United States Tax Court

United States Tax Court

T.C. Memo. 2026-84

SYSCO CORPORATION,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 5728-23.

Filed September 14, 2026.

__________

Joseph B. Judkins, George M. Clarke III, Cameron C. Reilly, and Varuni

Balasubramaniam, for petitioner.

Jan M. Geht, H. Barton Thomas, Justyna W. Jozwik, Le Chen, Shane M.

Ward, and Steven L. Williams, for respondent.

MEMORANDUM OPINION

TORO, Judge: This deficiency case concerns issues identical to

those we addressed in Varian Medical Systems, Inc. & Subs. v.

Commissioner (Varian I), 163 T.C. 76 (2024) (reviewed), and Varian

Medical Systems, Inc. & Subs. v. Commissioner (Varian II), No. 843523, 166 T.C. (Apr. 8, 2026).

In Varian I, 163 T.C. at 89, we held that, for a taxpayer in

materially the same position as Sysco Corporation (Sysco) (the

petitioner here), section 245A 1 authorized a deduction for certain

amounts treated as dividends under section 78. We also held that

section 245A(d) limited the amount of foreign tax credits such taxpayers

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, and regulation

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all

relevant times.

Served 09/14/26

2

[*2] could claim and set out a formula for computing the disallowed

amount. Varian I, 163 T.C. at 110–12.

In Varian II, 166 T.C., slip op. at 20, we held that section 246(c)(1)

limits the deduction available under section 245A to amounts treated as

dividends on shares directly held by the relevant taxpayer. We further

held that the formula used to compute the foreign tax credit

disallowance under section 245A(d)(1) must include the postsection 965(c) amount in the denominator of the fraction. Varian II, 166

T.C., slip op. at 33.

After we issued Varian I, we sought Sysco’s and the

Commissioner’s views on Varian I’s application to the Motions they had

previously filed on the same issues (the first set of Motions). They

agreed that the Motions could be decided by following Varian I. So, we

resolved those Motions by order. See Order (Sep. 13, 2024) (granting in

part and denying in part the parties’ cross-motions for partial summary

judgment).

After we issued Varian II, we again sought the parties’ views on

whether two pairs of Cross-Motions for Partial Summary Judgment,

which are now pending before us (the second set of Motions), could be

resolved by following Varian II. The Commissioner told us they could.

Sysco, by contrast, told us they could not. In Sysco’s view, the

interpretation we set out in Varian II is wrong in light of additional

arguments not made by the taxpayer in Varian II.

As we show below, the taxpayer in Varian II did not miss any

winning arguments, and any additional arguments Sysco offers are

unpersuasive. The holdings in Varian II suffice to resolve the CrossMotions now before us. We will therefore grant the Commissioner’s

Motions and deny Sysco’s.

Background

The following facts are derived from the parties’ pleadings and

Motion papers, as well as their First Stipulation of Facts together with

Exhibits. These facts are stated solely for the purpose of ruling on the

Cross-Motions before us and not as findings of fact in this case. See

Rowen v. Commissioner, 156 T.C. 101, 103 (2021) (reviewed).

As relevant to the issues we analyze here, the facts of this case

are substantially similar to those we described in Varian I and II.

Namely, Sysco is a U.S. corporation that is the common parent of a

3

[*3] worldwide group of affiliates. 2 For the taxable year 2018, Sysco and

certain of its affiliates were fiscal year, rather than calendar year,

taxpayers.

During the taxable year 2018, Sysco also directly and indirectly

owned foreign corporations that were treated as specified foreign

corporations under section 965(e). 3 Some of Sysco’s specified foreign

corporations included deferred foreign income in their subpart F income

under section 965(a), and foreign taxes related to those amounts were

deemed paid by Sysco under sections 902 and 960. Sysco elected to claim

foreign tax credits for 2018 and, under section 78, was required to

include in income as a dividend an amount equal to the foreign taxes

deemed paid. On its return, Sysco did not claim the dividends received

deduction under section 245A with respect to any amounts treated as

dividends under section 78.

The Commissioner examined Sysco’s federal income tax return

and issued a Notice of Deficiency. Sysco timely petitioned our Court to

redetermine the deficiency. In its Petition, Sysco alleged for the first

time that the Commissioner “erred by not accounting for a section 245A

dividends received deduction for section 78 dividends in an amount of

not less than $323,924,795.” Pet. at 9.

After we issued Varian I, Sysco filed a Motion for Partial

Summary Judgment regarding the proper application of section 245A(d)

to the facts here. The Commissioner filed a Cross-Motion for Partial

Summary Judgment. The parties filed their respective Responses and

Replies.

On the same day that Sysco filed its Motion for Partial Summary

Judgment regarding section 245A(d), the Commissioner filed a Motion

for Partial Summary Judgment regarding the proper application of

section 246(c)(1) to the facts here. In time, Sysco filed a Cross-Motion

2 Sysco’s principal place of business is in Houston, Texas. Absent stipulation

to the contrary, see I.R.C. § 7482(b)(2), appeal of this case would lie to the U.S. Court

of Appeals for the Fifth Circuit, see I.R.C. § 7482(b)(1).

3 For background on the technical terms used in this paragraph and elsewhere

in this Opinion, see Varian I and II.

4

[*4] for Partial Summary Judgment. The parties filed their respective

Responses and Replies. 4

As we have discussed, after we issued Varian I, the parties in that

case filed similar motions addressing the same issues under

sections 246(c)(1) and 245A(d).

In April 2026, the Court issued Varian II, which resolved the

issues under sections 246(c)(1) and 245A(d) in the Commissioner’s favor.

By Order served shortly thereafter, we asked Sysco and the

Commissioner to address the effect of the opinion on their pending

Cross-Motions in this case.

The parties filed a joint response to the Court’s Order that

included views from both Sysco and the Commissioner. Sysco asserted

that “[its] motions and cross-motions for partial summary judgment

pending in this case raised arguments that the taxpayer in Varian did

not raise and that impact the Court’s conclusions.” Joint Resp. to Order

at 3 (May 20, 2026). The Commissioner asserted that “[t]he Court’s

decision . . . resolves the questions presented in the motions, and crossmotions, filed by the parties.” Id. at 6.

In light of the joint response, the Court held a hearing to give the

parties the opportunity to present their arguments, with a focus on

arguments that differed from those presented in Varian II.

Discussion

The Court’s opinions in Varian I and II included a comprehensive

review of the applicable law, which we will not repeat here. The opinions

also included a comprehensive review of the factual background in that

case. As relevant to our legal analysis, the corporate structure here is

materially the same as the structure described in Varian I and II, and

the applicable law is identical.

We now address Sysco’s claim that the outcome in Varian II

should be revisited because the taxpayer there missed winning

4 Taken together, these Cross-Motions constitute the second set of Motions filed

in this case, as we describe in the introduction above. The parties filed the first set of

Motions, which we do not address further here, before we issued our opinion in

Varian I.

5

[*5] arguments on both the section 246(c)(1) issue and the section

245A(d) issue. We disagree, as we explain below.

I.

Section 246(c)(1)

In Varian II, we described section 246(c)(1) as follows:

Section 246 sets out certain rules that limit the

deductions available to taxpayers under [sections 243, 245,

and 245A]. Relevant here are the holding periods provided

in section 246(c). Specifically, section 246(c)(1) provides

that “[n]o deduction shall be allowed under section 243[,]

245, or 245A, in respect of any dividend on any share of

stock . . . which is held by the taxpayer” for fewer than a

specified number of days within a defined window that

straddles the “ex-dividend” date. 5

For purposes of

section 245A deductions, section 246(c)(5) modifies the

holding period: Paragraph (5)(A) increases the period’s

duration and paragraph (5)(B) establishes that ownership

thresholds set by section 245A must also be maintained at

all times during the period.

Varian II, 166 T.C., slip op. at 6 & n.4 (original footnote renumbered).

As described above, we went on to hold that section 246(c)(1)

limits the deduction available under section 245A to amounts treated as

dividends on shares directly held by the relevant taxpayer. Varian II,

166 T.C., slip op. at 20.

Sysco offers three principal arguments in support of its view that

Varian II incorrectly interpreted section 246(c)(1). We address each in

turn.

A.

“Held by the Taxpayer” and “U.S. Shareholder”

Sysco’s first argument with respect to section 246(c)(1) centers on

the phrase “held by the taxpayer.” In Sysco’s view, the phrase, at least

as applied to this case, can only mean “held by a U.S. shareholder within

5 “The ex-dividend date is ‘“[t]he date on or after which the buyer of a security

does not acquire the right to receive the recently declared dividend.”’ Ex-Dividend

Date, Black’s Law Dictionary (12th ed. 2024). The parties do not seem to dispute that

the section 78 dividends at issue are deemed paid to the U.S. shareholder on the last

day of the CFC’s taxable year. See I.R.C. § 951(a)(1); Treas. Reg. § 1.78-1(d)(2).”

6

[*6] the meaning of section 951(b).” And, Sysco says, because section

951(b) contemplates indirect ownership, so must section 246(c)(1).

Sysco’s analysis runs as follows. The operative provision here is

section 245A, and, under the terms of that section, only a U.S.

shareholder of a specified foreign corporation is eligible to claim a

deduction. See I.R.C. § 245A(a). 6 The term “U.S. shareholder” is defined

in section 951(b), which, Sysco highlights, applies “[f]or purposes of this

title” (that is, the entire Code).

Section 951(b) provides that “the term ‘[U.S.] shareholder’ means,

with respect to any foreign corporation, a [U.S.] person . . . who owns

(within the meaning of section 958(a)), or is considered as owning by

applying the rules of ownership of section 958(b),” at least ten percent of

the stock of the foreign corporation. Section 958(a) provides that, “[f]or

purposes of [subpart F] . . . stock owned means” stock owned directly and

stock owned directly or indirectly through a foreign corporation, foreign

partnership, foreign trust, or foreign estate. Section 958(b), which

applies for purposes of section 951(b) and a few other provisions,

overlays the constructive ownership rules of section 318(a).

Putting all this together, Sysco points out that, under

section 951(b), a U.S. shareholder of a foreign corporation is a U.S.

person who owns, either directly under section 958(a)(1)(A), indirectly

through a foreign entity under section 958(a)(1)(B) and (2), or

constructively under section 958(b), ten percent or more of the foreign

corporation’s stock. On this much there is no dispute.

But we do not share Sysco’s view on the significance of these

observations in the context of section 246(c)(1). According to Sysco,

when the provision says a share of stock must have been “held by the

taxpayer” for a specified number of days, it means that it must have

been owned by a U.S. shareholder within the meaning of section 951(b).

And, in Sysco’s view, because the definition under section 951(b)

incorporates the indirect and constructive ownership rules in

section 958(a) and (b), stock owned directly, indirectly through a foreign

entity, or constructively must all be taken into account for purposes of

6 Section 245A(a) provides as follows:

Sec. 245A(a). In general.—In the case of any dividend received

from a specified 10-percent owned foreign corporation by a domestic

corporation which is a [U.S.] shareholder with respect to such foreign

corporation, there shall be allowed as a deduction an amount equal to

the foreign-source portion of such dividend.

7

[*7] applying section 246(c)(1) to a U.S. shareholder. In other words,

Sysco argues that the phrase “held by the taxpayer” in section 246(c)(1)

imports the ownership standards of section 958.

If this interpretation were adopted, Sysco would win on this issue.

But Sysco’s interpretation is erroneous.

We begin as always with the text. Twitter, Inc. v. Taamneh, 143

S. Ct. 1206, 1218 (2023); see also Food Mktg. Inst. v. Argus Leader

Media, 139 S. Ct. 2356, 2364 (2019) (“In statutory interpretation

disputes, a court’s proper starting point lies in a careful examination of

the ordinary meaning and structure of the law itself.” (citing Schindler

Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 407 (2011)));

AbbVie Inc. & Subs. v. Commissioner, 164 T.C. 340, 352 (2025). And,

when the statute does not define a term, “we ask what that term’s

‘ordinary, contemporary, common meaning’ was when Congress

enacted” the relevant provision. Food Mktg. Inst., 139 S. Ct. at 2362

(quoting Perrin v. United States, 444 U.S. 37, 42 (1979)); see also

Dynamo Holdings Ltd. P’ship v. Commissioner, 150 T.C. 224, 234 (2018)

(reviewed).

The phrase “held by the taxpayer” is not defined by the Code, but

“taxpayer” is. As we discussed in Varian II, section 7701(a)(14) defines

“taxpayer” as “any person subject to any internal revenue tax.” The

term is not limited to a U.S. shareholder, as Sysco would have us hold.

This is strike one against Sysco’s interpretation.

As for the term “held,” as we also discussed in Varian II, ordinary

meaning, longstanding principles of law, and “statutory clues” in other

provisions of the Code all suggest that the term refers to the direct

ownership of stock. See Varian II, 166 T.C., slip op. at 10–13. Sysco’s

interpretation of section 246(c)(1) runs counter to those indicators of the

statute’s meaning.

The history of section 246(c)(1) further undermines Sysco’s

interpretation. Congress enacted section 246(c)(1) in 1958. The original

provision disallowed deductions under the then-existing sections 243,

244, and 245 for “any dividend on any share of stock . . . which is sold or

otherwise disposed of in any case in which the taxpayer has held such

share for 15 days or less.” I.R.C. § 246(c)(1) (1958). Because the

subpart F regime had not yet been enacted, the dividends received

deductions under sections 243, 244, and 245 had nothing to do with U.S.

shareholders under section 951(b) or indirect or constructive ownership

8

[*8] under section 958. See Revenue Act of 1962, Pub. L. No. 87-834,

§ 12(a), 76 Stat. 960, 1006 (introducing subpart F of part III, subchapter

N of chapter 1 of subtitle A of the Code). Indeed, sections 243, 244, and

245 did not include any reference to indirect or constructive ownership.

Congress amended section 246(c)(1) in the Tax Reform Act of

1986, Pub. L. No. 99-514, § 1804(b)(1)(A), 100 Stat. 2085, 2798, to more

closely resemble its current formulation. After that amendment, the

provision read as follows: “No deduction shall be allowed under

section 243, 244, or 245, in respect of any dividend on any share of stock

. . . [w]hich is held by the taxpayer for 45 days or less.” I.R.C. § 246(c)(1)

(1986). The 1986 text is identical to the current phrasing except that,

in the current list of provisions that potentially permit dividends

received deductions, section 244 has been replaced by section 245A. 7

In 1986, each of sections 243, 244, and 245 allowed corporate

taxpayers to claim a dividends received deduction subject to certain

conditions. But, as was the case in 1958, none of those conditions related

to subpart F or the definition of a U.S. shareholder under section 951(b).

At the same time, some of the conditions found in sections 243

and 245 supplied rules that contemplated indirect share ownership. 8

See, e.g., I.R.C. § 243(a)(3), (b)(1) and (2) (permitting an increased

deduction for dividends from members of the same affiliated group, as

defined by section 1504(a)); I.R.C. § 245(b)(1) (authorizing an increased

deduction if the recipient domestic corporation “owns (directly or

indirectly) all of the outstanding stock of [the payor] foreign corporation”

during the taxable year). That Congress had distinguished between

direct ownership, indirect ownership, and other ownership

requirements in neighboring provisions to section 246, and that it did

not adopt similar distinguishing terms in section 246(c)(1), further

supports our conclusion that section 246(c)(1) requires direct

ownership. 9 See also Varian II, 166 T.C., slip op. at 14–15 (discussing

7 Section 244, which previously provided a dividends received deduction for

dividends received on certain preferred stock, was repealed in 2014. See Act of Dec. 19,

2014, Pub. L. No. 113-295, div. A, § 221(a)(41)(A), 128 Stat. 4010, 4043.

8 For a discussion of how such provisions operate in tandem with the direct

ownership requirement of section 246(c)(1), see Varian II, 166 T.C., slip op. at 18–19.

9 Additionally, the legal landscape regarding indirect ownership was well

known by the time Congress amended section 246(c)(1)—without modifying the phrase

“held by the taxpayer”—in 2017. Before 2017, the Supreme Court decided Dole Food

Co. v. Patrickson, 538 U.S. 468 (2003). In that case, as we explained in Varian II, 166

9

[*9] other Code provisions in which “held” or variants thereof are used

in combination with the phrase “directly or indirectly”).

The history of section 246(c)(1) allows us to draw several

conclusions. First, when Congress adopted the phrase “held by the

taxpayer” in section 246(c)(1), subpart F concepts, including indirect and

constructive ownership under section 958(a) and (b), were not in the

picture. Second, Congress has in the past expressly differentiated

between direct and indirect ownership requirements in rules regarding

dividends received deductions. And third, as Congress amended

section 246(c)(1) through the years, it retained the phrase “held by the

taxpayer” rather than replacing it with more expansive terms or

incorporating tests from other provisions.

There is no indication that, when Congress amended

section 246(c)(1) to include section 245A in its list of covered provisions,

the meaning of “held by the taxpayer” changed to incorporate concepts

from subpart F. If that were true, the text of section 246(c)(1) would

adopt an entirely different meaning depending on the provision under

which the taxpayer claims a dividends received deduction. Specifically,

“held by the taxpayer” would mean “owned, as described in section 958,

by the U.S. shareholder as defined in section 951(b)” only when a

taxpayer claimed a dividends received deduction under section 245A.

This is not how statutes work. The text of section 246(c)(1) means

the same thing whether the relevant deduction is under section 243, 245,

or 245A. 10 Moreover, it means the same thing today as it did when it

was enacted—namely, that the taxpayer (i.e., the person subject to any

T.C., slip op. at 10–11, the Supreme Court held that indirect ownership was

insufficient to satisfy a statute that asked whether “a majority of . . . shares or other

ownership interest” in an entity “[was] owned by a foreign state or political subdivision

thereof.” Dole Food, 538 U.S. at 473 (quoting 28 U.S.C. § 1603(b)(2)). The Supreme

Court explained that “[a] corporate parent which owns the shares of a subsidiary does

not, for that reason alone, own or have legal title to the assets of the subsidiary; and,

it follows with even greater force, the parent does not own or have legal title to the

subsidiaries of the subsidiary.” Id. at 475. Nonetheless, when Congress amended

section 246(c)(1), it chose to leave the phrase “held by the taxpayer” untouched.

10 It is a “normal rule of statutory interpretation that identical words used in

different parts of the same statute are generally presumed to have the same meaning.”

IBP, Inc. v. Alvarez, 546 U.S. 21, 34 (2005); see also United States v. Castleman, 572

U.S. 157, 174 (2014) (Scalia, J., concurring in part and concurring in judgment)

(discussing the “presumption of consistent usage—the rule of thumb that a term

generally means the same thing each time it is used”). Sysco’s interpretation runs

against this presumption in the extreme, assigning different meanings to the same

statutory term depending on the circumstances in which it is applied.

10

[*10] internal revenue tax) who is claiming the deduction must have

held (i.e., owned) the share of stock on which the dividend was paid for

the required period. See New Prime Inc. v. Oliveira, 139 S. Ct. 532, 539

(2019) (“It’s a fundamental canon of statutory construction that words

generally should be interpreted as taking their ordinary meaning at the

time Congress enacted the statute.” (quoting Wis. Cent. Ltd. v. United

States, 138 S. Ct. 2067, 2074 (2018) (cleaned up))). And, for the reasons

explained in Varian II and in this discussion, that ownership must have

been direct.

The changes that Congress did make to sections 245A and 246(c)

in 2017 also suggest that Sysco’s interpretation of section 246(c)(1) is

incorrect. When Congress enacted the section 245A dividends received

deduction, it made that deduction subject to the requirements of

section 246(c)(1). And it added additional requirements applicable only

to deductions claimed under section 245A in section 246(c)(5). Neither

of these steps would have made sense if Sysco’s interpretation of

section 246(c)(1) were correct.

First, under Sysco’s interpretation, the holding period

requirements for section 245A would be unique to that section. The

meaning of “held” would be different, and the length of the period would

also be different. So there would have been little reason for Congress to

add the section 245A holding period requirements to section 246(c);

instead, Congress could have kept the requirements in section 245A. 11

See, e.g., Knight v. Commissioner, 552 U.S. 181, 188 (2008) (“The fact

that [Congress] did not adopt [a] readily available and apparent

alternative strongly supports rejecting [a] reading [that relies on the

rejected alternative text].”); Thomas v. Commissioner, 160 T.C. 371,

382–83 (2023) (reviewed) (same).

Second, Sysco’s interpretation would leave section 246(c)(5)(B)

with no work to do. Section 246(c)(5)(B) provides that, “[f]or purposes of

applying [section 246(c)(1)] with respect to section 245A, the taxpayer

shall be treated as holding the stock referred to in [section 246(c)(1)] for

any period only if” the U.S. shareholder and specified ten-percent owned

foreign corporation maintain those statuses “at all times during such

period.” Under Sysco’s reading, however, the “held by the taxpayer”

requirement in section 246(c)(1) is met if the taxpayer is a U.S.

11 The special holding period in section 246(c)(5)(A) renders section 246(c)(2)

inapplicable in the context of a section 245A deduction, as section 246(c)(5)(A)(ii)

recognizes. And if Congress had wanted to apply the rules of section 246(c)(3) and (4),

it could have done so by cross-reference to those provisions.

11

[*11] shareholder throughout the relevant holding period, leaving no

apparent room for a situation in which section 246(c)(1) and (5)(B) would

not operate in tandem. 12 Such a reading is not correct. See Pulsifer v.

United States, 144 S. Ct. 718, 731–32 (2024) (“When a statutory

construction renders an entire subparagraph meaningless, this Court

has noted, the canon against surplusage applies with special force.”

(cleaned up)). Moreover, as we discussed in Varian II, 166 T.C., slip op.

at 18, Congress’s use of “only if” in section 246(c)(5)(B) tells us that the

rule is an additional condition to the rule in section 246(c)(1). It does

not supplant it, as Sysco would have us believe. 13

Third, Sysco, like Varian, offers an interpretive framework in

which sections 243, 245, and 245A provide the “ownership proximity”

requirements while section 246(c) provides only “ownership duration”

requirements.

But section 246(c)(4) would seem to refute that

framework. Specifically, it excludes from the relevant holding period

any period in which a taxpayer has reduced its risk of loss with respect

to stock—for example, by acquiring an option to sell the stock or

granting an option to buy the stock (or substantially identical stock).

These rules go to the nature of the taxpayer’s ownership, contradicting

Sysco’s claims.

In short, Sysco’s valiant efforts to find a statutory hook for its

position do not carry the day. 14

12 Further, because section 245A(b) defines (subject to an exception for passive

foreign investment companies) a “specified 10-percent owned foreign corporation” as

“any foreign corporation with respect to which any domestic corporation is a [U.S.]

shareholder with respect to such corporation,” there is no doubt that

section 246(c)(5)(B)(i) and (ii) would both be satisfied.

This is in contrast to the rule in section 246(c)(5)(A)—the neighboring

subparagraph—which “substitut[es]” its contents for the rule in section 246(c)(1). In

other words, Congress knew how to replace the rule in section 246(c)(1) if it wanted to.

It opted to do so for the length of the holding period (section 246(c)(5)(A)) but not for

the meaning of “held” (section 246(c)(5)(B)). See Digital Realty Tr., Inc. v. Somers, 583

U.S. 149, 161 (2018) (“[W]hen Congress includes particular language in one section of

a statute but omits it in another[,] . . . this Court presumes that Congress intended a

difference in meaning.” (quoting Loughrin v. United States, 573 U.S. 351, 358 (2014))).

13

14 Of course, there is no disagreement that indirect ownership is relevant to

the section 245A deduction. Indirect ownership counts for determining whether a

taxpayer is a U.S. shareholder with respect to a foreign corporation and thus eligible

to claim the deduction at all. For example, if a taxpayer owns 5% of a foreign

corporation’s stock directly and the remaining 95% indirectly, then the taxpayer is a

U.S. shareholder with respect to that corporation. Therefore, the taxpayer is eligible

12

[*12] B.

Treasury Regulation § 1.245A-5

Sysco’s next argument is that Treasury regulations concede that

section 245A authorizes a deduction for dividends received from

indirectly owned foreign corporations. Therefore, Sysco says, it does not

make sense to interpret section 246(c)(1) to preclude a deduction that

section 245A and the implementing Treasury regulations authorize.

The relevant portion of Sysco’s brief reads as follows:

Even Treasury and the IRS have acknowledged that

section 245A authorizes a [dividends received deduction]

for dividends received from indirectly owned foreign

corporations. Treas. Reg. § 1.245A-5(b)(1) provides that

“[a] section 245A shareholder is allowed a section 245A

deduction for any dividend received from [a specified

foreign corporation] . . . .” (Emphasis added.) And Treas.

Reg. § 1.245A-5(i)(21) defines the term “section 245A

shareholder” as “a domestic corporation that is a United

States shareholder with respect to [a specified foreign

corporation] and that owns directly or indirectly stock of

the [specified foreign corporation].” (Emphasis added.)

Consequently, Respondent’s own regulations confirm that

section 245A provides a deduction for dividends received

from indirectly owned foreign corporations.

Pet’r’s Br. in Supp. of Mot. for Partial Summ. J. 8.

The Commissioner does not dispute here that, in specified

circumstances, the deduction under section 245A may be available for

dividends treated as received with respect to shares held indirectly.

Hearing Tr. 39–40 (outlining the Commissioner’s view that the

references to indirect ownership in Treasury Regulation § 1.245A5(i)(21) were intended to accommodate potential deductions for amounts

treated as dividends under sections 964 and 1248); see also Treas. Reg.

§ 1.245A-5(g) (supporting the Commissioner’s contention). But, in the

Commissioner’s view, that is because of the specific text of sections 964

to claim the deduction with respect to dividends on shares in the corporation the

taxpayer owns directly. (Without including the indirectly owned shares, the taxpayer

would not be a U.S. shareholder and would not qualify for the deduction at all.) But

that does not mean that “held by the taxpayer” in section 246(c)(1) encompasses

indirect ownership, or that taxpayers are eligible to deduct deemed dividends from

corporations in which they own no shares directly.

13

[*13] and 1248, which are not at issue here and with respect to which

we express no view.

We do, however, credit the Commissioner’s explanation as to

what Treasury and the IRS were doing in the regulation and conclude

that Sysco’s reliance on Treasury Regulation § 1.245A-5 is misplaced.

At bottom, Sysco urges us to hold the Commissioner to a concession the

Commissioner never made. Throughout the litigation in Varian and

here, the Commissioner has consistently maintained that the deduction

under section 245A is not available for amounts treated as dividends

pursuant to section 78. Indeed, Treasury and the IRS adopted a

regulation to that effect. See Treas. Reg. § 1.78-1(a), (c); see also

Varian I, 163 T.C. at 104 (“The rule adopted by the revised regulations

essentially gives one of the TCJA’s amendments to section 78 an earlier

effective date than provided for in the TCJA to prevent taxpayers like

Varian from deducting section 78 dividends.”).

In Varian I, 163 T.C. at 109, we concluded that the regulation

could not change the outcome required by the plain text of the statute.

But our holding does not permit Sysco to attribute to the Commissioner

views the Commissioner has not adopted. Whatever the scope of

Treasury Regulation § 1.245A-5 might be, and whatever it might say

about circumstances that are not before us, it cannot fairly be read to

support a concession by the Commissioner with respect to an outcome

Treasury and the IRS expressly disclaimed elsewhere in the regulations.

Furthermore, the regulation on which Sysco relies does not bear

the reading Sysco gives it. Treasury Regulation § 1.245A-5(a) provides

“rules that limit a deduction under section 245A(a).” In other words, on

its face, the regulation describes dividends for which a deduction is not

allowed, not dividends for which a deduction is allowed. This aspect of

the regulation becomes apparent when we consider the full text of the

rule in Treasury Regulation § 1.245A-5(b)(1), which Sysco quoted only

in part:

A section 245A shareholder is allowed a section 245A

deduction for any dividend received from [a specified

foreign corporation] (provided all other applicable

requirements are satisfied) only to the extent that the

dividend exceeds the ineligible amount of the dividend.

The rule tells us that the section 245A deduction will be disallowed for

any dividend amount equal to or less than the ineligible amount defined

14

[*14] by the regulation. It does not, by contrast, tell us that dividends

in excess of that amount will necessarily be allowed. 15 As the regulation

notes, such dividends remain subject to “all other applicable

requirements.” One of those requirements is found in section 246(c)(1).

In short, Sysco’s arguments concerning Treasury Regulation

§ 1.245A-5 do not support a conclusion different from the one we reached

in Varian II.

C.

Legislative History

Sysco also contends that legislative history supports its view.

But, as the Supreme Court recently reminded us: “Congress expresses

itself as a body through the text it enacts.” FS Credit Opportunities

Corp. v. Saba Cap. Master Fund, Ltd., 146 S. Ct. 1546, 1558 (2026); see

also id. (observing that the views of congressional committees “are not

the law”). That is “why statutory interpretation must focus on the text.”

Id. at 1558–59; see also id. at 1559 (“[T]o borrow from Justice Robert

Jackson, . . . interpretation must be driven by ‘analysis of the statute’

rather than ‘psychoanalysis of Congress.’” (quoting United States v.

Public Util. Comm’n of Cal., 345 U.S. 295, 319 (1953) (R. Jackson, J.,

concurring))).

Moreover, Sysco’s argument fails on its own terms. Sysco relies

on the conference report to the Tax Cuts and Jobs Act, H.R. Rep. No.

115-466 (2017). In relevant part, that report states:

Under proposed section 245A(e), the Secretary of the

Treasury may prescribe such regulations or other guidance

as may be necessary or appropriate to carry out the rules

of section 245A, including clarifying the intended broad

scope of the term “dividend received.”

For example, if a domestic corporation indirectly

owns stock of a foreign corporation through a foreign

partnership and the domestic corporation would qualify for

the participation [dividends received deduction] with

respect to dividends from the foreign corporation if the

15 The regulations Sysco cites appear in Treasury Regulation § 1.245A-5. Rules

under Treasury Regulation §§ 1.245A-1, -2, -3, and -4 were all reserved when the rules

under -5 were promulgated. That is because the rules in -5 are not the broadly

applicable rules explaining and interpreting the statute that one might expect to find

in the introductory sections of a regulatory package.

15

[*15] domestic corporation owned such stock directly, the

domestic corporation would be allowed a participation

[dividends received deduction] with respect to its

distributive share of the partnership’s dividend from the

foreign corporation.

Id. at 595. 16

Even “[f]or those who consider legislative history relevant,”

Warger v. Shauers, 574 U.S. 40, 48 (2014), the conference report simply

does not speak to the issue we face here. Everyone, including the

Commissioner, agrees that indirect ownership through a partnership is

permissible in this context. But, as we explained in Varian II,

partnerships and corporations are not equivalent for tax purposes. That

the conference report articulated a view as to the proper rule for

partnerships without expanding that rule to encompass corporations

would seem to suggest that the conference committee was not prepared

to go so far. Further, the report contemplates that the Secretary will

promulgate regulations to clarify these rules. No such regulations are

implicated here. In short, the conference report offers no quarter for

Sysco’s position.

II.

Section 245A(d)

In Varian II, 166 T.C., slip op. at 20–21, we described the parties’

dispute with respect to section 245A(d)(1) as follows:

Section 245A(d)(1) provides in relevant part that

“[n]o credit shall be allowed under section 901 for any taxes

paid or accrued (or treated as paid or accrued) with respect

to any dividend for which a deduction is allowed under this

section.” We held in our prior opinion that, because Varian

was allowed a deduction under section 245A with respect

to its section 78 dividend, section 245A(d)(1) required a

corresponding reduction to its foreign tax credit.

16 Sysco also relies on the General Explanation of Public Law No. 115–97

prepared by the Staff of the Joint Committee on Taxation and known as the “Blue

Book.” It contains a passage similar to the one in the conference report. See Staff of

J. Comm. on Tax’n, 115th Cong., General Explanation of Public Law 115–97, JCS-118, at 349 (J. Comm. Print 2018). “We have recognized that the Blue Book is not

legislative history but, ‘like a law review article, may be relevant to the extent it is

persuasive.’” Rafizadeh v. Commissioner, 150 T.C. 1, 6 n.4 (2018) (quoting United

States v. Woods, 571 U.S. 31, 48 (2013)); accord JM Assets, LP v. Commissioner, 165

T.C. 1, 10 n.5 (2025) (reviewed).

16

[*16] Varian [I], 163 T.C. at 110–12. The amount of the

reduction, we said, would be the amount of Varian’s

deemed paid foreign tax credit that was attributable to the

foreign earnings reflected in its deductible section 78

dividend. Varian [I], 163 T.C. at 111–12.

We expressed the amount of the reduction in the

following equation:

Disallowed

Foreign Tax

Credit

=

Deemed Paid

Foreign Tax ×

Credit

Section 78 gross-up

�Net section 965 inclusion + �

section 78 gross-up

Id. at 111. We provided a simplified example of how the

equation would apply to a situation in which a U.S.

shareholder owned 100% of a foreign corporation with

earnings that qualified as subpart F income for U.S. tax

purposes. Id. We did not provide an example of an

inclusion under the Mandatory Repatriation Tax of section

965 (MRT) and so did not opine on the nuances of that

provision.

We now consider those nuances. Specifically, the

parties dispute the meaning of “net section 965 inclusion”

in the denominator of the equation.

We went on to conclude that “the ‘net section 965 inclusion’ in our

formula is the section 965(a) inclusion amount with respect to” the

taxpayer’s first-tier CFCs, “reduced by the associated section 965(c)

deduction.” Varian II, 166 T.C., slip op. at 33.

Sysco disagrees with our conclusion and offers two principal

arguments in support of its view that Varian II wrongly decided the

section 245A(d) issue. We address them in turn.

A.

Apples and Income Inclusions

First, Sysco invokes our observation in Varian II, 166 T.C., slip

op. at 33, that “apples must be compared with apples.” In that opinion,

we observed that “[u]sing the post-section 965(c) amount for the net

section 965 inclusion compares apples to apples and preserves a

meaningful ratio; namely, that approach identifies the percentage of the

17

[*17] already-reduced foreign taxes attributable to the already-reduced

section 78 dividend.” Id. at 31.

Sysco purports to agree that apples must be compared to apples.

But, whereas in Varian II we asked whether each of the three elements

of the formula—foreign tax credits, the section 78 dividend, and the net

section 965 inclusion—was reduced to account for the section 965(c)

deduction, Sysco directs our attention elsewhere. Specifically, in what

it claims is an apples-to-apples comparison, Sysco asks us to evaluate

whether each amount in the formula was the full amount included as

gross income or credit on its tax return. To illustrate, in Sysco’s view,

because the section 78 dividend amount used in the formula was the full

amount included in income on its return—albeit, as Sysco acknowledges,

“reduced by [section 965](g)(4) and (c)”—the net section 965 inclusion

must also be only the full amount included in gross income on its return.

Hearing Tr. 48. Sysco repeatedly emphasizes that section 965(c) does

not reduce a taxpayer’s gross income inclusion, which is computed under

section 965(a) and (b), and instead provides an additional deduction to

the taxpayer. So, in Sysco’s view, section 965(c) must be ignored under

the formula.

We are puzzled by this attempted distinction. Sysco admits that

the other amounts in the formula are reduced to account for the

section 965(c) deduction. Sysco’s foreign tax credits are reduced by

section 965(g)(1) and its section 78 dividend is reduced by

section 965(g)(4). So the distinction on which Sysco relies appears to be

in the timing of the reduction. But why should this make a difference?

Sysco does not explain.

Moreover, like the other elements of the formula on which Sysco

focuses, the section 965(c) deduction is, of course, also reported on

Sysco’s tax return. And it does offset Sysco’s income inclusion. This is

by design, to achieve what is in effect a reduced rate of tax on the

included income. In this respect, Sysco’s argument is essentially the

same as those we addressed in Varian II. There, we observed:

The crux of Varian’s argument seems to be that, as

a technical matter, section 965(c) does not reduce Varian’s

section 965(a) inclusion amount. Instead, it simply offsets

that amount through a deduction to achieve the target tax

rates. But in this context it is the effect and not the formal

mechanism that matters. We can see this in Varian’s own

analysis.

Varian

analogizes

the

haircuts

in

18

[*18] section 965(g)(1) and (4) to rate reductions—for example,

to allowing a foreign tax credit at 30 cents on the dollar or

allowing only a 50% deduction for section 78 dividends.

But section 965(c) operates in the exact same way with

respect to the section 965(a) inclusion amount. It provides

a deduction to achieve a lower rate of tax. And Varian does

not dispute that the reductions under section 965(g)(1) and

(4) are required as a direct result of, and operate in tandem

with, the section 965(c) deduction. We are therefore

unconvinced by Varian’s inconsistent view of which

reductions the formula should recognize.

Varian II, 166 T.C., slip op. at 32 (footnotes omitted).

Sysco offers no compelling response as to why we should focus

exclusively on the gross income inclusion reported on its return. As we

explained in detail in Varian II, it is the net, post-section 965(c) amount

that matters for determining Sysco’s ultimate tax liability under

section 965 and the associated consequences, including the reductions

to Sysco’s foreign tax credits and the section 78 dividend under

section 965(g)(1) and (4). Thus, Sysco’s arguments fare no better than

Varian’s.

B.

Double-Benefit and Alternative Formulas

Sysco next argues that, if we interpret the formula as described

in Varian II rather than adopting its preferred interpretation, the

formula does not properly express the rule in section 245A(d)(1). Sysco

proposes two alternative formulas for our consideration. But neither of

the proposed formulas addresses the task before the Court—applying

the rule set out in section 245A(d)(1).

In describing its formulas, Sysco explains that taxpayers who

claim both a section 245A deduction and associated foreign tax credits

obtain a double benefit. It is this double benefit, Sysco says, that

section 245A(d) is intended to eliminate, although the section does not

prescribe a specific formula. According to Sysco, its alternative formulas

accomplish the statute’s objective by isolating that double benefit and

making commensurate reductions to either foreign taxes or to foreign

tax credits.

In simplified terms, Sysco’s first proposed alternative compares a

taxpayer’s tax liability under section 965 depending on whether the

taxpayer claims or does not claim a section 245A deduction for its

19

[*19] section 78 dividend (without any foreign-tax-credit limitation

under section 245A(d)(1)). In Sysco’s view, the difference in U.S. tax

liability between the two scenarios reflects the incremental reduction in

tax attributable to the section 245A deduction, and so that amount is

removed from the taxpayer’s foreign tax pool.

Sysco’s second proposed alternative (again in simplified terms)

computes the taxpayer’s tax liability under section 965 assuming the

taxpayer claims the full section 245A deduction for section 78 dividends

(again without applying section 245A(d)(1)). Next, it applies the

taxpayer’s blended section 965 tax rate (some combination of 8% and

15.5%) to the taxpayer’s allowed foreign tax credits under

section 965(g)(1) and (2). In Sysco’s view, the resulting amount

approximates the foreign tax credits associated with the reduction in

U.S. tax liability resulting from the section 245A deduction.

Sysco’s proposed alternatives, while novel, share a common

defect. Specifically, they focus on eliminating a double benefit. This

approach, while interesting, does not track the text of section 245A(d)(1).

That text instructs us to disallow credits for “taxes paid” in the foreign

jurisdiction “with respect to [the] dividend.” In other words, under

section 245A(d)(1), we must identify the foreign taxes paid with respect

to the foreign earnings the dividend represents and allocate the taxes to

those earnings.

Sysco’s approach, which under both alternatives allocates foreign

taxes based on U.S. tax rates and U.S. tax effects, is wholly unmoored

from the statutory task. It may (or may not, as we will see) reach similar

results in certain fact patterns. But it is an entirely separate analysis

from the one mandated by section 245A.

Illustrating this issue, Sysco’s formulas do not work when applied

to the straightforward example of a real dividend subject to foreign

withholding tax. Assume a U.S. corporation wholly owns a foreign

corporation in a country that imposes no income tax but imposes

withholding taxes. The foreign corporation has earnings of $100 and

distributes those earnings as a dividend to the U.S. shareholder. The

foreign country applies a 30% withholding tax and retains $30. The U.S.

shareholder has $100 of income and claims a deduction for the full

amount under section 245A.

In applying section 245A(d)(1), it is unnecessary to have a formula

to see that the taxes paid with respect to the dividend of $100 are $30.

20

[*20] Even so, the formula the Court adopted in Varian II produces the

correct answer. To refresh, the formula was as follows:

Disallowed

Foreign Tax

Credit

=

Deemed Paid

Foreign Tax

Credit

Section 78 gross-up

×

�Net section 965 inclusion + �

section 78 gross-up

Adapted to a situation with earnings and a real dividend rather than a

subpart F inclusion and related section 78 gross-up, the revised formula

would be as follows:

Disallowed

Foreign Tax

Credit

=

Withholding

Tax

Dividend distributed

�

×

Earnings subject to foreign tax

And the formula produces the following result:

$30

(Disallowed

FTC)

=

$30

(Withholding

Tax)

×

$100 (dividend distributed)

�

$100 (earnings)

�

�

Sysco acknowledges that both its proposed formulas would produce a

disallowed foreign tax credit amount less than $30 because they are

keyed to the lower U.S. tax rate. 17 Thus, Sysco’s formulas would allow

excess foreign tax credits to offset U.S. tax on unrelated income. This

17 Consider, for example, how Sysco’s first proposed alternative fares if we

assume a U.S. tax rate of 21%. If the U.S. shareholder claimed a $100 deduction under

section 245A, it would have $0 taxable income ($100 dividend income – $100 deduction

= $0 taxable income) and $0 U.S. tax on the dividend. On the other hand, if the U.S.

shareholder claimed no deduction under section 245A, it would owe U.S. tax of $21

($100 dividend income × 21% U.S. tax rate = $21). In this situation, Sysco’s first

proposed alternative would call for the disallowance of $21 of foreign tax credits, equal

to the difference in U.S. tax liability between the two counterfactuals ($21 – $0 = $21).

On this approach, the U.S. shareholder would be able to deduct the full amount of its

dividend under section 245A, resulting in U.S. tax on the dividend of $0, and would

also be allowed $9 of foreign tax credits with which to offset tax it owes on other items

of income.

If the U.S. tax rate in our hypothetical were higher than the foreign

withholding tax rate, a different result would occur. Applying a 35% U.S. rate, Sysco’s

first proposed alternative would purport to disallow $35 of the U.S. shareholder’s

foreign tax credits—more than the amount it paid in withholding tax. Either way,

Sysco’s approach deviates from the instruction in section 245A(d)(1) to disallow credits

“for any taxes paid or accrued (or treated as paid or accrued) with respect to any

dividend for which a deduction is allowed under this section.”

21

[*21] suffices to show that Sysco’s formulas do not appropriately express

the rule in section 245A(d)(1).

Sysco suggested at the hearing that, although its formulas do not

necessarily work for a straightforward dividend example, they do work

in the more complex environment of section 965 and a section 78

dividend.

But the rule that section 245A(d)(1) expresses is

straightforward. And a formula that works for one example should be

adaptable to another example. Sysco offers no persuasive reason why

the Court should abandon a simple approach that tracks the statutory

rule and works perfectly well across multiple examples for a less

adaptable approach that does not address the statute’s mandate.

III.

Conclusion

For the reasons we have described, the additional arguments

Sysco presents are unpersuasive. The holdings in Varian II suffice to

resolve the Cross-Motions now before us. We will therefore grant the

Commissioner’s Motions and deny Sysco’s.

We have considered all other arguments made by the parties, and

to the extent not discussed above, find those arguments to be irrelevant,

moot, or without merit.

To reflect the foregoing,

An appropriate order will be issued.