Courts Apply Loper Bright to Strike Down Treasury Regulations on TCJA Effective-Date Mismatches

Two recent decisions each address effective-date mismatches under the TCJA: Siemens Medical Solutions USA Inc. v. Comm’r, 167 T.C. No. 5 (2026) (Siemens Healthineers) and Keysight Technologies, Inc. & Subsidiaries v. United States, No. 25-137 (Fed. Cl. July 2, 2026) (Keysight). These mismatches trace back to the way the TCJA itself was structured. Congress enacted numerous international tax provisions that became effective on different dates. In certain circumstances, those staggered effective dates allowed taxpayers to obtain favorable tax results that would not have been available had all of the relevant provisions become effective simultaneously. Treasury subsequently issued regulations designed to prevent taxpayers from obtaining those benefits.

In Siemens Healthineers, the Tax Court’s analysis largely followed its earlier decision in Varian Medical Systems, Inc. v. Commissioner, 163 T.C. 76 (2024), which involved substantially similar issues arising from the interaction of §§ 245A and 951A. The Tax Court reasoned that Treasury cannot unilaterally change the plain meaning of a statute through regulations. The Keysight decision also held in favor of the taxpayer on a plain meaning interpretation of the statutes. Keysight is particularly notable because it directly addresses the IRS’s longstanding argument that Tax Code § 7805 gives the Service broad authority to issue regulations, and it concerns an express delegation under any tax statute (including the statute at issue in the case).

Siemens Healthineers: Tax Court Upholds § 245A Deduction Despite Treasury’s Extraordinary Disposition Rules

Siemens Healthineers concerns a fiscal year taxpayer that claimed a § 245A deduction before the effective date of § 951A for an intercompany restructuring. The IRS challenged their deduction under Treasury’s temporary § 245A regulations (known as the extraordinary disposition rules). The extraordinary disposition rules were Treasury’s attempt to, through regulations, deny deductions that were expressly allowed under the text of the Code under the argument that the “intent” of the statute aligned with regulations, not the Code. Indeed, in the preamble to the extraordinary disposition rules, Treasury noted that “this integrated set of statutory rules can be reasonably understood to require that the deduction not apply to earnings and profits attributable to income of a type that is properly subject to the subpart F or GILTI regimes, which address base erosion-type income. Otherwise, as explained in Part II of this Explanation of Provisions, the section 245A deduction could undermine the anti-base erosion measures that Congress intended to prevent income shifting.” The entire Tax Court held 17-0 in favor of the taxpayer that Treasury cannot change the plain meaning of the statute by promulgating a regulation. Citing Varian, which had facts quite similar to Siemens Healthineers, the Tax Court held that “[c]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there,” and under the now-operative framework of Loper Bright, the role of the reviewing court is to recognize express delegations of authority (if constitutional) and to ensure an agency has engaged in reasoned decision-making within the boundary of those delegations.

Keysight: Court of Federal Claims Rejects Disqualified Basis Regulations for Lack of Express Delegation Under § 951A

Unlike Siemens Healthineers and Varian, Keysight required the court to address not only the statutory text, but also the government’s argument that Congress had affirmatively delegated regulatory authority to Treasury. The court nevertheless concluded that Treasury lacked authority to promulgate the challenged regulation.

In Keysight, the taxpayer challenged the disqualified basis regulations under Treas. Reg. § 1.951A-2(c)(5). Keysight, a fiscal-year taxpayer, engaged in an internal restructuring, exchanging assets for intercompany debt of $8.5 billion, with the recipient receiving a cost basis in assets with no corresponding Global Intangible Low-Taxed Income (GILTI) inclusion as the internal restructuring occurred during the effective date mismatch period where § 245A (allowing a tax-free dividend) applied but § 951A (mandating a GILTI inclusion) did not. The taxpayer sought (in a refund claim) to claim a § 197 amortization deduction in computing its GILTI inclusion: a deduction permissible under the statute, but not under regulations promulgated by Treasury that are known as the disqualified basis regulations.

The government’s principal defense was that § 951A incorporates the express delegation language of § 954(b)(5), which authorizes Treasury to determine which deductions are “properly allocable” to certain categories of subpart F income. According to the government, that delegated authority carried over to the GILTI regime through § 951A(c)(2)(A), which cross-references § 954(b)(5) such that deductions properly allocable to gross income would be determined “under rules similar to the rules of section 954(b)(5).” The Court of Federal Claims rejected the government’s contention that the cross-reference to § 954(b)(5) includes an express delegation of rulemaking authority for purposes of § 951A, reasoning that § 954(b)(5)’s delegation applies only “[f]or purposes of subsection (a),” which concerns foreign base company income rather than GILTI.

Even if a reviewing court were to conclude that the § 954(b)(5) delegation carries over to § 951A, substantial questions would remain regarding whether the disqualified basis regulations fall within the scope of that delegated authority. Section 954(b)(5) has always determined which deductions are “properly allocable” to income based on the “factual relationship” test, where a deduction is permitted if there is a factual relationship between the deduction and the item of income.[1] Because the delegation in the plain language of § 951A(c)(2)(A)(ii) specifically makes clear that rules “similar to” the rules of § 954(b)(5) should be applied for purposes of determining deductions properly allocable to tested income, and § 954(b)(5) applies the “factual relationship” test and contains no rules even remotely similar to the disqualified basis regulations, the Department of Justice’s argument would similarly fail.[2]

The government argued at length that Treasury had authority to issue the disqualified basis regulation under § 7805(a); that § 7805 is of “great utility” when Treasury issues a regulation that is prompted by a change in law; and that the regulation achieves this harmony by providing rules “similar to” rules in § 954(b)(5) to allocate deductions. The Court of Federal Claims rejected this argument, expressly holding that § 7805(a) alone, without a specific delegation, is not sufficient under Loper Bright.

Key Takeaways

Together, Siemens Healthineers and Keysight suggest that courts applying Loper Bright may closely scrutinize Treasury regulations that depart from the statutory text. The cases also indicate that courts may require Treasury to identify a clear and specific delegation of authority before affording weight to regulatory interpretations that narrow taxpayer-favorable results arising from the Internal Revenue Code itself.

[1] Regulations under § 954(b)(5) generally provide that deductions against foreign base company income are allocated “under the principles of sections 861, 864, and 904(d).” Treas. Reg. § 1.954-1(c)(1)(i)(B). Regulations under § 861 further provide that a deduction is allocable to income when it has a “factual relationship” to that income. Treas. Reg. § 1.861-8(a)(2).

[2] Treasury has also applied the “factual relationship” test in the FDII context, further undercutting the Department of Justice’s argument. Section 250(b)(3)(A)(ii), similar to § 951A(c)(2), provides that deduction eligible income includes certain types of gross income less the deductions “properly allocable” to such gross income. In regulations, Treasury provides that deductions “properly allocable” to deduction eligible income apply the rules of Treasury Regulations § 1.861-8 through 14T and 17.