On April 16, the U.S. Supreme Court heard arguments for Wisconsin Central Ltd. v. United States, a case involving the definition of “compensation” and the Internal Revenue Service’s (IRS) right to tax the stock options of railroad employees. The IRS levies special taxes on the compensation received by railroads and their employees. In this case, the Court looks at whether exercising stock options falls under compensation for taxing purposes.

This case emerges from Wisconsin and touches upon the scope of deference given to agency interpretations using Chevron deference. Chevron deference is a judicially created doctrine that requires courts to defer automatically to agency interpretations of statutes, even if a more reasonable interpretation exists creating a systematic disadvantage to the other party in the dispute.

Seven years ago, the Supreme Court upheld Chevron deference for tax cases in Mayo Foundation for Medical Education & Research v. United States. However, subsequent Court decisions reject the Chevron deference argument in the tax context. While the primary impact of this case will be on private-sector railroad employees, the Supreme Court’s decision could affect the doctrine of agency deference in future tax cases.

Meanwhile, the Wisconsin Supreme Court will also address agency deference in Tetra Tech Inc. v. Wisconsin Department of Revenue this year. The Supreme Court specifically requested parties brief the constitutionality of courts providing deference to agencies on questions of law. An amicus brief filed on behalf of 11 Wisconsin associations argues that, under the Constitution, judges, not unelected agency officials, hold the exclusive duty of saying what the law is. The Court held oral arguments in Tetra Tech this summer and is expected to issue a decision in the coming months.