Executive Summary
In the span of two weeks in the summer of 2026, two courts – the U.S. Tax Court and the U.S. Court of Federal Claims – struck down two different Treasury regulations under two different Internal Revenue Code provisions for strikingly similar reasons. In Siemens Medical Solutions USA, Inc. v. Commissioner and Keysight Technologies, Inc. v. United States, taxpayers successfully argued that Treasury had attempted to use regulations to address problems created by Congress through legislation, and that following the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo, Treasury could no longer do so unilaterally.
Together, the decisions provide an early look at how courts are approaching one of the more difficult legacies of the 2017 Tax Cuts and Jobs Act (TCJA): a set of interlocking international tax provisions with mismatched effective dates.
The TCJA moved the United States from a worldwide deferral system to a largely territorial system through three interlocking provisions: Section 245A, Section 965 and Section 951A. Their effective dates did not fully align. For fiscal-year controlled foreign corporations (CFCs), this created periods in which certain foreign income was not subject to the Mandatory Repatriation Tax (MRT), was not yet subject to GILTI, and could still potentially qualify for the Section 245A dividends-received deduction (DRD).
Treasury viewed this gap as an unintended loophole and sought to close it through regulations. The two 2026 decisions now raise an important question about the extent of Treasury’s authority to use regulations to address such legislative gaps.
Practically, taxpayers that reported additional income or accepted a reduced DRD under either invalidated regulation should evaluate refund claims or amended positions for open years, subject to the normal lookback rules under Section 6511(a). Other TCJA transition-era regulations relying on similar authority may also face challenges.
The Root of the Problem: TCJA’s Mismatched Effective Dates
The issue begins with how Congress structured the TCJA.
Section 951A introduced the Global Intangible Low-Taxed Income (GILTI) regime, under which a U.S. shareholder’s controlled foreign corporations’ tested income is taxed currently in the year earned rather than when repatriated. It became effective for foreign corporation tax years beginning after December 31, 2017.
Section 245A introduced a 100% dividends-received deduction for certain dividends received by a U.S. corporation from a foreign subsidiary. It applied to distributions made after December 31, 2017.
Section 965, meanwhile, generally imposed a one-time Mandatory Repatriation Tax on certain previously untaxed foreign earnings, using statutory measurement dates in 2017.
For calendar-year taxpayers, these provisions and their effective dates mostly aligned. The problem became more pronounced for taxpayers with fiscal-year foreign subsidiaries.
Because the provisions were negotiated separately between the House and Senate versions of the legislation, their effective dates were not identical. For fiscal-year CFCs, this created windows of time in which certain foreign income was not taxed under the MRT, was not yet subject to GILTI, and could still qualify for the full Section 245A DRD when distributed.
Treasury viewed this as an unintended loophole and an opportunity for abuse. Rather than seeking a statutory amendment from Congress, Treasury issued regulations intended to close the gap.
That approach became particularly significant after the Supreme Court changed the framework governing how courts review agency regulations.
For roughly forty years, courts applied the two-step framework established by Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. Where a statute was silent or ambiguous on a particular issue and an agency’s interpretation was reasonable, courts generally deferred to the agency’s interpretation.
That changed in 2024 with Loper Bright Enterprises v. Raimondo. The Supreme Court overruled Chevron and held that courts must exercise independent judgment in determining whether an agency has acted within its statutory authority. Statutes have a single best meaning, and resolving that meaning is a judicial function rather than one delegated automatically to an agency whenever statutory language is ambiguous.
Loper Bright did not eliminate all consideration of agency interpretations. It preserved the principle from Skidmore v. Swift & Co., under which an agency’s interpretation may be persuasive depending on factors such as the thoroughness of its reasoning, consistency and logical validity. But Skidmore does not operate as a tie-breaker in favour of the agency. A court may still reject the agency’s position.
This distinction matters for tax regulations because Treasury has historically relied on broad rulemaking provisions, including Section 7805(a), which authorizes “needful rules and regulations,” and Section 245A(g), which permits “necessary or appropriate” regulations. In a post-Chevron environment, however, courts must independently determine whether the statute actually delegates the specific authority Treasury is exercising.
Case One: Keysight and the “Disqualified Basis” Rule
Keysight Technologies, Inc. & Subsidiaries v. United States, decided by the U.S. Court of Federal Claims on July 2, 2026, involved a fiscal-year multinational technology company with foreign subsidiaries in Singapore.
Keysight sought a Section 197 amortization deduction when computing its GILTI inclusion under Section 951A for the 2020–2022 tax years. Treasury Regulation §1.951A-2(c)(5), however, prevented certain deductions or losses attributable to “disqualified basis” from being treated as properly allocable to income taxed under GILTI.
The disqualified basis arose through certain related-party asset transfers during a fiscal-year CFC’s gap period. Under Section 951A(c)(2)(A)(ii), tested income is determined by reducing gross income by deductions properly allocable to that income under rules similar to Section 954(b)(5).
Keysight challenged the regulation, arguing that it contradicted the statute, exceeded Treasury’s authority and violated the Administrative Procedure Act.
The Court of Federal Claims agreed with Keysight.
The court considered Treasury’s asserted sources of authority individually. It concluded that Section 7805(a)’s general rulemaking authority was not sufficient on its own. Allowing Treasury to determine both what rules are “needful” and what those rules should provide, without a meaningful statutory limitation, would undermine the framework established by Loper Bright.
The court also found that the more specific provisions cited by Treasury did not clearly delegate the necessary authority. Former Section 951A(d)(4) was limited to Qualified Business Asset Investment (QBAI) rules and did not extend to the deduction-allocation issue. Section 954(b)(5) provided rulemaking authority for a different provision – foreign base company income—not GILTI. The reference in Section 951A(c)(2)(A)(ii) to “rules similar to” Section 954(b)(5) adopted the methodology for identifying deductions, but did not import the underlying regulatory authority.
Treasury’s position also did not receive sufficient support under Skidmore. Even when considered as persuasive rather than controlling, the interpretation of “properly allocable” was found unpersuasive and inconsistent with the phrase’s use elsewhere in the Code, where it had historically reflected a factual relationship between a deduction and the income it supports.
The court also rejected revenue concerns as a substitute for statutory authority. The record reflected Treasury’s concern about lost revenue, but the court noted that which party benefits financially from the ruling was not the court’s concern.
The result was that the regulation was held invalid, the government’s cross-motion for summary judgment was denied, and Keysight’s motion was granted.
Case Two: Siemens and the Extraordinary Disposition Rules
The second case, Siemens Medical Solutions USA, Inc. and Consolidated Subsidiaries v. Commissioner, was decided by the U.S. Tax Court on July 15, 2026.
Siemens Medical Solutions, a U.S. subsidiary of Germany’s Siemens Healthineers, held a majority interest in a Dutch holding company, SMS BVI. In April and August 2018, SMS BVI sold two foreign subsidiaries to related Siemens entities, increasing its earnings and profits by approximately €819 million.
In March 2019, SMS BVI made a large pro rata distribution to its shareholders. Siemens’ U.S. group received approximately $670.6 million, entirely foreign-sourced, and claimed the full Section 245A deduction. Siemens disclosed its position on Form 8275-R because it believed Treasury’s regulation was invalid.
The IRS nevertheless disallowed approximately $315 million of the deduction, relying on Treasury’s temporary “Extraordinary Disposition Rules” under Temp. Treas. Reg. §1.245A-5T. Issued in June 2019 and applied retroactively, the rules limited the DRD for dividends traceable to certain related-party asset sales occurring during a defined “disqualified period” – the gap between the MRT measurement date and the beginning of the GILTI regime for fiscal-year CFCs.
The Tax Court sided with Siemens.
The court first found that the statutory text was unambiguous. Section 245A applied, by its plain terms, to qualifying dividends from distributions made after December 31, 2017. Siemens’ dividend satisfied the statutory requirements.
The court also considered Congress’s choices regarding effective dates. The House and Senate versions of the TCJA had proposed different effective dates for Section 245A, and the same was true for GILTI. Congress ultimately selected the effective dates that became law. According to the court, where Congress had options and selected one, courts should respect that choice rather than assume that the resulting gap was an oversight.
Treasury’s reliance on Section 245A(g) also did not save the regulation. Unlike general housekeeping authority, Section 245A(g) is a specific grant allowing regulations “necessary or appropriate” to carry out Section 245A, including anti-abuse rules.
The Tax Court nevertheless concluded that the Extraordinary Disposition Rules fell outside that authority. Treasury’s preamble justified the rules by referring to the integrated structure of the TCJA and presumed congressional intent rather than the actual statutory text of Section 245A. A regulation that contradicts the plain terms of the statute, the court concluded, cannot be considered necessary or appropriate simply because its policy objective is reasonable.
The court also relied on its recent decision in Varian Medical Systems v. Commissioner, which had invalidated another Treasury regulation addressing the same underlying issue: using regulation to fill an effective-date gap created by Congress.
The result was significant for Siemens: it retained the full approximately $670.6 million deduction, and the Extraordinary Disposition Rules did not apply.
Illustrative Comparison
Viewed together, Siemens and Keysight are not identical, but they follow a strikingly similar pattern.
In Siemens, the provision at issue was the Section 245A dividends-received deduction. The underlying problem arose from mismatched effective dates among Sections 245A, 965 and 951A. Treasury responded with the Extraordinary Disposition Rules, which imposed a 50% DRD haircut. Treasury relied on Section 245A(g)’s “necessary or appropriate” authority. The regulation was invalidated, allowing the full deduction, with Varian Medical Systems serving as an important precedent.
In Keysight, the provision at issue was the Section 951A GILTI computation. The root cause was the mismatched GILTI effective date for fiscal-year and calendar-year CFCs. Treasury responded through the “disqualified basis” allocation rule, which disallowed the relevant deduction. Treasury relied on Section 7805(a), Section 954(b)(5) and Section 951A(c)(2)(A)(ii). That regulation was also invalidated, restoring the deduction.
The broader pattern is important. In both cases, Treasury identified a genuine policy concern: a transition period created by the TCJA could allow certain income to escape taxation under the MRT and GILTI regimes while still receiving favourable treatment under Section 245A or through the GILTI computation.
Treasury attempted to address that concern through regulations. The courts, applying the post-Loper Bright framework, concluded that broad or adjacent statutory authority was not enough to override the statutory text.
Conclusion/ Key Takeaways
For practitioners and taxpayers, several points stand out.
First, other TCJA transition-era regulations may now be exposed to similar challenges. Regulations that rely primarily on general rulemaking authority under Section 7805(a), or on a “necessary or appropriate” grant, to override a specific effective date or literal statutory result may face greater scrutiny.
Second, Keysight indicates that Skidmore may not rescue a regulation where Treasury’s interpretation lacks persuasive force. An agency’s informed judgment is not enough if its reasoning is weak or driven by policy concerns such as lost revenue rather than the statutory text.
Third, taxpayers with similar fact patterns may have new leverage. Companies that were denied deductions or DRD benefits because of gap-period regulations under Section 245A, Section 951A or related provisions may have a credible path to challenge those determinations.
Finally, the longer-term direction remains open. Both decisions are potentially appealable: Siemens through the Tax Court appellate process and Keysight to the Federal Circuit. Whether the emerging trend continues may depend on how the appellate courts and Treasury respond.
For now, however, the message from both courts is consistent: when Treasury attempts to repair a legislative seam through regulation, the statutory text – not the broader coherence of the tax scheme Treasury believes Congress intended – controls.
FAQs
What are the TCJA “gap periods”?
The TCJA created mismatched effective dates among Sections 245A, 965 and 951A. For certain fiscal-year CFCs, this resulted in periods when some foreign income was not subject to the MRT, was not yet subject to GILTI, and could still potentially qualify for the Section 245A DRD.
What did the Siemens case decide?
The U.S. Tax Court held Treasury’s Extraordinary Disposition Rules invalid. Siemens therefore retained the full approximately $670.6 million Section 245A deduction.
What did the Keysight case decide?
The U.S. Court of Federal Claims held Treasury Regulation §1.951A-2(c)(5), concerning deductions or losses attributable to disqualified basis, invalid. Keysight’s motion was granted and the government’s cross-motion for summary judgment was denied.
Why is Loper Bright important to these cases?
Loper Bright overruled Chevron and requires courts to independently determine whether an agency has acted within its statutory authority. Courts no longer automatically defer to a reasonable agency interpretation merely because statutory language is ambiguous.
Could other TCJA transition-era regulations be challenged?
The source identifies other TCJA transition-era regulations as potentially exposed where they rely primarily on general rulemaking authority or a “necessary or appropriate” grant to override a specific effective date or literal statutory result.
What should taxpayers affected by these regulations consider?
Taxpayers that took a reduced DRD or reported additional income under either invalidated regulation should evaluate refund claims or amended positions for open years, subject to the normal Section 6511(a) lookback rules.
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Disclaimer: This article is intended for general guidance only and should not be considered tax advice or an opinion. On any specific matter, reference should be made to the appropriate advisor.
