’ Research may at first appear to have blunted the Court’s anti-administativist agenda generally, and the effort to revive nondelegation doctrine in particular, the conjunction of that decision with the course of the V.O.S./Learning Research litigation, may in the end advance both.

---

III. Transfer Pricing

A. The Origins

1. Enactment

The evolution of transfer pricing regulations is another oft-told tale, although the emphasis in earlier tomes was on theoretical issues and the international standards. The emphasis here is two-fold: first, on the early judicial gloss placed on the original statute, enacted long ago, and the rupture with that gloss effected by the first complex regulations in the 1960s; and second, on the relationship between Congress’ review of the area in connection with the Tax Reform Act of 1986, and the subsequent, questionably faithful, response of the administrators to that review.

The portion of the current version of section 482 which was in effect in 1965 and 1968 (its first sentence), when the original comprehensive regulations were issued, is set forth in the margin. This language has stood largely unchanged since 1928. Notwithstanding this, Congress has addressed the question of the taxation of multinational enterprises on three major occasion since. First, in the Revenue Act of 1962, when that consideration presaged the first articulate regulations governing the matter. Next, in the Tax Reform Act of 1986, as part of a sweeping overhaul of the Internal Revenue Code, when Congress added a second sentence to section 482. Lastly, in connection with the Tax Cut and Jobs Act (TCJA), as part of a general revision of the theoretical approach of the Code to international tax.

2. Decisional Law

The decisional law under the 1928 statute, prior to the 1960s, read the statutory text strictly, and interpreted the brief regulatory gloss loosely. These decisions established certain principles, three of which bear emphasis.

a. Delineation and “creation of income”

First, in Tennessee-Arkansas Gravel Co. v. Commissioner, the Bureau imputed a charge for the use of equipment which the owner had permitted an affiliate to use free of charge. The Board of Tax Appeals sustained the assessment under section 45, but the Court of Appeals reversed, holding that section 45 “did not authorize the Commissioner to set up income where none existed,” that the purpose of the provision “was to clearly reflect income that did exist.” In Smith-Bridgman v. Commissioner, a subsidiary made an interest-free loan to its parent, which enabled the parent to retire certain outstanding debentures. The Service sought to allocate income to the subsidiary, equal to the amount of interest that might have been paid on the loans. The Court held that the “courts have consistently refused to interpret section 45 as authorizing the creation of income out of a transaction where no income was realized by any of the commonly controlled businesses.” It said that the “record clearly establishes that the respondent has not distributed, apportioned, or allocated gross income, but has created or attributed income where none in fact existed.”

b. Comparables

Second, the courts held that the regulatory “arm’s length” standard was satisfied by a demonstration that intercompany prices were “fair and entitled,” without reference to “comparables” or formal valuation methods. Seminole Flavor involved an incorporated soft drink manufacturer which had set up a separate entity to conduct marketing and advertising principally for its unrelated bottlers. The marketing entity was a limited partnership.

To the Service’s contention that “the contract between petitioner and the partnership was not an arm’s length transaction, but was a means or method of shifting profits for the purpose of evading tax,” which the Court characterized as “the heart of the present controversy,” the Court responded that “if the compensation agreed upon by the parties was fair and was fairly arrived at, it should be recognized and upheld for tax purposes.” It noted that the government “complains of the absence of evidence showing a value for the Double-Cola formula, the value of buildings, or the return on invested capital, all of which, he says, are essential elements to be considered in arriving at a fair profit for the petitioner,” but Court responded that it “doubt[ed] the need for such evidence even if it were available, and much of it would be unavailable,” holding that the contract price “should be examined and judged as to fairness by the services, duties and obligations imposed thereby on the partnership.”

c. Net Income Allocations

The third principle also had its origin in Seminole Flavor and addressed situations like that of the case. In these cases, an ongoing business transferred part (or all) of its business to a related “passthrough” type entity, a partnership or proprietorship, as the Seminole Flavor entity did in setting up a separate marketing partnership. In these cases, the courts generally rejected the effort to allocate the passthrough entity’s entire income to the transferor party. The courts held in these cases the Commissioner had not “distributed, apportioned or allocated gross income, deductions, credits, or allowances between or among such trades or businesses as contemplated by the statute,” but “[o]n the contrary, . . . [had] ‘combined’ the ‘net’ income of the sales companies with the ‘net’ income of petitioner,” but that “ Section 45 does not grant such authority to respondent.” The principle thus established was that section 45 and section 482 did not authorize the allocation of “net income,” only of the items that might comprise it.

Prior to and even shortly after 1962, the courts consistently followed all three of these principles. The 1962 regulations reversed (or defied) all three, and the courts responded shortly by themselves reversing all three, sometimes without so much as a hint that it may have been the regulation, not the precedents, that were unfaithful to the statute.

B. The 1962 Legislation and the New Regulations

1. The 1962 Legislation

In enacting the Revenue Act of 1962, the bill passed by the House of Representatives passed an amendment to section 482. This so-called section 6 was not ultimately adopted and the Senate bill removed the provision. But the Conference Report issued an express direction to the Treasury to adopt regulations implementing section 482 in an international context. The Treasury proposed regulations in furtherance of the directives in April 1965. These regulations were withdrawn and replaced in August, 1966. They were finalized first in 1968 and further in 1969, the last set issued as “midnight regulations” just days before the end of the Johnson Administration and the beginning of the Nixon Administration.

2. The Radicalism of the Regulations

The Ninth Circuit quoted this author’s view, expressed almost four decades ago, that “[t]he 1968 regulations ‘constituted a radical and unprecedented approach to the problem they addressed—notwithstanding their being couched in terms of the ‘arm’s length standard,’ and notwithstanding that that standard had been the nominal standard under the regulations for some 30 years.” “Radical and unprecedented” meant, in substantial part, that the regulations departed sharply and substantially from the three juridical doctrines described above.

The most significant innovation in the regulations concerned their implicit methodology: rather than allocating, apportioning or distributing “items” (presumably predetermined and existing apart from administrative determination), the new regulations implicitly mandated the “construction” of intercompany transactions, and the attribution of “transfer prices” to such transactions, as an intermediate or final step in the process of “apportionment” or “allocation.”

The regulations separately described five different types of intercompany transactions: lending transactions, transactions in services, leasing of tangible property, sale or licensing of intangible property, and sales of tangible property. These transactions did not have to be actual; they could be constructed.

The manner of determining prices, the second step, also bears tension with judicial precedent. With respect to transfers of tangible property, the regulations introduced the three new “pricing methods” (comparable uncontrolled price, resale price, cost plus) as well as authority to use unspecified “fourth methods.” The first of these methods was familiar, and the one that rested upon the identification of “comparable” transactions among unrelated parties; the others were new, but the resale price and cost plus methods were made to depend on “comparable” markups, either of producer (cost-plus) or reseller (resale price), with a somewhat relaxed standard of comparability. But this rigid emphasis on “comparables” also conflicted with the judicial approach, descended from Seminole Flavor, that the authority under section 482 and the “arm’s length” standard are subject to (and limited by) a “rule of reason” that does not demand a taxpayer identify “comparables” or use any other formal valuation method.

3. The Judicial Retreat

These novelties in the regulations were contrary to all of the three lines of early decisions, identified above, which concerned the meaning of the statutory language and the limits the language places on administrative discretion. With respect to all three lines, however, as indicated above, the courts were very quick to accept the views, explicit or implicit, of the new regulations, and to modify or abandon (“decline to follow”) prior decisional law which cast doubt upon those positions. Indeed, the speed and certitude with respect to which the courts abandoned prior decisions is in part what has long obscured the “radical” nature of the 1960s regulations, and the tension between their approach and the statutory language.

a. Creation of Income

With respect to “creation of income,” the Tax Court initially adhered to its precedents, notwithstanding the new regulations, although subject to the qualification suggested by Huber Homes. The Service brought a series of cases involving interest free loans under the new regulations. In B. Forman, Inc. v. Commissioner, the Tax Court avoided the “creation” of income issue by holding that the lender and borrower were not commonly controlled, but the Second Circuit reversed on that issue, and proceeded to hold that the imputation of interest income was appropriate, upholding the regulation and refusing to follow the earlier decisions. In both respects, the decisions reflected a decidedly purposivist, as opposed to a textualist, approach. As to the regulations, the Court said that the regulations were “entirely consistent with the scope and purpose of § 482,” and the interest free loans were “not at arm’s length, because no unrelated parties would loan such large sums without interest.” As to precedent, including Tennessee-Arkansas Gravel and Smith-Bridgman, the Court stated that those cases were “not in accord with either economic reality, or with the declared purpose of § 482,” even though they might be “correct from a pure accounting standpoint.”

The Tax Court in subsequent cases continued to adhere to its historic position, subject to the Huber Homes caveat. The Courts of Appeals reversed in all cases, citing or quoting B. Forman, upholding the regulations, and echoing the “purposivist” tones of the B. Forman opinion. Indeed, in Kahler, the Eighth Circuit affirmed that “Treasury regulations constitute contemporaneous ** construction by those charged with administration of these statutes and should not be overruled except for weighty reasons.” Having been reversed by the Second, Fifth, Eighth, and Ninth Circuits, the Tax Court ultimately abandoned its adherence to its pre-1962 precedents.

b. Comparables and “Fair and Reasonable”

The Service waited to attack the “creation of income” precedents until the regulations of the 1960s were finalized. It took a different approach with respect to decisions upholding “fair and reasonable” prices without reference to “comparables.” With respect to that line, the Service brought litigation at the same time the Treasury was developing the regulations. In an early case, Hall v. Commissioner, the Service prevailed, relying on a comparable transaction. The Tax Court held that “[t]he record indicates that the allocation reflects Hall’s income as if he had been dealing with unrelated third parties,” and said that that “of course, is the purpose of the statute.”

In Frank v. International Canadian Corp., the parties entered a pretrial order accepting the use of a “reasonable return,” rather than “arm’s length bargaining,” as the standard for evaluating the intercompany price. The Court did not permit the government to depart from the pretrial order. But then it added:

But entirely aside from appellees’ position that the Commissioner is precluded from advancing this argument on appeal, we do not agree with the Commissioner’s contention that ‘arm’s length bargaining’ is the sole criterion for applying the statutory language of § 45 in determining what the ‘true net income’ is of each ‘controlled taxpayer.’ Many decisions have been reached under § 45 without reference to the phrase ‘arm’s length bargaining’ and without reference to Treasury Department Regulations and Rulings which state that the talismanic combination of words—'arm’s length’—is the ‘standard to be applied in every case.’
The Frank decision was short-lived. Two years later, the Tax Court decided Oil Base, Inc. v. Commissioner. In that case, a U.S. seller of oil-based fluid paid compensation to controlled distributors was more than twice that paid to a prior unrelated distributor, and paid currently to certain other unrelated distributors. The taxpayer relied upon Frank and argued that the Service had “erroneously used . . . a standard of arm’s length bargaining,” and contended that, despite the 1935 regulatory provision, “no such provision is contained in the statute,” and “no such standard has been applied by the courts.” The Tax Court implied there was no difference between the result under a “fair and reasonable” standard, on the one hand, and “arm’s length bargaining,” on the other. The Ninth Circuit affirmed, holding it was “not unreasonable to construe ‘true’ taxable income as that which would have resulted if the transactions had taken place upon such terms as would have applied had the dealings been at arm’s length between unrelated parties,” and that “[Frank ] did not hold that the arm’s-length standard established by regulation was improper,” but only that “it was not ‘the sole criterion’ for determining the true net income of each controlled taxpayer,” and that “permissible departure from the regulation’s arm’s-length standard was, under the facts of that case, very narrowly limited.” ‘

After Oil Base, the courts generally refused to apply any “fair and reasonable” standards in derogation of information based on comparable transactions. After the 1960s regulations were finalized, the courts routinely followed them, with little attention paid the pre-1960s decisions.

Thus, the state of judicial authority, circa the mid-1970s. Regulations issued forty years after the enactment of the statute were a “contemporaneous construction” of the statute. A statutory direction to exercise discretion which made no mention of regulations were subject to “close restrictions” on the discretion that could be exercised by those regulations. Regulations which overthrew three decades of decisional law and bore patent tensions with the statutory text were “unquestioned.” Put another way, in this era of extolling administrative rulemaking, the Courts of Appeals were in such haste to uphold these novel regulations, that they did so by invoking conventional interpretive canons, even in contexts where patently obvious facts rendered those canons inapplicable.

c. Net Income Allocations

The textually based refusal of the courts to accept “net income allocations” suffered a like fate. By the late and mid-1960s, the Tax Court had abandoned any discussion of “net income,” and the language of the statute, or its history in terms of mandatory consolidation of entities, in favor of determining allocations of net income in full in terms of “delineating” such questions in terms of transactions in goodwill, going concern value, and like “intangibles,” among the commonly controlled entities. Three decisions involved retail outlets where a historical “central” entity formed new “satellite” outlets, and the question concerned whether the income of the satellites should be allocated in full to the central entity. In two of the decisions, Hamburgers York Road and Big Boy, the Tax Court upheld the allocation; in the third, Your Host, it denied any allocation. But in all three, the question posed was whether the central party would have “charged” the satellites the full amount of the satellites’ profits as a charge for the use of the “business organization and assets.” In none of the three were any actual comparables identified: in all three, the determination of “arm’s length” charges was purely hypothetical.

C. The Tax Reform Act of 1986 and the 1990s Revisions

Congress’ next encounter with section 482 arrived in the mid-1980s, in connection with the adoption of the Tax Reform Act of 1986. Two features of that encounter are of concern: (1) the general tone of expressions in the Committee Report concerning the section 482 regulations; and (2) the one amendment to the statutory language the legislation made.

As a prefatory matter, it needs be borne in mind that the overriding function and objective of the sweeping 1986 legislation was to effect substantial reductions in tax rates, particularly maximum tax rates, for both individuals and corporations, while remaining “revenue neutral” by offsetting the rate reductions with measures broadening the “base” of the tax, eliminating “loopholes” or other tax avoidance devices.

1. The Stance of the Committees

The House Report adopting the one new amendment made clear some congressional dissatisfaction with the overall administration of the transfer pricing regime. Indeed, it articulated in summary form the basic argument against the “arm’s length” idea which was expressed in the then emerging scholarly literature. The Conference Report on the legislation expressed some more general dissatisfaction with the administration of section 482 and directed the IRS to conduct a study of the matter and to recommend (or make) changes in the regulations.

2. The Regulatory Response

The Treasury responded to the Conference Committee’s direction in a “White Paper” issued in October 1988. The Treasury began by conceding the terms of some of the contemporaneous critiques of the arm’s length standard, particularly conceding the existing methods generated a “continuum price problem.” But it argued that this did not vitiate the validity of the arm’s length standard as a whole.

The Treasury continued work on the subject throughout the last days of the Reagan and all of those of the first Bush Administration. The Treasury issued proposed regulations in January 1992. These regulations provided for the two new methods. They were convoluted and triggered widespread opposition from the business community and from foreign governments (as well, indeed, from pro-reform commentators with views opposite those of the businesses).

There were apparent serious discussions between the Treasury, the Organization for Economic Cooperation and Development (OECD), and foreign governments throughout 1992 concerning ways of moderating the proposed regulations. The result, in early 1993, was the issuance of new proposed regulations, which were ultimately made final in 1994, and which formed the basis for a new consensus in the OECD. The OECD revised the 1979 Guidelines in 1995 to conform to the new United States rules.

The new rules posed a welter of complex and interesting problems for theorists and practitioners alike, but the most salient issue they posed was really the extent to which they increased or reduced the tax borne by the profits of multinationals. And in this regard they had a really interesting feature. On the surface, they appeared to strengthen the hand of the tax administration. This was mostly because of the addition of the two new methods, the “profit split” and “comparable profits” methods. In addition, the protracted process of the revision of the United States rules, and the contention between the United States and other developed countries, had shone intense light on the question of transfer pricing, and this led many countries, developing, emerging, or developed, which had long neglected the area, to focus attention on it, and many promulgated their own new statutory or regulatory standards to address the area.

At the same time, however, there was one feature of the new regime which militated in the other direction, and which in time, at least with respect to United States operations, overwhelmed any tendency the rules had to mandate stricter rules or higher taxes. The new rules for the first time articulated elaborate standards of what constituted a “comparable” transaction. And one of the criteria for determining “comparability” was something dubbed “contractual terms.” That is, whatever written terms existed among the related parties involved could be invoked to make transactions among an “uncontrolled” group “comparable,” if the terms involved were comparable to those used by some unrelated group deemed “comparable.” Given the complexity of the regulations, it would not be long before this led to parties “collapsing” the examination of intra-group arrangements, so that the “contractual terms” became not only a standard of comparability, but the ultimate determinant of the allocation made among the parties. And this opened the way for the transfer of “intangible property,” which the regulations allowed to be characterized as the principal source of overall group profit, to subsidiaries organized in lower-tax jurisdictions, with the “terms” of the intra-group “contracts” mandating the allocation of the lion’s share of the total group profit to the tax haven subsidiary. With this feature, there came to be little doubt that the putative “reforms” of 1993–95 were actually a step back from any effort to enhance the tax “base” of multinational corporate tax base.

The peace of 1995 was disturbed toward the end of the first decade of the new century, primarily by widespread publicity, both in academic journals and the financial and general press, as well as congressional hearings in the United States and parliamentary hearings in Europe, about the use of tax haven practices like the “double Irish Dutch sandwich,” in conjunction with the transfer pricing rules, by which multinationals, mostly United States-based, reduced their worldwide tax liability, frequently to zero.

3. The Super Royalty

The final congressional enactment did adopt a statutory change to the provision. It added the “super royalty” provision, which provides that “[i]n the case of any transfer (or license) of intangible property (within the meaning of section 367(d)(4)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible.” The “super royalty” provision was introduced by the bill reported by the House Ways and Means Committee. The Committee explained the somewhat obscure commensurate with income language by directing that there be what came to be called periodic adjustments with respect to high-profit intangibles. The White Paper defended the consistency of the “super royalty” provision, and the mandate for “periodic adjustments” with the “international” arm’s length standard. This meant that allocations with respect to such property might have to take into account circumstances arising when the high profits of the property began to be realized, rather than on the basis of projections at the time the property is placed in service, or transferred to a foreign subsidiary.

The tension between that provision and “arm’s length” never has been resolved. The Treasury’s initial regulations, still in force today, provided that if an “intangible” were “transferred under an arrangement that covers more than one year,” the consideration charged in each taxable could “be adjusted to ensure that it is commensurate with the income attributable to the intangible,” but it then added that any such adjustment “shall be consistent with the arm’s length standard and the provisions of § 1.482-1.” In 2007, the IRS published an advice memorandum which interpreted the provision in a very limited manner, holding that periodic adjustments used ex post returns only as a proxy for returns the taxpayer “would reasonably and conscientiously have projected” ex ante, and urging the IRS to “exercise restraint [by] making periodic adjustments based only on the upfront reasonable expectations.” In the waning days of the Bush II Administration, the Treasury finalized amendments to the regulations providing for periodic adjustments with respect to “platform contributions” to cost-sharing arrangements.

Despite the potential effectiveness and availability of this provision, the Service appears to have applied it very infrequently, if at all. A group of researchers conducted studies of the examination and litigation using data either publicly available or available on account of pending litigation involving six major United States based technology monopolies—Facebook, Apple, eBay, Google, Cisco, and Microsoft. More recently they extended their analysis to PayPal. In each litigation, the Service’s adjustments were based on ex ante data under Treas. Reg. § 1.482-7(g), rather than the periodic adjustment rules of Treas. Reg. § 1.482-7(i)(6). The researchers recomputed the adjustments that would have resulted from the application of the latter regulations and determined that the aggregate difference in the seven cases would have been an astonishing $500 billion. In an article summarizing these results, co-authored by Professor Avi-Yonah and the researchers, they extrapolated that figure to surmise that another $500 billion might have been raised from taxpayers other than the seven they surveyed, resulting in a figure of $1 trillion sacrificed by the refusal to proceed under the periodic adjustment rules.

4. Conclusion Concerning the 1986 Reforms

Taking these developments together, a strong argument can be made that the administrators strayed critically from the understanding of Congress in 1986. Both the enactment of the “super royalty” and the direction of the Committee Reports to refine the “arm’s length” standards were a significant part of the “base broadening” designed to offset the very significant rate reductions of the 1986 statute. But in effect, the Treasury watered down the general standards and ignored the “super royalty.” The consequence has been that major multinational enterprises, the most powerful taxpayers in the nation, got the benefit of rate reductions without a major portion of the intended compensating base broadeners, a benefit not enjoyed by any other taxpayers in the nation.

a. The 2017 Tax Cuts and Jobs Act

The Tax Cut and Jobs Act of 2017 (TCJA) overhauled the international provisions of the Code, principally with the aim of enacting what Congress termed a “participation exemption” program. The “participation exemption” system changed the approach of the Code in taxing U.S. parented corporate groups from a credit system to a territorial system.

A territorial system places greater stress than does a credit system on transfer pricing rules, because under a territorial system, there is greater importance to the determination of the proper source of any income. In enacting the TCJA, Congress was not unaware of this and was not unaware of the international difficulties that had led to and that were implicated by the (by then two-phase) base erosion and profit shifting (BEPS) process which was ongoing during the time the TCJA was under consideration and enacted. Congress did not turn primary attention to section 482, the regulations, or indeed the then finalized results of the first phase of BEPS. Instead, the Congress adopted two new and novel anti-avoidance devices, one designed principally for “outbound” situations, the other principally for “inbound” situations. With respect to the former, Congress devised a supplemental, minimum-type tax on “global intangible low-taxed income” (GILTI). Under this regime, any United States person who is a United States shareholder in any controlled foreign corporation (CFC) flows through the income of the CFCs in which it is such a shareholder, to the extent that income is not otherwise included as Subpart F income.

With respect to the “inbound” situations, Congress adopted a minimum-type tax dubbed the “base erosion anti-abuse tax” (the BEAT). Under the BEAT, the tax base of a taxpayer (usually a United States subsidiary of a foreign parent) is recomputed by including in the base of the tax any payments generating a “base erosion tax benefit,” and a tax is imposed on any excess of ten percent of the base as so recomputed over the tax otherwise paid.

The salient fact of these enactments was that Congress, in addressing the by this time widely recognized problem of “base erosion and profit shifting,” and by acknowledging that its new and revised territorial system magnified those difficulties, chose virtually to ignore section 482, the traditional transfer pricing system. In so doing, it exhibited meaningful disregard of “arm’s length” in general, and its “contractual terms” progeny in particular. The extent to which Congress did this with a view to the frustration of its earlier efforts to suggest reform—and tightened anti-avoidance measures—in this area is not possible to determine.

---

IV. The “New” Doctrines and the Section 482 Regulations

The question here is the extent to which the Supreme Court’s newly adopted or refined administrative law doctrines—MQ, Loper Bright deference—can apply to invalidate all or parts of the section 482 regulations. Four issues, indistinct in practice but analytically distinguishable, are addressed: (1) The legality of the 1935 regulation, i.e., the question of the overall legality of the “arm’s length” standard; (2) The legality of the 1960s regulations, i.e., the question of transaction “delineation” or “creation of income,” rigid reliance on comparables, and the specified/unspecified “methods,” and net income allocations; (3) The legality of the 1990s revisions, “best methods,” “arm’s length results,” “contractual terms,” and the administrative treatment of the “super royalty;” (4) The impact of the administrative law innovations/revisions on particular questions arising under the regulations, e.g., blocked income or stock compensation expenses.

It is difficult to imagine a private party bringing a suit based solely on any or all of the first three issues on the list, given the ancient heritage of the regulations, the recent vintage of the administrative law innovations, and the resulting likelihood that such a challenge would succeed. But many parties will be bringing challenges in the fourth category, including some major matters now pending. And to issues raised of interpretations of the current regulations, including issues raised under administrative doctrines predating West Virginia or Loper Bright, issues challenging the legality of provisions ninety, sixty, and thirty years old might well be appended.

There is, in addition, the question of administrative review of the regulations under the President’s Executive Orders issued in February and April 2025. The Administration has exhibited considerable hostility to the two-pillar “BEPS 2.0” agreement reached by the previous Administration and might be open to a general review of measures affecting international tax arrangements generally, which are, and have been for at least the last decade and a half, in considerable flux.

A. Major Questions

The two prongs of the MQD concern the “significance” (“majorness”) of the issue, and the “clarity” of the congressional authorization of the agency action. Examined on the surface and without regard to collateral considerations, the “arm’s length” regulations, certainly as applied to transnational matters, “inbound” or “outbound,” would appear easily to satisfy both prongs. The volume of tax revenue involved, and the range of businesses affected, including the credible estimate of $1 trillion in tax revenue lost over the failure to apply one small provision of the regulations attests to its “economic” importance. The furor over the “double Dutch sandwich” devices dating from the revelations following the global financial crisis attest to the political potency of the issue. The question is a “major question.” And the brief and elliptical statutory basis of the regulatory undertaking could hardly be less “clear.”

But one can neither stop with the surface nor ignore collateral matters. And immediately one confronts the most telling objections to MQD—the “theoretically boundless potential scope” of application, in Professor Walter’s words (unboundedness), together with its “weak relationship with authoritative law” (unfoundedness). The indeterminate issue is chronically with “majorness”—in most instances, in the early decisional law under the “new” MQD, lack of statutory clarity is almost always found and in many cases virtually assumed. And one’s only guides are snippets of language from a series of decisions which are few in number (almost surely less than ten), and widely recognized (even by themselves) to be charged with strategic ambiguity. Indeed, it is an irony that Justice Gorsuch, in two of his best known separate opinions, chastised jurists and commentators alike, for reading judicial opinions as though they were statutes. But Justice Gorsuch’s own West Virginia opinion is perhaps the only text, with its listing of factors amplifying both prongs, giving any flesh to the two prongs of the MQD, and its utility is limited by its having been joined by only one other Justice.

Two matters in particular appear to present perhaps insurmountable obstacles to invalidating all or part of the section 482 regulations under the MQD: the longstanding vintage of the regulations, and their routine acceptance by long lines of decisional law; and the fact that the matters the regulations govern implicate important foreign policy concerns.

1. Longstanding Acceptance of the Regulations

As for the longstanding status of the regulations, two different levels of contesting the application of the MQD can be distinguished. The first is whether the intended content of the MQD concerns only contemporary regulatory initiatives and is not aimed at questioning long standing initiatives. The second is whether, if not, outstanding prior judicial precedent may stand as a “domain” limitation on MQD, much as there was an issue whether prior judicial decision constituted a “domain” limitation on Chevron during the period of Chevron application.

a. Trigger Questions: Inherent Limitation of the Doctrine

As to the first question, it is a fact that virtually all of the Supreme Court decisions articulating the MQD, whether explicitly or obliquely, concerned new initiatives by regulatory agencies, ordinarily if not always under longstanding statutes which when enacted, did not contemplate the newer or contemporary problems. Conspicuous are regulation of tobacco as a drug; regulation of gashouse emissions as air pollutants; various COVID restrictions; and forgiveness of student loans. And the signal language in Justice Roberts’ West Virginia opinion held that “this is a major questions case,” in which the EPA “‘claim[ed] to discover in a long-extant statute an unheralded power’ representing a ‘transformative expansion in [its] regulatory authority.’” One pair of commentators has argued that these terms—”unheralded” and “transformative”—constitute the confines of the MQD, at least as it has been announced and developed to date. They dispute the propositions of Justice Gorsuch’s Trilogy concurrences: that the doctrine is a “clear statement” rule; that “majorness” depends on any multi-factor formulae; or that West Virginia (or any other MQD precedent) incorporated state interests in any determination.

There is some force to this argument, particularly its reliance on the Supreme Court decisions that have been actually rendered. And it might be taken as implicit in the argument that the doctrine is confined to relatively contemporaneous agency initiatives, and not concerned, implicitly or otherwise, with decisions or initiatives undertaken in some distant past. The argument, and the implication about current controversy, are both largely reinforced by the range of lower court decisions that have invoked the MQD, which have predominantly, if not exclusively, involved current regulatory issues. At the same time, the argument is not conclusive, and may not preclude retrospective, even long retrospective, application of the doctrine. Moreover, the directive of the President’s Executive Order appears to call for administrative review of “ all regulations,” without confinement to those which are contemporary, unheralded, or transformative.

To begin, it may not be implicit in the argument for the limitation that the MQD concerns only relatively contemporaneous initiatives. Accepting such an implication, for one thing, raises serious questions about what is or is not relatively contemporaneous. But if the doctrine is not so time-limited, other questions arise. If the doctrine may be applied in the context of a long-standing regulation, and the standard is “unheralded” and “transformative,” the question may be when it was or is unheralded or transformative. The 1935 adoption of “arm’s length” as the “standard to be applied in every case” probably was not entirely “unheralded” at that time, and probably could not be said to be “transformative.” The 1962 revisions, however, probably were unheralded, except perhaps in Professor Stanley Surrey’s writings, and they certainly were transformative. But they are hardly either unheralded or transformative at the present time, when their validity under the MQD would be tested. The 1994 revisions were well heralded by the 1986 legislative history and the ensuing White Paper and proposed regulations, but they too were undeniably transformative.

Beyond that, the argument for any such limitation is not really very strong. It is true that this language appears in both “climate change” opinions, Utility Air and West Virginia, and that the Court’s opinions eschew embrace of the Gorsuch embellishments. But they also do not explicitly reject those embellishments and do not expressly impose the suggested limitations. And, many observers do not accept that such limitations are implicit in the decision, even observers who clearly support limiting the doctrine. It is thus apparent that, while the doctrine may be limited to current agency efforts at transformation, one cannot be confident that it is so limited. Thus, such a reading does not preclude an attack on the historic arm’s length regulations, in any of its three manifestations, under the MQD.

b. Domain Limitations: Prior Precedent

In their 2001 article, Thomas Merrill and Kristin Hickman listed fourteen matters as to which there were issues concerning the application of Chevron. They dubbed these questions of “ Chevron ’s domain.” The final question concerned the application of the doctrine when an agency interpretation was in conflict with prior judicial precedent. Shortly thereafter, the Supreme Court addressed the issue in National Cable & Telecommunications Ass’n v. Brand X Internet Services. The Court held that the prior precedent should be followed only if it rested on a finding that the statute was unambiguous. The Court did not address the further questions of how one determined the basis of a ruling that was not made with Chevron in mind (before or without recognition of Chevron), or of what to do when the prior ruling did not address the question of ambiguity vel non. Ensuing decisions reflected the confusion over such issues.

One pair of authors, highly critical of Major Questions have imported the “domain” idea into the MQD area, arguing strenuously that the domain of the “unfounded” doctrine should be rigorously limited. Taking up the analogy, we might ask what happens, if prior precedent conflicts with a result that would be reached by applying MQD. This will only occur assuming MQD is held not to be limited to current “transformative” controversies, but if MQD is not so limited, the question should arise quite frequently.

If the question arises frequently, there will be strong pressures to limit the domain of the MQD by holding that it may not be invoked to question pre-existing decisional law. The province of stare decisis is to assure stability, and, especially given the fluidity of the definition of what is a “major question” (and when, why, and how a question was or is or became “major”), a great deal of principle in a wide variety of regulated areas could be upset if judicial precedents could be undermined or abandoned in whatever areas were held to be “major.” Transfer pricing presents an area where considerations of this sort will be recognized as serious.

There are nonetheless countervailing considerations. In the first place, stare decisis, with its attendant respect for stability and predictability, do not seem to have been or to be paramount concerns of the Supreme Court majority that has crafted the “new” administrative law decisions of the 2020s, notwithstanding the extensive discussions of the issue in both the majority and Justice Gorsuch’s opinions in Loper Bright. Furthermore, the language of West Virginia, and its forbear decisions, justifies the MQD doubly, that “in certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent” underlie the demand for “clear” legislative authorization. If major questions is a matter of divining legislative intent—the thrust of Justice Barrett’s Nebraska concurrence—then one must answer why that intention is said to be viewed one way for matters subject to a pre-MQD precedent and another for a matter decided only in the wake of MQD. Settled interpretation and stability do not seem to be convincing answers. More serious still is the question to the extent the question is one of separation of powers. Some major matters may be decided by the executive, but others are reserved for the legislature; both are major, and the difference depends on the happenstance of when the issue first came before the Judiciary for decision.

Here again, transfer pricing may be a significant case in point. When the original statute was adopted, the matter may or may not have been deemed “major;” it was significant enough. But the Congresses involved, be they of 1921, 1924, 1928, or 1934, were enacting what they conceived as a straightforward anti-abuse device. They could not have conceived of the post-World War II global environment, with the vast expansion of United States direct investment abroad that preoccupied the 1962 Congress and the 1960s regulations, much less the expansion of inward direct investment of the 1980s that preoccupied the innovations of 1986 and the 1990s, or the role of advanced technology and intellectual property that are the focus of the BEPS efforts of the 2010s and 2020s. In both 1962 and 1986, Congress exhibited interest in legislating on the then prevailing situation, but on both occasions, it was dissuaded by administrative assurances that the Executive could affect appropriate change. Yet on both occasions, too, the resolution effected administratively seemed to deviate from the direction Congress had manifested interest in taking.

Indeed, the resolutions reached in the regulations can be characterized as “reflect[ing] not the public deliberations of elected representatives, but the concerns of small cadres of elites,” albeit, in later phases, by the acquiescence (if not the active participation) of a compliant or indifferent Judiciary. In its latest phases, it appears that the process is dominated by a group of what right-wing observers characterize with derogation as “globalist.” Thus, the concerns both of divining legislative intent and of the separation of powers are of a seriousness equal to those of stare decisis and predictability. Questions of conflict between Major Questions dogma and existing precedent thus are not likely to be resolved in a comfortable or facile way.

A final point needs to be made about conflicts between extant precedent and the results that MQD might generate. The judicial decisions applying, interpreting, or following the section 482 regulations are legion, but virtually none, if any, involved any explicit challenge to the validity of the regulations as a whole (although many challenge specific provisions of the regulations). It is thus not entirely true that the validity of the regulations as a whole (whether the 1935, 1960s or 1990s versions) is truly a matter of stare decisis. But what is or is not a matter previously decided will be a question arising generally under the MQD to the extent the doctrine is applied to longstanding, as opposed to contemporary “unheralded,” regulatory initiatives.

2. Domain Limitations: Foreign Policy

In 1936, the Supreme Court in United States v. Curtiss-Wright Export Corp., decided shortly after its landmark 1935 decisions applying the nondelegation doctrine, upheld a delegation by Congress permitting the President to issue a declaration that imposed criminal penalties on the sale of arms and munitions to two foreign nations then at war. Justice Sutherland described “differences between the powers of the federal government in respect of foreign or external affairs and those in respect of domestic or internal affairs,” in terms of their “origin” and their “nature.” And those powers were vested all but exclusively in the President.

These passages represent central statements of what came to be known as “Foreign Policy Exceptionalism” (FPE)—the notion (or doctrine) that matters involving foreign policy are to be treated differently from those touching exclusively domestic matters. This has been held to affect, in particular, matters of justiciability (limiting judicial review of foreign affairs-related matters); separation of powers (enhanced respect for the Executive); and federalism (limited regard for the role of the states). This has led to suggestions that, just as such exceptionalism applied to nondelegation in Curtiss-Wright, the Supreme Court or lower courts might graft a parallel exception on the MQD, the cousin of nondelegation. As noted above, Justice Kavanaugh’s concurring opinion in Consumers’ Research makes this point emphatically, although the issue had nothing to do with the facts of that case.

Those suggestions come with visible caveats, although not expressed by Justice Kavanaugh. First, Curtis-Wright comes with some limited force. Justice Sutherland’s interpretation of the constitutional nature of the foreign affairs powers have come to be viewed, almost universally, as peculiar, if not idiosyncratic. More seriously, a noted 2015 article synthesized the view that in the quarter century between the end of the Cold War and that date, the notion of FPE had undergone “normalization,” at least at the level of the Supreme Court, with the Court much more likely to treat foreign-related matters under normal administrative law principles in relation to justiciability, federalism, and separation of powers. The position is not without controversy, as scholars have objected that foreign policy exceptionalism continued to be invoked frequently and forcefully in the lower courts, whatever the Supreme Court’s approach was, and others noted that, despite some trend toward “normalization,” exceptionalism was still manifest in numerous Supreme Court decisions, or debated exactly what exceptionalism constitutes.

One of the co-authors of the leading “normalization” essay co-authored another essay after West Virginia about the potential impact of the MQD on national security affairs. The principal concern of the later essay was with the use of economic tools as alternatives to military measures or the use of force in contemporary global strategy. The authors note that these efforts are often, indeed ordinarily, pursued under statutory delegations that are usually open-ended, and the concern is that the MQD may be invoked to block strategic measures that are frequently effective, and frequently a best alternative to more drastic and consequential measures that might involve the use of force. But the authors’ conclusion is that an “exceptionalism” limitation on the MQD, akin to that imposed by Curtiss-Wright on nondelegation, is unlikely to remedy the problem, principally on grounds that “in the modern globalized economy, determining that a particular economic authority is ‘foreign’ or ‘domestic’ is difficult, if not impossible,” and “is unworkable . . . and creates incentives for even greater reliance on foreign and emergency powers by administrations,” and the MQD thus “in other words, risks achieving the exact opposite of its intended effects.” But if the mixture of “economics” and “foreign policy” elements renders “exceptionalism” an ineffective antidote to the MQD in connection with statutes inexplicit in creating presidential authority to enlist economic measures for strategic purposes, a context where “presidential” authority, however conceived predominates over congressional power, exceptionalism will constitute even a lesser repellent in the area of taxation, where the Constitution makes the paramountcy of the Congress, and the limitations on presidential action, quite manifest.

The concern of these authors, that “exceptionalism” will prove an ineffective counterweight to the MQD are minimized by other authors, who express only limited concern that the MQD will be applied in foreign policy matters. Their work is cited in Judge Kavanaugh’s opinion, and certainly Judge Kavanaugh’s unambivalent view of the matter supports some relief from the concern that the MQD will interfere with foreign policy matters.

Nevertheless, there are certain patterns and predilections, of the Supreme Court in particular, one historic, the other contemporary, that counsel caution in dismissing notions that concerns sounding in justiciability, exceptionalism, or political question might deter courts from applying the MQD in the context of transfer pricing. The historical concerns involve the pattern of Supreme Court intervention in the tax area in the period following the end of World War II, when the APA was enacted, and when the Court began its retreat from very active involvement in Federal income tax matters, and when notions of “tax exceptionalism” in administrative law first took hold. In a number of decisions sprinkled across this large number of years, the Supreme Court has taken a restrictive approach to IRS efforts to apply generalized anti-abuse “overarching” tax policy conceptions, sounding in (nontextual) substance-over-form principles to override what the Service viewed as abusive, though textually defensible, transaction structures which yielded results favorable to the taxpayer.

But the contemporary stance of the Court may point in the opposite direction. Its 2023 Term saw the Court enter the field of international taxation with the decision in Moore v. Commissioner. That decision upheld the “mandatory repatriation tax” (MRT) enacted by the TCJA. An individual shareholder brought suit against the tax under the “realization” requirement of Eisner v. Macomber, which held that to constitute income under the sixteenth amendment, an amount had to be “realized.” The Court did not decide the question of the continuing vitality of the realization requirement, holding instead that Congress in the MRT was taxing income “realized” by one entity, but attributing it to a different entity.

But both at oral argument and in Justice Kavanaugh’s opinion for the Court, the Justices exhibited a real concern for upsetting long-settled tax practices, and hesitance about wading into the complexities of the tax code, especially in its international sphere. They exhibited some sensitivity to upsetting the subpart F regime in particular, which was adopted by the same statute whose legislative history first directed the articulation of the extensive section 482 regulations. Justice Kavanaugh’s opinion itself argued that “longstanding congressional practice reflects and reinforces this Court’s precedents upholding those kinds of taxes,” and bespoke asides against “the blast radius of [petitioner’s] legal theory.”

But Judge Kavanaugh’s explicit opposition to applying the MQD to foreign policy matters, especially taken in connection with his concerns about the “blast radius” of judicial rulings in the tax area generally (and in international tax in particular), counsels strongly against any expectation that the transfer pricing rules could be successfully questioned, at least under the MQD. One can expect that the three liberal Justices would take a restrictive view of expansions of the reach of the new initiatives, especially the MQD. Justice Barrett’s views are unknowable, but her Nebraska concurring opinion and her vote with the majority in Consumers’ Research suggests some coolness to her earlier support of the MQD. There thus would appear to be five votes on the current Court which would be receptive to the idea of a foreign policy “domain” limitation on the MQD.

Again, however, one may question whether and the extent to which this should be. It is true that foreign policy matters are ordinarily committed mostly to the Executive, and that the electorate does vote on the identity of the President. But taxation matters are also committed by the Constitution primarily to Congress, and the electorate is much closer to congressional representatives, elected by state or by congressional district, than to a single President elected by the entire country. The determination of how international taxation matters are resolved affects all taxpayers, not only those actively involved in cross-border commerce, and concentrating far-reaching decisions about those matters in a remotely elected Executive does seem to constitute to a considerable extent, well, something approaching “taxation without representation.” Excessive or exclusive concern with Executive foreign affairs prerogative, as well as with the projected “blast radius” of the unknowable consequences of decisions, thus has some implications that are especially dubious.

This approach may be reinforced by the outcome of V.O.S./Learning Research, the pending tariff cases. Those tariff cases of course present the precise conflict addressed here—that between any “foreign affairs” exception to the MQD and the Constitution’s assignment of taxing powers to the legislative branch. The course of the proceedings did not bear promise even for the existence of a foreign affairs exception, at least in peacetime, let alone one that could withstand competition with Congress’ power over taxes. Even the government did not in its brief advocate for a broad foreign affairs exception to the MQD, confining itself to the statement that the MQD “had not been applied” in the context of foreign affairs, citing (only) Justice Kavanaugh’s Consumers’ Research concurrence. None of the Justices advocated for any broad exception, and even Justice Kavanaugh did not mention it or cite his earlier opinion—his interventions at oral argument were confined to repetitious invocations of what he called the “Nixon precedent,” concentrating on Algonquin and to a lesser extent Yoshida to develop a textual argument for the tariffs.

The plaintiffs’ briefs all emphasized that the taxing power would override any limitation based on the President’s foreign affairs powers. The three liberal Justices and the Chief Justice stressed that the tariff power is a core congressional power. The government did not with any force dispute this, arguing throughout that the tariffs at issue were “regulatory” tariffs, which the Solicitor General sought to distinguish from “revenue-raising” tariffs, with the suggestion that in respect of the latter, the foreign relations powers should prevail. Justices Alito and Thomas, in such efforts as they made in defense of the tariffs, took up this notion of tariffs serving purposes other than raising revenues, rather than making any effort to suggest that for constitutional purposes the foreign affairs authority of the President should trump the revenue powers of the legislature. Still, with respect to the tariffs before the Court, the private plaintiffs’ counsel could note that the government’s brief asserted that the tariffs could raise $4 trillion, and Justice Alito conceded that the tariffs have already raised considerable revenue.

Two other matters, discussed above in connection with the nondelegation doctrine, derogate the idea of a foreign policy limitation on the MQD. The first was Justice Gorsuch’s first (in time) point, that if one is to articulate a standard of major questions or nondelegation which is weaker than the else applicable standard, what is that standard; and, indeed, the further question whether Congress could completely abdicate an express Article I power to the Executive on grounds that the power involved foreign policy. The Solicitor General ultimately suggested what would apply (in the nondelegation context) would be a “very deferential application of the intelligible . . . principle,” which the Justice accepted. But the “intelligible principle” rule is regarded as very deferential to begin with; it warrants explanation was a “very deferential” version of a rule already so deferential might constitute.

The second matter was Justice Gorsuch’s second (in time) point, raised also by several Justices. It was that almost any matter could be recast or characterized as a foreign policy matter, so that the exception could destroy the rule of the MQD. The frequent example was that the climate change concerns at issue in West Virginia itself could be recast, as climate initiatives are an international matter, subject to numerous international initiatives and agreements.

Indeed, by the end of the argument, the notion that there even is such a thing as a foreign policy exception to or limitation of the MQD appears moribund, and the notion that it can ever trump anything that represents a pure exercise of the congressional taxing power all but dead. Some life may be breathed into the idea that tariffs may be “regulatory,” rather than “revenue-raising,” but in many respects that characterization relates more to the conventional statutory argument rather than to any implicating the MQD.

It is in this connection that the question of the fidelity of the administration to the intent of the 1986 Congress, including the lack of administrative zeal in implementing the statutory “super-royalty,” is both relevant and instructive. The Treasury has consistently throughout the near four decades since the 1986 enactment presented itself as navigating between the apparent congressional directive, on the one hand, and the position of the nation’s treaty partners, insistent upon the “international norm” of “arm’s length,” on the other. But during that period the stance of the international community, including many treaty partners and the OECD, has moderated, and since the global financial crisis real dissidence concerning the traditional norms has emerged. But in this period, American support for the supposed norms has persistently hardened, and the United States has become the most forceful advocate for resisting change and insisting on the ancient norms. The justification of some degree of open unfaithfulness to congressional purposes thus appears—to a considerable extent—pretextual. Invoking and applying FPE to block application of the MQD might in these circumstances be quite untoward, tilting doctrine toward the concerns of Justice Gorsuch’s “cadres of elites,” and away from any realistic evaluation of structural constitutional concerns.

Nevertheless, any serious questioning of the “arm’s length standard” or the validity of “sacred” section 482 regulations would have a serious “blast radius,” throughout not only the United States tax system but to international tax relationships, so the Supreme Court or lower courts would surely seek to contain that radius. The question is the extent they would twist precedent, doctrine, and legality to do so.

3. Summary as to Major Questions

There is little question that, viewed superficially, the transfer pricing regulations should be subject to scrutiny under the MQD. It hardly needs argument that the matter is of great economic and political import and has been continuously since at least 1962. There is even less question that the statutory reed on which enormously complex regulations have been based is about as slender as it could be.

Yet the “strategic ambiguity” of the Supreme Court’s approach to the matter raises doubt of some seriousness. It may be that the doctrine is limited only to contemporary circumstances where an agency “discovers” an “unheralded” power to render a “transformative” decision. The section 482 regulations might meet even this standard, but they are clearly not contemporary. It is also not clear that the Supreme Court intended the MQD to be assertable in an area where a regulatory regime has been accepted and applied by a long line of judicial decision. Furthermore, as the matter does touch important aspects of foreign economic policy, this may be an area where the Court would carve out an exception to the MQD, even if the other questions about the application of the doctrine were dispelled.

The most important reason to doubt that the MQD would be applied to transfer pricing, however, may involve what Justice Kavanaugh in Moore characterized as the potential “blast radius” of the result, taken together with Justice Kavanaugh’s express view that the MQD should not apply to any matters involving foreign policy. It is perhaps considerations about “blast radius” that led observers, in the early years after the Major Questions Trilogy, to ignore the possible application of those decisions to the section 482 regulations. That “blast radius” would, of course, be the same were the section 482 regulations attacked on a theory other than the MQD, and the real doubts about the weakness of the statutory grounds for the rules could not be ignored after the Court overruled the Chevron decision in Loper Bright.

B. Statutory Interpretation and Loper Bright

Loper Bright, in theory, might have no effect on the validity of the Section 482 regulations. None of the vast body of case law applying the regulations, or for that matter the decisions of the 1960s and 1970s, discussed above, that accepted the regulations as revised in the 1960s, relied on Chevron, and indeed the latter category were all decided before Chevron. At the same time, it is clear to most observers that the Loper Bright decision is likely to trigger new interest in questioning regulations irrespective of whether the received judicial approach to the regulations involved ever depended expressly on Chevron.

The question may be divided into three parts. The first is whether long accepted regulations are valid, first, under traditional tools of statutory interpretation, setting aside any doctrine or kind of deference. The second is whether, because Loper Bright acknowledges that courts may sometimes take administrators’ views into account, irrespective of any congressional delegation, any identifiable kind of deference could “save” the section 482 regulations from an adverse conclusion under traditional tools. The third is whether, under Loper Bright ’s conception of “delegation to interpret,” any such delegation can be found with respect to the section 482 regulations; if so, what kind of deference is mandated by such a delegation; and whether the deference so recognized negates the results of traditional interpretation.

1. Statutory Interpretation Without Deference

The discussion above, of the early judicial interpretation of section 45 of the revenue acts and the 1939 Code, suggests that the answer to the first inquiry—statutory interpretation without deference—is not in favor of the regulations in any of the three forms they have taken since 1935. That discussion identifies three principles, derived from the statutory text, which the early decisions, based on a careful reading of both the text and the legislative history during the 1920s, established. First, the statute authorizes the allocation or apportionment only of items of gross income, deduction, credit, gain or loss, meaning items as otherwise defined or described in the law, not items made of transactions constructed by the tax authorities. Second, the statute confers discretion on the authorities to make these adjustments, which, although the authorities might be free to articulate by regulation a standard to guide that discretion, had to be guided by a “rule of reason,” leaving undisturbed accounting made consistently and reasonably by the taxpayer. Third, and as a corollary to the first principle, the statute authorizes only allocation of items, and this does not permit the allocation of “net income.”

These principles were firmly rooted in the statutory text as well as the history of the provision as a guard against “evasive” elective non-consolidation among commonly controlled entities. Relying on the legislative history, the cases recognized that the statute represented an effort to prevent taxpayers from using controlled foreign entities, for instance, to realize gain on appreciated property, by routing a transaction through a controlled foreign entity and returning the property to a United States entity, as attempted by the then Royal Dutch Shell group in Asiatic Petroleum.

Thus, it would seem that the “best” reading of the statute, in relation to the three stages of the regulations, and paying no deference under any standard, would be as follows. First, as to the 1935 version, there might be some question whether the statute even authorized the Treasury to articulate “a standard to be applied in every case” under a statute that was plainly intended to be openly discretionary. Granted, here, the case for invalidation is not all that strong, but to that could be added the caveat that at least so long as the standard has some flexibility as to reasonableness. But even with the straightforward provision of the 1935 regulations, there are grounds for finding it departed from the statute.

With the 1960s and 1990s versions, the questions are more serious, and the case for invalidation would appear to be substantial. Those versions deviate from the statute, most seriously, in mandating the creation of income, and with what is an emphasis on delineation of hypothetical transactions. They also deviate from the statute by their demand in all cases for evidence of “comparables,” which, even if “arm’s length” may be said to be an allowable “standard . . . in every case,” precludes any rule of reason” concerning the taxpayer’s accounts; and in allowing net income allocations, which the “profit split” method of the 1990s regulations, and the result in a number of judicial decisions pre-dating the 1990s changes, explicitly entail. The 1990s regulations have an additional vice, in that the emphasis in them on “contractual terms,”—the paramountcy of which in the views of United States authorities is made clear by the manner in which the United States conducted negotiations in the various phases of the “base erosion and profit shifting” initiative, —confers authority on the taxpayer which the statutory provisions would appear to preclude.

Indeed, it might have been argued with respect to some or all of these points, that the first sentence of section 482 is not sufficiently “ambiguous” to permit the innovations of at least the 1960s and 1990s versions of the regulations even under Chevron Step One, or that those innovations are not reasonable under Chevron Step Two. But it may be conceded that all versions of the regulations would have survived review under Chevron. The question then is whether any of the lesser forms of deference surviving Loper Bright the rules resurrect the regulations from the strong arguments based on the statutory text and legislative history. There would appear to be three versions of deference to consider:

• “ Skidmore ” deference;
• Deference under the “tax exceptionalism” deference of National Muffer;
• Deference under a Loper Bright standard of “delegation to interpret.”

2. Skidmore Deference

Skidmore was an action brought by employees, mostly firefighters, against their employer for overtime pay under the Fair Labor Standards Act (FLSA). The question was the extent to which “waiting time” when the employees were on call for alarms but performed no services constituted “working time” for purposes of the overtime pay requirements of the FLSA. The Administrator of the FLSA filed an amicus brief in which it urged that the “waiting time” should be treated as “working time,” reduced by any time spent by the employees sleeping and eating, because sleeping and eating were “pursuits of a purely private nature which would presumably occupy the employees’ time whether they were on duty or not.”

The Court reversed the rulings of the lower court in favor of the employer and remanded to apply the standard suggested by the Administrator. It said that “the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance,” and that the “weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”

Of the known approaches to administrative views, Skidmore is the least deferential. It is, accordingly, the one least likely to redeem the arm’s length regulations from any arguments from the text or the legislative history like those set forth above. The salient aspect of its recitation of factors involved—thoroughness, consistency, validity of reasoning—is that it appears simply to repeat what the courts do in any event in deciding what a statute means.

There is also a question whether Skidmore deference, even after Loper Bright, should apply to regulations adopted after notice-and-comment rulemaking. In Mead, the Supreme Court limited Chevron to administrative rulings that resulted from either notice-and-comment rulemaking or formal adjudications. It held that lesser administrative pronouncements—interpretive letters, rulings, and the like—should be subject only to Skidmore deference. The fate or condition of Mead in a post- Loper Bright world is unclear. But it is quite possible, if not likely, that courts will draw the same or a similar distinction drawn by Mead with respect to whatever doctrines of deference evolve under Loper Bright, whether in accordance with Mead or on a parallel doctrinal ground. It does seem that the very restricted degree of deference mandated by Skidmore seems inappropriate in the context of a notice-and-comment rule, particularly one of long standing.

3. National Muffler Deference

As noted above, National Muffler detailed a standard for judicial review of tax regulations. In Mayo Foundation, the Supreme Court held that Chevron applied to review of tax to the same extent that it did to all other regulations. Also as noted, there is a question whether, with the overruling of Chevron, decisions like Mayo Foundation continue to apply, or whether, on the other hand, Loper Bright in some sense “revives” decisions, like National Muffler. The following assumes, rather contrary to what may be the better reading, that National Muffler may apply, either because it is revived post- Loper Bright or because its standard will be deemed appropriate under Loper Bright, whether specifically for tax matters or otherwise.

But there are other problems with National Muffler, which may or may not have played a role in the Court’s 2011 decision to displace it. It is quite unclear the degree and nature of deference National Muffler mandated. National Muffler involved the IRS’ denial of tax exempt status to an association of muffler dealers, all of whom were franchisees of Midas Muffler. The question was whether the association constituted a “business league,” within the meaning of section 501(c)(6). The Treasury regulations provided that to constitute a business league, an association “should be directed to the improvement of business conditions of one or more lines of business.” The IRS and the lower courts held that because the association membership was limited to franchisees of a single manufacturer and not the entire industry, the association was not aimed at the betterment of an entire “line of business.” The Supreme Court affirmed.

The Court set forth a standard for reviewing tax regulations generally, relying upon section 7805(c), the provision granting general regulatory authority to the Treasury:

In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner’s interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent reenactments of the statute.
Thus, the standard, though rooted in a purposivist approach somewhat characteristic of the 1970s, expresses fairly conventional principles of statutory interpretation, but notably, as the emphasized passages show, paying heed to questions of contemporaneity and consistency—both conditions lacking with respect to the section 482 regulations. As to contemporaneity, the statute involved was part of the original 1913 income tax law; the version of the regulation involved dated from 1929, when the regulation was amended in 1929 to include the “line of business” requirement, as well as to eliminate a provision that a qualifying organization “need not be similar to that of a chamber of commerce or board of trade.” As to consistency, the Treasury had amended the regulation in 1919 and 1929, although it had stood unchanged for a half century at the time of the National Muffler decision.

These considerations might have supported invalidation, but the Court concluded that while the Treasury’s reading “perhaps is not the only possible one,” it did “bear a fair relationship to the language of the statute,” “reflect[ed] the views of those who sought its enactment,” and “matche[d] the purpose they articulated.” It said the regulation “has stood for 50 years, and the Commissioner infrequently but consistently has interpreted it to exclude an organization like the Association that is not industrywide,” and that therefore the Commissioner’s view “merit[ed] serious deference.” With respect to the 1929 change, the Court rejected any emphasis on either consistency or contemporaneity. “Contemporaneity,” it held was “only one of many considerations that counsel courts to defer to the administrative interpretation of a statute,” which “need not control here.” Consistency, too, meant little: “the change in 1929 incorporated an interpretation thought necessary to match the statute’s construction to the original congressional intent,” and the Court should “be reluctant to adopt the rigid view that an agency may not alter its interpretation in light of administrative experience.”

There is considerable difficulty in determining the extent and character of whatever deference is paid by National Muffler. In a number of respects, the result in the case is difficult to distinguish from a result under Chevron, particularly in the sheepish statement that the administrative view was “perhaps not the only possible one,” which echoes Chevron ’s notion of “permissibility,” though it is not coextensive with it. On the other hand, even though the decision was hardly strict in applying them, the decision does emphasize consistency and contemporaneity as important in interpretation, two considerations explicitly excluded from Chevron analysis by Justice Scalia’s opinion in Smiley v. Citibank (South Dakota), N.A. Because National Muffler both defers in its result, but at the same time “engages in an extended discussion of statutory interpretation and legislative history,” the NYSBA Tax Report 1508 concludes that “it is not certain how much deference there actually was in National Muffler.”

At the same time, it appears unlikely that National Muffler would be applied in a post- Loper Bright world. In general, it is difficult to see how National Muffler complies with the APA “command” that a reviewing court “decide all questions of law,” any more than Chevron does. Like Chevron, National Muffler accepts a reading it concedes may be no more than “possible.” Its reliance on a private submission as interpreting a statute’s original meaning is not only unorthodox, but also bears apparent potential dangers. And the derogation, at least by the result of both consistency and contemporaneity, are unsynchronous with the spirit and letter of Loper Bright. The Chief Justice’s opinion, in its preliminary review of historical judicial practice, noted that the Court “recognized from the outset. . . that exercising independent judgment often included according due respect to Executive Branch interpretations of federal statutes,” but that that “respect was thought especially warranted when an Executive Branch interpretation was issued roughly contemporaneously with enactment of the statute and remained consistent over time.” The Chief Justice cited Skidmore and American Truckers to hold that “interpretations issued contemporaneously with the statute at issue, and which have remained consistent over time, may be especially useful in determining the statute’s meaning.”

Thus, rehabilitation of National Muffler might impede any effort to rule the section 482 regulations invalid, at least in their totality. And concern with “blast radii” might lead to some resuscitation of the National Muffler principles. But apart from that, National Muffler appears inconsistent with Loper Bright and unlikely to be substantially revived.

4. Delegation to Interpret

The final, and undoubtedly most significant, question about Loper Bright and transfer pricing, concerns the passage in the Chief Justice’s opinion that the “best reading” may be that Congress “delegated discretionary authority” to agencies. As detailed above, pro-administrative scholars, almost immediately after Loper Bright, focused upon this passage as offering hope, and some confidence, that the erosion of agency authority effected by Loper Bright could and would be contained. In the tax area, proponents of IRS effectiveness expressed, perhaps less articulately, a parallel assurance, with respect to tax generally. With respect to transfer pricing specifically, the confidence thus exhibited might be characterized as extreme, and this was true both as to principals of the Big Four accounting firms, who provide much of the transfer pricing services utilized by the large multinational enterprises, and professional commentators who follow case law and regulatory issues closely, and characteristically take a pro-government, public policy position.

These enthusiasts, particularly in the transfer pricing realm, appeared to believe that when “delegation to interpret” is found, something approaching the near conclusive deference of Chevron will be in order. That would seem a faint fond hope. The Chief Justice’s flat statement that “[i]n the business of statutory interpretation, if it is not the best, it is not permissible,” would appear to preclude upholding any reading that an interpretation was merely “permissible” in any context, or under any “delegation.” By the same token, though perhaps a bit less clearly, the recognition of circumstances where Congress had delegated some interpretive authority would seem to foreclose applying only Skidmore deference where the interpretation conformed to the delegation.

Thus, delegation to interpret has two prongs. The first is whether there has been a delegation. The second is what the judicial role is when such a delegation has been found, which includes prominently the question of the kind and degree of deference the delegation entails.

a. Determining Whether There has been a Delegation

Section 482 makes no reference to any authority to issue regulations specific to the provision itself. There is no express delegation with respect to transfer pricing in the Code. Thus, if a “delegation to interpret” is found, the finding must be on one of two bases. The first is the general authority under the Code to issue regulations, found in section 7805(a). The second would be an implicit delegation, assuming that implicit delegations are contemplated at all by the passage in the Chief Justice’s opinion.

b. Section 7805(a)

The one provision conferring regulatory authority that might relate to section 482 is section 7805(a), the longstanding authority of the Treasury to adopt regulations implementing any provision of the Code. There have been occasions, in specific contexts, where the Supreme Court has accepted, however inexplicitly, broad readings of this provision. There nevertheless are reasons to question whether this provision would support a “delegation to interpret.” First, and probably most important, the Code is replete with specific grants of regulatory authority, and were section 7805(a) to constitute a general grant of authority, these specific provisions would be surplusage. A second reason has been that Treasury and IRS have long viewed section 7805(a) as authority for the issuance of interpretive regulations, which do not have the force of law. A third reason is that the Supreme Court, in the pre- Chevron, National Muffler era, has held that when the basis for a regulation is the broad authority of section 7805(a), the lowest degree of deference (possibly Skidmore deference) is owed.

A fourth point, growing out of this third, are the opinions of the Court and the separate opinions of Justices Kavanaugh and Gorsuch, to the effect, quoting Justice Scalia’s American Trucking opinion that “the degree of agency discretion that is acceptable varies according to the scope of the power congressionally conferred.” Indeed, the uneasiness with which this principle sits with Justice Kagan’s opinion, and the result, in Consumers’ Research, gives rise to two indeterminate propositions, which may be suspicions (at one extreme) or conclusions (at the other). The first is that Justice Kagan included the passages in the majority opinion under something akin to duress, i.e., that the inclusion was part of the price of the adherence to the opinion by the three “center-right” Justices. The second is that the emphasis on the point in both separate opinions, as well as any “pressure” on the majority to pay obeisance to it, were motivated in substantial part by consciousness on the part of the Justices who formed the Loper Bright majority of the implications of the point for “delegation to interpret” issues arising under Loper Bright.

These considerations have led two scholars to conclude that, in general, section 7805(a) does not ordinarily give rise to a “delegation to interpret.” NYSBA report concludes that the “bottom line” is “that more guidance is needed about Section 7805,” because the provision is “an important tool in the Treasury’s toolkit,” and “courts should provide further clarity about how it can be used, as well as the degree of deference Treasury commands in using it.” No certain conclusions can be drawn on the question. But it is a strain to believe that so simple and general a grant creates authority to create the entire complex of rules adopted under section 482, or even to implement a general “international standard” of “arm’s length” as a principle never enunciated by Congress. To put another way, in the terms of American Trucking and Consumers’ Research, it is difficult to understand how so great a power can be based on so general, inexplicit, and uninformative a statutory direction.

c. Implicit Delegation

The absence of a specific regulatory authority with respect to section 482, however, has not deterred supporters of the section 482 regime from arguing, however cautiously, that there is nonetheless sufficient congressional approval of the regime, though not embodied in the statute, to constitute a delegation for Loper Bright purposes. The preliminary question is whether Loper Bright permits “implicit” delegations “to interpret” at all. Here again, there is disagreement in the literature. Pro-administration scholars have argued that the “delegations to interpret” under Loper Bright may be implicit. Others are not sure. In any event, the distinction between the question of general grants of authority (like section 7805(a)) and that of “implicit” delegations seems a fine one. If a court is to find an implicit delegation, and there is an applicable general grant, why not simply rely on the general grant (assuming there is no authoritative precedent disallowing such reliance), rather than torture a law to find “implicit” delegation?

Furthermore, if implicit delegations are accepted, and coupled with the proposition that in connection with Loper Bright delegations, Chevron -type deference is mandated, then the situation post- Loper Bright is barely different at all from that under Chevron, rendering Loper Bright to be “ Chevron by any other name.”

The article by principals of KPMG argues that a “broader consideration of section 482 as it exists today and the inflection points at which Congress has considered and interacted with the statute during its long history shows that Congress intends for today’s statute to operate through regulations.” The support for this is:

1. The 1962 legislation, with its withdrawal of the House bill’s language imposing a quasi-formula approach, and the Conference Committee’s direction to “explore the possibility” of regulations under the authority of section 482;

1. The language of the 1986 Conference Committee Report directing “careful consideration” of modifying the regulations;

2. Language in the penalty provisions adopted in 1993, making penalty relief contingent on taxpayer documentation showing the taxpayer’s transfer pricing complied with a specific method set forth in the regulations;

3. Provisions in section 59A, adopted in 2017, which exempt payments from the base erosion anti-avoidance tax which are made for services that meet the services cost method of the regulations; and

4. Further statements in the legislative history of the third sentence of section 482 (adopted by the 2017 TCJA) “displaying awareness that section 482 is administered through extensive regulations.”
   Even this author, however, is hedged in concluding section 482 constitutes a Loper Bright delegation: he concludes that “[i]t is unclear whether section 482 should be understood as containing a delegation of rulemaking authority, but it is clear— we hope —that there are plausible arguments to made on both sides.” The arguments contrary to those favoring delegation begin with the fact that the purported delegations do not appear and never have appeared in the statute. Those arguments run headlong into the views of textualists, sometimes embodied in Supreme Court opinions, deprecating reliance on legislative history in the absence of statutory text. Furthermore, these passages elide the totality of the statutory history, and the various Committee Reports they entail, and do not do justice to the skeptical attitude the Congress exhibited to “arm’s length,” and to the regulations.

But, in general, it seems unlikely that the prevailing view will be that statutory references to regulations in provisions collateral to the one or those under which the regulations are issued constitute the kind of “delegation to interpret” intended by Loper Bright. Nor do such references, taken in conjunction with legislative history that merely shows “awareness” of the existence and governance of regulations, particularly in light of accompanying legislative history expressing skepticism about the substantive validity of the content of the regulations, taken in totality, support a finding of that kind of delegation.

5. Deference and Other Considerations if “Delegation to Interpret” is Found

If it is found that section 482 benefits from a “delegation to interpret,” the Loper Bright decision directs that the “traditional conception of the judicial function that the APA adopts” requires the court to “recogniz[e] constitutional delegations, fi[x] the boundaries of the delegated authority, and ensur[e] the agency has engaged in ‘reasoned decision-making’ within those boundaries.” This comprehends the question of the kind and degree of deference that the Court is directed to pay when such a delegation is found.

Some commentators have either argued or assumed that when this “delegation to interpret” is found, the court is then in circumstances that recreate Chevron ’s second step, that any “reasonable” interpretation by the agency is “permissible” and should be upheld by the court. As suggested above, this seems questionable, in light of the statements in Loper Bright that in “statutory interpretation, if it is not the best, it is not permissible,” and its statement, which quotes other Supreme Court precedent, that “the whole point of having written statutes” is that “every statute’s meaning is fixed at the time of enactment.” At the same time, the direction that courts only recognize and fix boundaries of the delegation, and review for “reasoned decision-making” may imply that “any permissible” reading of the statute is the standard.

If not, that leaves the question of what degree of deference would be appropriate. Just as a Chevron -like “reasonable is permissible” standard may be precluded by Loper Bright, so too Loper Bright ’s careful recognition that the “best” meaning of a statute is that some regulatory authority is conferred on an agency would appear to preclude invoking only “ Skidmore deference” when such a delegation is found. There are a variety of intermediary standards that might be applied. Something like National Muffler standards may be one candidate, but others might be developed. As noted, it seems unlikely that the courts would discard the Mayo Foundation rejection of a “tax-exceptional” standard, but there remain today advocates of such a course, and there are arguments that Mayo Foundation is inconsistent with, and may even be overruled sub silentio by, Loper Bright.

Beyond the question of deference, there may be a question of what “reasoned decision-making” entails in this context. The Supreme Court cited its precedents in Michigan v. EPA, and Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Auto Insurance Co., in connection with the phrase. But “reasoned decision-making” may not mean the same things in all contexts. In general, that phrase, originated by State Farm, has meant that agencies must examine and give some response to all comments filed during the notice and comment period mandated by the APA. But the “story behind the so-called ossification of notice-and-comment rulemaking is now familiar,” and “notice and comment often functions as a charade—or what one administrative law expert has called ‘Kabuki theater.’” Comments filed in the process are ordinarily filed by well-financed interest groups, and the preparation of comments often requires substantial expenditures of resources. At the same time, however, there may be positions expressing the public interest which have few or no interest group support, and thus may not show up in the filed comments. Indeed, something like this has occurred in connection with transfer pricing, where substantial theoretical arguments have been made against “arm’s length”—namely that integrated enterprises do not behave “as if” they were an amalgam of separate enterprises, reliance on “comparables” is thus often fruitless or unreliable, and that backup methods generate indeterminate results. Indeed, these views were expressed by the congressional committee reports in the 1986 legislative history. Yet, although the White Paper addressed them, however unsatisfactorily, the preambles to the proposed, temporary, and final regulations of the 1993–94 period, scarcely mentioned them at all.

Conceivably, these shortcomings of the “notice and comment, “hard look” process, evident in the decisional approach under State Farm, could be addressed and to some extent remedied, in connection with “reasoned decision-making” under Loper Bright “delegation to interpret.”

6. Summary with Respect to Loper Bright

In conclusion, it is unlikely that the “best” reading of section 482 is that it delegates to the Treasury authority to promulgate the inordinately intricate regulatory system established by the current regulations. Section 7805(a) supplies at best an uncertain grounds for the authority of the Treasury to issue the regulations. Whether implicit delegations will be accepted at all is uncertain, and even if they are, the case for finding an implicit delegation in the context of section 482 is highly doubtful. These concerns raise deep if not alarming problems for the United States tax system and the international tax order.

C. Nondelegation

In light of the discussion above, a final word is in order about the nondelegation principle. For a variety of reasons, it is extremely unlikely that any court would strike down the section 482 regulations, or indeed even any part of them, as an impermissible delegation of legislative power. For one thing, at least in the Tax Court, the matter is stare decisis. For a second thing, the Supreme Court, despite the interest in the doctrine exhibited by the most conservative Justices, has not in recent years actually “confronted a delegation and found no way to save it,” in Justice Gorsuch’s phrase, except perhaps for the dictum in footnote 9 of Justice Kagan’s Consumers’ Research opinion. Finally, if a Court is convinced that these regulations should be held invalid, the major questions doctrine and ordinary statutory interpretation under Loper Bright are available grounds for doing so that do not radiate in problematic directions as nondelegation does.

At the same time, taking the terms of the doctrine seriously, it provides a basis for invalidation. Although many a court has denied it, the logical link between the laconic statutory standards—clear reflection of income and prevention of tax evasion—and the multitude of concepts in the regulations (best method, contractual terms, comparability, comparable uncontrolled price, comparable uncontrolled transaction, comparable profits method, profit indicators, etc.) is not easy to discern. Moreover, early in its term, the new Administration threatened to invoke an existing provision of the Code, section 891, which permits the President to determine that a foreign country is imposing “discriminatory or extraterritorial” taxes and to impose penalties on the residents and companies of such countries. In the runup to the One Big Beautiful Bill Act of 2025, Republicans in the House of Representatives seriously advanced proposals to enact an additional and less cumbersome measure authorizing retaliation against, among other things, “extraterritorial” taxes. These developments had led some scholars, including at least one who in the past has been a critic of the “arm’s length” method, to suggest that that method, section 482, and the regulations are the measure of when taxes may be deemed “extraterritorial.” If that is the definition, it is difficult to envision how “clear reflection of income” or “prevention of tax evasion” can be held to constitute principles defining territoriality in any manner than any normal English-speaking person could even plausibly characterize as “intelligible.”

Nor is the Foster decision a realistic obstacle to such contentions. That case dates from an era during which constitutionally restrictive doctrine was generally derogated: the Foster opinion quotes a dissenting opinion of Justice Marshall characterizing the nondelegation doctrine as “moribund,” and quoted the then current version of Professor Kenneth Culp Davis’ treatise as ridiculing invocations of the doctrine by litigators that “waste the clients’ money and waste the courts’ time.” Some courts continue to take that attitude, including perhaps the Tax Court in the 2025 Facebook decision. But in light of Justice Gorsuch’s dissent on behalf of a third of the Supreme Court in Gundy and Consumers’ Research, and even more so in the course of the V.O.S./Learning Research, where even Justice Kagan visibly wavered, and where the private parties’ counsel had been a Deputy Solicitor General in a Democratic Administration, and whom Justice Alito could “kid,” in a hardly friendly way, about his position in the case then before the Court, there is no “purchase” any more in treating the nondelegation doctrine as an object of derision.

V. Conclusion

Under both the major questions doctrine and statutory interpretation post- Loper Bright, serious arguments can be made that the extensive section 482 regulations are invalid. Yet, as suggested above, the actual applications of the new doctrines in connection with so sweeping and ingrained a policy is unlikely, if not unimaginable. The doctrinal footing for not applying these doctrines to invalidate the regulations is twofold, first, because the “blast radius” of invalidation may be perceived as too great, and because the area touches foreign relations, and hence national security, where presidential if not administrative authority is at its zenith.

But these two tendencies should be examined closely, before the new doctrines are too greatly distorted, or abandoned, on their account. As to “blast radius,” it is important to bear in mind a distinction between stability, on the one hand, and the status quo, on the other. Stability is critically important, but maintaining the status quo does not mean automatically that one is preserving or contributing to stability. International tax is an emphatic case in point. International tax at this point is not stable. Moreover, although it is a larger subject for another day, the legal infirmities of the U.S. regulations are an important cause of and contributor to the chaos and conflict that attend the current situation; and judicial action on the basis of a principled approach might in the long and even the shorter run contribute to restoring stability.

As to presidential authority, especially in connection with the MQD, it is important to remember that separation of powers questions are bottom questions about preserving democracy. International tax implicates foreign policy, but taxation is also at the heart of domestic policy. The President is elected by and thus represents all the people, but as to any individual or major group, that representation is remote, compared to the representation by members of Congress, who are much closer to the competition among interest groups, cultures, or whatever, which reflect democratic process at its very heart, which involves taking resources from the people and their business organizations and deciding whose resources are to be taken. Reflexive notions about Presidential authority, born of foreboding about national security and the possibility of ultimate dangers from international conflict, should not be ridden to the point of disregarding the concern of popular involvement in apportioning the burden of governmental function.

Rather than (or as preface to) too quick or facile an invocation of Patrick Henry, it may do best to defer to impromptu remarks by Justice Gorsuch himself, questioning the state plaintiffs’ counsel toward the close of the oral argument in V.O.S./Learning Research. The Justice, after all, has an understanding of the Founding and the Founders which in its depth, range, and sensitivity lowly law professors might be best advised caution in attempting to emulate—Justice Gorsuch:

It does seem to me, tell me if I’m wrong, that a really key part of the context here, if not the dispositive one for you, is the constitutional assignment of the taxing power to Congress. The power to reach into the pockets of the American people is just different and it’s been different since the founding and the navigation acts that were part of the spark of the American Revolution, where Parliament asserted the power to tax to regulate commerce. Some of those were revenue-raising. Some of them didn’t raise a lot of revenue.

We had a lot of pirates in America at the time. And—and Americans thought even Parliament couldn’t do that, that that had to be done locally through our elected representatives.

Isn’t that really the major questions, nondelegation now, whatever you want to describe it, isn’t that what’s really animating your argument today?

MR. GUTMAN: I think it’s a huge piece of what’s animating our argument. Thank you.
Concentrating authority over a matter like transfer pricing in the executive or in administrators given to operating in connection with “cadres of elites” emphasizing the President’s role as the sole official democratically elected by “all the people” in derogation of the actions done “locally through our elected representatives,” can mean maybe not “taxation without representation;” but “taxation with only remote, infinitesimal, indirect representation,” which in turn may not be “tyranny,” as we were told, but in practice carried to a point that is not so easy to distinguish from just that.

---

Endnotes

---

Author

Stanley Langbein

Univ of Miami School of Law

Stanley I. Langbein is Professor of Law at the University of Miami School of Law.  He is the author of numerous articles on transfer pricing, over four decades, beginning with a landmark article, The Unitary Method and...

View Bio →

---

Author

Stanley Langbein

Univ of Miami School of Law