The U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo fundamentally altered administrative law by overruling Chevron deference to agency interpretations and leaving to courts the responsibility to independently determine the meaning of statutes. In recent decisions, the Tax Court, in Siemens Medical Solutions USA Inc. v. Commissioner, and the Court of Federal Claims, in KeySight Technologies Inc. v. United States, rely on Loper Bright to invalidate Treasury regulations the courts viewed as attempts to alter outcomes dictated by statute.
Both Siemens and KeySight involved Treasury regulations designed to fill perceived gaps created by effective dates in the Tax Cuts and Jobs Act of 2017 (TCJA).
In Siemens, the Extraordinary Disposition Rules under then-temporary Treas. Reg. § 1.245A-5T sought to limit the Section 245A dividends-received deduction for foreign corporations that engaged in certain related-party transactions during a “disqualified period” spanning the measurement date for mandatory repatriation tax under Section 965 and the commencement of the then-GILTI regime under Section 951A. In KeySight, Treas. Reg. § 1.951A-2(c)(5) aimed to prevent taxpayers from using deductions associated with assets transferred during a GILTI “gap period” to reduce tested income.
In both cases, Treasury’s position was fundamentally the same: The TCJA created an unintended loophole, particularly for fiscal year taxpayers, and the regulations merely sought to close the loophole and deny supposedly undue benefits based on Congress’s broader legislative purposes.
The Tax Court’s Approach in Siemens: Emphasis on Clear Statutory Text
The Tax Court’s unanimous, reviewed opinion in Siemens applied Loper Bright to conclude that the Extraordinary Disposition Rules contravened the plain text of the statute. The court held that Section 245A plainly allowed a 100% deduction for qualifying dividends and that Treasury lacked authority to impose a 50% limitation with no basis in the statutory text.
Citing legislative history to the TCJA (including differences among the House and Senate versions), the court emphasized that Congress deliberately selected different effective dates for Sections 245A, 965, and 951A and chose not to eliminate the mismatch. Because Treasury’s Extraordinary Disposition Rules existed solely to neutralize the consequences of those chosen effective dates, the regulations conflicted with the statute itself.
The Tax Court expressly invoked Loper Bright, noting that a reviewing court’s role is to “independently interpret the statute and effectuate the will of Congress.” The court concluded that Treasury was not simply filling in statutory gaps; rather, it had imposed an entirely new limitation on the availability of the Section 245A deduction: “Treasury is not trying to construe the language of [S]ection 245A. Instead, Treasury is trying to correct the mismatch in effective dates by changing the plain meaning of the statute.” Because the regulation contradicted unambiguous statutory language, it could not survive judicial review, and the court did not reach the question of whether the regulation met Administrative Procedure Act requirements.
The Court of Federal Claims’ Approach in KeySight: Delegation of Authority Matters
While the Tax Court in Siemens focused primarily on statutory text, the Court of Federal Claims in KeySight focused more on congressional delegation of authority. The opinion opened by observing that “[w]hen Chevron fell, so too did the presumption that statutory ambiguity favors the agency.” The opinion repeatedly returned to the question of whether Congress actually delegated authority to Treasury to promulgate the challenged regulation.
Treasury relied primarily on two bases for its regulatory authority: First, Section 7805(a)’s authorization for Treasury to issue “needful rules and regulations” supplied sufficient authority; and second, the reference in Section 951A(c)(2)(A)(ii) to deductions “properly allocable” to tested income implicitly authorized Treasury to define that term.
The court rejected both. The opinion concluded that general rulemaking authority under Section 7805(a), alone, cannot justify substantive tax regulations, observing that “if Section 7805(a) broadly delegates authority to promulgate binding substantive tax regulations whenever the Treasury Department deems them ‘needful,’ then there would be no reason for Congress to expressly authorize substantive rulemaking elsewhere in the United States Code.” According to the court, accepting Treasury’s position would render Loper Bright “meaningless” because agencies could always characterize their preferred policy outcomes as needful.
The court also rejected the notion that reference to properly allocable deductions implicitly delegated broad policymaking authority to Treasury. Rather than deferring to Treasury’s interpretation, the court independently analyzed the statutory language and historical regulatory context. It ultimately concluded that Treasury’s interpretation lacked persuasive force even under the principles of the Supreme Court’s 1944 decision in Skidmore v. Swift Co., which cast agency interpretations as “a body of experience and informed judgment to which courts and litigants may properly resort for guidance” with potential “power to persuade, if lacking power to control.”
The opinion’s most striking statement may be its conclusion that allowing Treasury to define terms the agency “deems ambiguous, untethered to congressional grants of authority or the underlying statutory context, is precisely the kind of agency overreach Loper Bright was designed to foreclose.”
Impact on Future Tax Litigation
These decisions will likely have significant implications for future challenges to Treasury regulations. First, both opinions suggest that courts may be skeptical of Treasury regulations designed to cure perceived drafting mistakes, statutory gaps, or effective-date mismatches. If Congress enacted the result a taxpayer claims, courts may be reluctant to allow Treasury to alter it. Second, Keysight indicates that generally delegated authority under Section 7805(a) may carry substantially less weight after Loper Bright than Treasury has historically assumed. Courts may increasingly require Treasury to identify a specific statutory delegation as a threshold to sustaining substantive regulations.
Finally, both opinions suggest a renewed focus on statutory text even as a court may consider materials beyond it, such as legislative history. Treasury’s appeals to legislative purpose, anti-abuse concerns, and overall statutory structure were insufficient when the courts believed the enacted text pointed in a different direction.
If you have any questions, or would like additional information, please contact one of the attorneys on our Federal & International Tax team.
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