United States Tax Court

United States Tax Court

REVIEWED

167 T.C. No. 5

SIEMENS MEDICAL SOLUTIONS USA, INC. AND

CONSOLIDATED SUBSIDIARIES,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 11432-25.

Filed July 15, 2026.

—————

I.R.C. § 245A, which was enacted by the Tax Cuts

and Jobs Act (TCJA), Pub. L. No. 115-97, § 14101, 131 Stat.

2054, 2189 (2017), provides a deduction (DRD) for certain

dividends received by a U.S. corporation from certain

foreign corporations. The DRD applies to distributions

made after December 31, 2017.

The TCJA included interrelated provisions to move

the U.S. tax system from a worldwide tax system to a

territorial tax system. The provisions did not all have the

same effective dates and created gaps that affect certain

taxpayers. The Department of the Treasury and the IRS

issued Temp. Treas. Reg. § 1.245A-5T, which limits the

DRD under I.R.C. § 245A to address one such gap.

P claimed the full DRD under I.R.C. § 245A for a

dividend received from a foreign source. In its Motion for

Summary Judgment, P argues that it is entitled to a DRD

for the full amount and that the limitation provided in the

temporary regulation does not apply. In R’s Cross-Motion

for Summary Judgment, R argues that the temporary

regulation does apply and that P is entitled to a limited

DRD.

Served 07/15/26

2

Held: P is entitled to the full DRD under I.R.C.

§ 245A.

Held, further, Temp. Treas. Reg. § 1.245A-5T does

not alter this conclusion because it cannot contravene the

clear statutory text.

KERRIGAN, J., wrote the opinion of the Court,

which URDA, C.J., and BUCH, NEGA, PUGH, ASHFORD,

COPELAND, JONES, TORO, GREAVES, MARSHALL,

WEILER, WAY, LANDY, ARBEIT, GUIDER, and FUNG,

JJ., joined.

JENKINS, J., did not

consideration of this opinion.

participate

in

the

—————

Eric J. Konopka, Jean Ann Pawlow, and Alexandra B. Clionsky Kelly,

for petitioner.

Nicholas D. Doukas, William Tyler Halasz, Laura A. Humphreys, and

Victor W. Zhao, for respondent.

OPINION

KERRIGAN, Judge: This case is before the Court on petitioner’s

Motion for Summary Judgment (Motion) and respondent’s Cross-Motion

for Summary Judgment (Cross-Motion). Respondent issued a Notice of

Deficiency for tax year ended September 30, 2019 (2019 Tax Year), and

tax year ended September 30, 2021 (2021 Tax Year), disallowing a full

deduction pursuant to section 245A1 and accompanying regulations for

the 2019 Tax Year. 2 Respondent determined that petitioner is entitled

to a partial section 245A deduction because of the application of the

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

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are

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

and Rule references are to the Tax Court Rules of Practice and Procedure.

2 The partial disallowance of the section 245A deduction resulted in a series of

adjustments for the 2021 Tax Year.

3

Extraordinary Disposition Rules, which are part of the section 245A

temporary regulations. See T.D. 9865, 2019-27 I.R.B. 27, 30.

In its Motion petitioner moves for summary judgment because the

deficiencies that respondent determined rest on the application of a

regulation that petitioner contends is invalid as a matter of law.

Respondent seeks summary adjudication that the Extraordinary

Disposition Rules are valid.

For the reasons discussed below, we hold that the Extraordinary

Disposition Rules cannot contravene the plain meaning of section 245A.

Accordingly, we will grant petitioner’s Motion and deny respondent’s

Cross-Motion.

Background

The facts set out are derived from the parties’ pleadings and

Motion papers. See Rule 121(c)(1). They are stated solely for the

purpose of deciding the pending Motion and are not findings of fact for

this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

Petitioner, Siemens Medical Solutions USA, Inc., is a wholly

owned subsidiary of Siemens Healthineers AG (SHAG), a German

company that provides healthcare products globally. Its principal place

of business was Pennsylvania when its Petition was timely filed. At all

relevant times, Siemens Healthcare Diagnostics, Inc. (SHD US), a

California corporation and member of petitioner’s U.S. consolidated

group, owned 67.78% of Siemens Medical Solutions Diagnostics Holding

I.B.V. (SMS BVI), a Dutch company treated as a corporation for U.S.

federal income tax purposes.

During the tax year ended September 30, 2018 (2018 Tax Year),

certain foreign subsidiaries of SMS BVI were restructured. On April 1,

2018, SMS BVI sold 100% of Siemens Healthcare Diagnostics GmbH, a

Swiss company, for €85,715,399 to Siemens Healthineers Holding III

BV, a Dutch company within the SHAG Group (SHAG and its

subsidiaries).

On August 13, 2018, SMS BVI sold 100% of Siemens Healthcare

Diagnostics Holding GmbH, a German company, to Siemens Healthcare

GmbH, a German company within the SHAG Group, for €1,339,593,000.

As a result of these two sales, SMS BVI increased its earnings and

profits (E&P) by approximately €819,000,000.

4

On March 19, 2019, SMS BVI made a pro rata distribution of

€1,750,000,000 to its shareholders (March 2019 Distribution). Since

SHD US owned 67.78% of SMS BVI, it received 67.78% of the March

2019 Distribution which was €1,186,073,740.

Of that amount

$670,616,109 was a dividend made out of SMS BVI’s E&P (March 2019

Dividend). The March 2019 Dividend was entirely foreign source.

Petitioner timely filed consolidated federal income tax returns for

its 2019 Tax Year and its 2021 Tax Year. On its Form 1120,

U.S. Corporation Income Tax Return, for its 2019 Tax Year, petitioner

claimed a deduction for the full amount of the March 2019 Dividend.

When preparing its tax return for the 2019 Tax Year, petitioner

considered the implications of the Extraordinary Disposition Rules, and

it concluded that its two sales that occurred in 2018 “likely” fit the

definition of “extraordinary dispositions” under those rules. Of the

March 2019 Dividend, $40,630,184 was not attributable to the two sales

occurring in 2018. If the Extraordinary Disposition Rules apply, a

deduction for $314,992,962 of the March 2019 Dividend would be

disallowed.

Petitioner concluded that the Extraordinary Disposition Rules

were invalid and that it was entitled to the full section 245A deduction.

It filed Form 8275–R, Regulation Disclosure Statement, with its tax

return for its 2019 Tax Year. On its Form 8275–R, petitioner disclosed

the relevant facts and its legal analysis supporting its position that the

Extraordinary Disposition Rules are invalid.

In the Notice of Deficiency respondent determined deficiencies of

$5,581,518 and $1,452,006 for the 2019 Tax Year and the 2021 Tax Year,

respectively. Respondent disallowed $314,992,962 of the section 245A

deduction.

Discussion

I.

Summary Judgment

The purpose of summary judgment is to expedite litigation and

avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(a), either

party may move for summary judgment regarding all or any part of the

legal issues in controversy. We may grant summary judgment only if

there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law. Rule 121(a)(2); Sundstrand

Corp., 98 T.C. at 520. The moving party bears the burden of

5

demonstrating that there is no genuine dispute as to any material fact.

FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74–75 (2001). In

deciding whether to grant summary judgment, we construe factual

materials and inferences drawn from them in the light most favorable

to the adverse party. Sundstrand Corp., 98 T.C. at 520.

There is no material dispute of fact, and we may resolve the

Motions as a matter of law.

II.

Background Law

A.

Overview

The United States taxes its citizens and domestic corporations on

worldwide income. See, e.g., Cook v. Tait, 265 U.S. 47, 56 (1924); Huff

v. Commissioner, 135 T.C. 222, 230 (2010). In 1962 Congress enacted

subpart F in response to erosion of the U.S. tax base. See Dougherty v.

Commissioner, 60 T.C. 917, 928 (1973) (“In subpart F, Congress has

singled out a particular class of taxpayers, U.S. shareholders, whose

degree of control over their foreign corporation allows them to treat the

corporation’s undistributed earnings as they see fit.” (footnote omitted)).

The goal of subpart F is to tax currently specified earnings of controlled

foreign corporations (CFCs) that are in the aggregate controlled by U.S.

shareholders. Textron Inc. & Subs. v. Commissioner, 117 T.C. 67, 73–

74 (2001). Subpart F applies only to a small portion of the CFC’s income,

mostly passive income. See Moore v. United States, 144 S. Ct. 1680, 1685

(2024).

Since its enactment, the effectiveness of subpart F has been

questioned. Generally, the U.S. tax on a CFC’s income, not subject to

subpart F, is deferred until the income is repatriated in the form of a

dividend or other distribution to the CFC’s U.S. shareholders. §§ 881,

882; see also Dave Fischbein Mfg. Co. v. Commissioner, 59 T.C. 338, 353

(1972); S. Rep. No. 87-1881, at 78 (1962), reprinted in 1962-3 C.B. 703,

784. A 2000 Department of the Treasury Policy Study raised concerns

that subpart F and the current antideferral system were not preventing

erosion of the U.S. tax base. See U.S. Dep’t of the Treasury, Off. of Tax

Pol’y, The Deferral of Income Earned Through U.S. Controlled Foreign

Corporations (2000), https://home.treasury.gov/system/files/131/ReportSubpartF-2000.pdf.

In 2017 Congress enacted the Tax Cuts and Jobs Act (TCJA),

Pub. L. No. 115-97, 131 Stat. 2054 (2017). The TCJA “altered the United

States’ approach to international corporate taxation” with the goal of

6

encouraging “Americans who controlled foreign corporations to invest

earnings from their foreign investments back in the United States

instead of abroad.” Moore, 144 S. Ct. at 1685–86.

To accomplish this goal, the TCJA included several interrelated

provisions which moved the United States from a worldwide tax system

towards a partially territorial system. See id. at 1686; see also Varian

Med. Sys., Inc. & Subs. v. Commissioner, 163 T.C. 76, 85 (2024). Three

of these provisions are key to understanding the issues raised in the

parties’ Motions. These provisions provide an exemption for certain

foreign income, tax certain income repatriated, and provide an inclusion

for certain global income.

Section 245A provides, in part, an exemption for certain foreign

income in the form of a 100% dividends-received deduction:

Sec. 245A. Deduction for foreign source-portion of

dividends received by domestic corporations from specified

10-percent owned foreign corporations

(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 United States shareholder

with respect to such foreign corporation, there shall be

allowed as a deduction an amount equal to the foreignsource portion of such dividend.

Section 245A is effective for distributions made after December 31, 2017.

TCJA § 14101(f), 131 Stat. at 2192.

Congress enacted section 245A to help U.S. companies compete

on a more level playing field and to eliminate the “lock-out” effect

whereby U.S. businesses do not bring foreign earnings back to the

United States in order to avoid taxation on those earnings. Staff of

S. Comm. on the Budget, 115th Cong., Reconciliation Recommendations

Pursuant to H. Con. Res. 71, at 358 (Comm. Print 2017).

To transition towards a partial participation exemption system of

taxation, TCJA § 14103, 131 Stat. at 2195–208, included a provision

referred to as the Mandatory Repatriation Tax (MRT). § 965; see also

Moore, 144 S. Ct. at 1686; Varian, 163 T.C. at 85. Similar in structure

to subpart F, the MRT added accumulated foreign earnings of foreign

corporations that had not been repatriated to U.S. shareholders (and

thus not subject to U.S. tax) to the U.S. shareholders’ subpart F income

for the transition year. § 965(a), (d); see also Moore, 144 S. Ct. at 1686;

7

Varian, 163 T.C. at 85. The amount added to subpart F income is taxed

at a lower than normal rate. § 965(c); see also Moore, 144 S. Ct. at 1686;

Varian, 163 T.C. at 85. The MRT is a “one-time, backward-looking tax”

that was effective for the last taxable year of foreign corporations

beginning before January 1, 2018. Moore, 144 S. Ct. at 1686; see also

§ 965(a).

The House Ways and Means Committee was aware that, in the

past, U.S. companies with foreign earnings had accumulated significant

undistributed earnings because those earnings were not taxed until they

were repatriated. H.R. Rep. No. 115-409, at 375 (2017). Additionally,

the House Ways and Means Committee was aware that, going forward,

U.S. companies with foreign earnings would benefit from the new 100%

dividends-received deduction. To avoid a “potential windfall” for

corporations that deferred income, “the Committee believes that it is

appropriate to tax such earnings as if they had been repatriated under

present law, but at a reduced rate.” Id. The Senate Finance Committee

included similar language in its report to the Senate Committee on the

Budget. See also Staff of S. Comm. on the Budget, 115th Cong. 363. 3

The MRT was the vehicle for accomplishing this objective.

The TCJA created another new provision to tax foreign earnings

prospectively. Specifically, section 951A provides for current year

inclusion of global intangible low-taxed income (GILTI) by U.S.

shareholders and is commonly referred to as the GILTI regime. TCJA

§ 14201, 131 Stat at 2208. The Senate Finance Committee recognized

that without any base protection measures such as GILTI, the

dividends-received deduction would create an incentive for a U.S.

corporation to allocate income subject to the U.S. corporate tax rate to a

low- or zero-tax jurisdiction where the income might be distributed back

to the United States and be eligible for the dividends-received deduction.

Staff of S. Comm. on the Budget, 115th Cong. 370. Section 951A is

effective for taxable years of foreign corporations beginning after

December 31, 2017, and for taxable years of U.S. shareholders in which

or with which such taxable years of foreign corporations end. TCJA

§ 14201(d), 131 Stat. at 2213. And, despite its name, it generally taxes

U.S. shareholders of a CFC on all income of the CFC that exceeds a

3 The Senate Finance Committee’s recommendations to the Senate Committee

on the Budget appear without revision in this report. Staff of S. Comm. on the Budget,

115th Cong. 1.

8

certain deemed threshold return on the CFC’s tangible assets.

§ 951A(a), (b), (d).

See

To summarize in general terms, section 965 (MRT) taxes foreign

earnings accumulated before the TCJA was enacted while section 951A

(GILTI) taxes post-TCJA foreign earnings. Section 245A allows a

deduction for certain post-TCJA dividends from foreign corporations,

effectively exempting such dividends from U.S. tax.

B.

Effective Dates

These three interrelated provisions, section 245A, section 951A,

and section 965, have different effective dates. The Extraordinary

Disposition Rules were crafted to address the discrepancies of the

varying effective dates.

1.

Section 245A

The House and Senate versions of the TCJA had different

effective dates for section 245A. The Senate version applied section

245A to taxable years “beginning after December 31, 2017, and to

taxable years of United States shareholders in which or with which such

taxable years of foreign corporations end.” S. 1, 115th Cong. § 14101(f)

(2017). The House version, which became the effective date included in

the enacted TCJA, applied section 245A “to distributions made after . . .

December 31, 2017.” H.R. 1, 115th Cong. § 4001(f) (2017).

2.

Section 951A

The House and Senate versions of the TCJA had different

provisions for the current year inclusion of certain foreign income. H.R.

Rep. No. 115-466, at 635–44 (2017) (Conf. Rep.). The conference

agreement for the TCJA followed the Senate amendment, providing for

an inclusion for GILTI by U.S. shareholders, with modifications. Id.

at 644–45. The Senate provision applied section 951A to taxable years

“beginning after December 31, 2017, and to taxable years of United

States shareholders in which or with which such taxable years of foreign

corporations end.” S. 1, 115th Cong. § 14201(d); see also TCJA

§ 14201(d), 131 Stat. at 2213.

3.

Section 965

The income subject to MRT, which serves as the transition tax

from the old system to the new system, was generally measured as of

9

December 31, 2017. See § 965(a). The House and Senate versions of the

TCJA had similar provisions and the same effective date terms. H.R. 1,

115th Cong. § 4004(a); S. 1, 115th Cong. § 14103(a).

4.

Mismatch of Effective Dates

Since sections 245A, 951A, and 965 all have different effective

dates, there can be gaps between their applicability for certain

taxpayers. For those taxpayers that have taxable years different from

the calendar year, for example, there could be a gap between the

application of section 245A and section 951A because a section 245A

deduction is potentially available for any distribution made by a foreign

corporation after December 31, 2017, whereas section 951A would not

apply until the foreign corporation’s next taxable year begins.

Additionally, there may be a gap between the application of the MRT

(measured no later than December 31, 2017) and the start of the GILTI

regime, resulting in certain dividends’ being eligible for a deduction

under section 245A despite the underlying earnings’ not being taxed by

the MRT or included in income under section 951A. 4

III.

Extraordinary Disposition Rules

On June 18, 2019, the Department of the Treasury and the

Internal Revenue Service (collectively, Treasury) issued final temporary

regulations, providing for a limitation on the section 245A deduction,

effective on June 18, 2019. T.D. 9865, 2019-27 I.R.B. at 27. The

preamble explains that the regulations address cases where the

deduction eliminates income that was not subject to tax under section

965 and is the type of income that is subject to tax under subpart F and

section 951A. T.D. 9865, 2019-27 I.R.B. at 28. As the preamble puts it,

“the temporary regulations address transactions that have the effect of

avoiding tax under section 965, 951A, or 951[5] by inappropriately

converting income that should have been subject to U.S. tax into

nontaxed income.” Id.

The preamble justifies the rules in the temporary regulations by

appealing to the integrated operation of the post-TCJA international tax

4 A version of the subpart F regime remains in effect but applies only to limited

categories of income.

5 Section 951 requires U.S. shareholders of a CFC to include currently their

pro rata share of the CFC’s current-year subpart F income even without a distribution,

eliminating the deferral of U.S. tax on those earnings.

10

regime, focusing on sections 245A, 951, 951A, and 965. The explanation

of the provisions states:

Although the section 245A deduction is generally available

for untaxed foreign-source earnings, read collectively 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.

T.D. 9865, 2019-27 I.R.B. at 29. The preamble further explains that

Treasury “do[es] not believe Congress intended section 245A to defeat

the purposes of subpart F and GILTI” and acted with authority pursuant

to section 245A(g) to issue regulations. T.D. 9865, 2019-27 I.R.B. at 30.

Treasury explains in the preamble that section 245A is “designed to

operate residually, such that the section 245A deduction generally

applies to any earnings of a CFC to the extent that they are not first

subject to the subpart F regime, the GILTI regime, or the exclusions

provided in section 245A(c)(3) (and were not subject to section 965).” 6

T.D. 9865, 2019-27 I.R.B. at 29 (emphasis added). In other words, the

section 245A deduction should apply only to the type of earnings that

are not subject to subpart F, the GILTI, and the MRT.

The preamble specifically addresses the effective date mismatch

we discuss above. It explains that in the TCJA there may be a gap

between when section 951A first applies and the last date on which E&P

are measured for the purposes of the MRT. T.D. 9865, 2019-27 I.R.B.

at 30. Treasury further explains that this gap, referred to in the

temporary regulations as the “disqualified period,” is from January 1,

2018, to the start of the next tax year for fiscal year taxpayers. Id.

Treasury’s concern is that, during this disqualified period, the foreign

income of a CFC may not be subject to any tax and yet still be eligible

for the section 245A deduction. T.D. 9865, 2019-27 I.R.B. at 30–31. As

a result, the temporary regulations provide the Extraordinary

6 Earnings that are first subject to the subpart F, MRT, or GILTI regimes

attain the status of previously taxed earnings and profits (PTEP) under section 959.

Such amounts are excluded from a shareholder’s income when distributed, § 959(a),

and generally are not treated as dividends, § 959(d). Thus, they do not qualify for the

section 245A dividends-received deduction, nor is the deduction needed, because the

associated income is already exempted from a second round of U.S. tax.

11

Disposition Rules to limit the section 245A deduction for such income.

T.D. 9865, 2019-27 I.R.B. at 31.

The preamble explains an extraordinary disposition as a

disposition that meets the following requirements:

[T]he disposition must (i) be of specified property (defined

in § 1.245A-5T(c)(3)(iv) as any property other than property

that produces gross income described in section

951A(c)(2)(A)(i)(I) through (V)), (ii) occur during the

[specified 10% owned foreign corporation]’s disqualified

period (as defined in § 1.245A-5T(c)(3)(iii)) and when the

[specified 10% owned foreign corporation] was a CFC,

(iii) be outside of the ordinary course of the [specified 10%

owned foreign corporation]’s activities, and (iv) be to a

related party. See § 1.245A-5T(c)(3)(ii).

Id. The temporary regulation defines a disqualified period as beginning

on January 1, 2018, and ending as of the close of the taxable year of the

specified 10% owned foreign corporation, if any, that begins before

January 1, 2018, and ends after December 31, 2017. Temp. Treas. Reg.

§ 1.245A-5T(c)(3)(iii).

If the requirements of an extraordinary disposition are met,

certain consequences occur. The net gain is classified as E&P and

allocated to the extraordinary disposition accounts of the shareholders

of the specified 10% owned foreign corporation in accordance with their

owner share. Id. subdiv. (i)(C). When that corporation pays a dividend

to its shareholders, the dividend is first considered paid out of nonextraordinary disposition E&P; the dividend is next considered paid out

of the extraordinary disposition account to the extent of the section 245A

shareholder’s extraordinary disposition account balance. Temp. Treas.

Reg. § 1.245A-5T(c)(2)(i). This latter amount is the extraordinary

disposition amount. Id. subpara. (1). Under the temporary regulations,

the section 245A deduction is disallowed for 50% of the extraordinary

disposition amount. Temp. Treas. Reg. § 1.245A-5T(b)(2)(i).

The temporary regulations were promulgated with retroactive

effect pursuant to section 7805(b)(2) which allows Treasury to apply

regulations retroactively if the regulations are promulgated within 18

months of enactment of the underlying statute. See T.D. 9865, 2019-27

I.R.B. at 36.

12

IV.

Parties’ Arguments

The parties do not dispute that petitioner was eligible for the

dividends-received deduction. Rather, the parties dispute whether the

Extraordinary Disposition Rules apply and limit petitioner’s claimed

section 245A deduction. Additionally, the parties do not dispute

whether SMS BVI’s two sales during 2018 meet the requirements of an

extraordinary disposition. Since SMS BVI’s 2018 Tax Year ended on

September 30, 2018, it had a gap from January 1, 2018, to September

30, 2018, which met the temporary regulation’s definition of a

disqualified period.

A.

Petitioner’s Arguments

Petitioner contends that applying section 245A in this case

provides a clear result. Since petitioner’s March 2019 Dividend was

distributed after December 31, 2017, from a qualifying corporation and

was entirely foreign source, it contends that under the plain terms of

section 245A it was entitled to the entire deduction.

Additionally, petitioner argues that there is a conflict between the

statute and the regulation and that Congress never passed a statute

that limits the section 245A deduction. Petitioner posits when there is

a head-to-head conflict between a statute and a regulation, the statute

wins. Besides the conflict between the statute and the regulation,

petitioner argues that there are other problems with the regulation. In

particular petitioner contends that the regulation was retroactive and

did not comply with the Administrative Procedure Act (APA).

B.

Respondent’s Arguments

Respondent argues that Treasury issued the “necessary or

appropriate” regulations to carry out section 245A. Respondent relies

upon section 245A(g) in support of his position. Section 245A(g)

provides: “The Secretary shall prescribe such regulations or other

guidance as may be necessary or appropriate to carry out the provisions

of this section, including regulations for the treatment of United States

shareholders owning stock of a specified 10 percent owned foreign

corporation through a partnership.” Additionally, respondent contends

that the APA does not apply and even if it did apply, Treasury complied

with the APA.

13

V.

Analysis

The parties’ arguments raise the following issues that we need to

address: the plain meaning of the statute and whether the

Extraordinary Disposition Rules apply. 7

A.

Statutory Analysis

We start with the familiar maxim “that courts must presume that

a legislature says in a statute what it means and means in a statute

what it says there.” Varian, 163 T.C. at 87 (quoting Conn. Nat’l Bank v.

Germain, 503 U.S. 249, 253–54 (1992)). And when “Congress includes

particular language in one section of a statute but omits it in another

section of the same Act, it is generally presumed that Congress acts

intentionally and purposely in the disparate inclusion or exclusion.” Id.

at 88 (quoting Cheneau v. Garland, 997 F.3d 916, 920 (9th Cir. 2021)).

Petitioner claimed a deduction for the March 2019 Dividend. The

effective date for section 245A is “distributions made after . . . December

31, 2017.” TCJA § 14101(f), 131 Stat. at 2192. The March 2019

Distribution was made to the shareholders of SMS BVI in March 2019,

well after December 31, 2017.

Petitioner’s claimed deduction also met the requirement that the

provision applies only to dividends paid by a specified 10% owned foreign

corporation. SHD US, a member of petitioner’s consolidated group,

owned 67.78% of SMS BVI. SMS BVI was a CFC of which SHD US was

a U.S. shareholder, making SMS BVI a 10% owned foreign corporation.

See §§ 245A(b), 951(b). Section 245A applies only to the “foreign-source

portion” of a qualifying dividend. § 245A(a). All of the March 2019

Dividend was from foreign earnings.

Because all the elements of section 245A were met, petitioner

contends that it was entitled to the full deduction under the plain terms

of section 245A. See Varian, 163 T.C. at 87–88. We agree with

petitioner.

7 If we conclude that the Extraordinary Disposition Rules do not apply, we do

not need to address whether the Extraordinary Disposition Rules meet the

requirements of the APA.

14

B.

Application of Extraordinary Disposition Rules

Treasury’s Extraordinary Disposition Rules conflict with the

plain meaning of section 245A. The Extraordinary Disposition Rules

addressed mismatched effective dates that Treasury believed caused a

gap where the earnings underlying certain dividends would not be

taxed. As we explained in Varian, the House and the Senate versions of

the TCJA had different effective dates for section 245A. Varian, 163

T.C. at 103.

In Varian there was a mismatch between the ultimately enacted

effective date of section 245A and the TCJA’s amendments to section 78.

Varian, 163 T.C. at 104. As in Varian, Congress “chose the rule it

adopted over a readily available alternative.” Id. at 103. Since the

House and the Senate versions of the TCJA had different effective dates

for section 245A, Congress had to choose what the effective date should

be in the final version. Congress chose to have section 245A apply to

distributions made after December 31, 2017.

Additionally, Congress chose the effective date for the start of the

GILTI regime. The House version of the TCJA did not include the GILTI

regime, and Congress chose to include the GILTI provision with

modifications in the final version of the TCJA. Congress chose for the

GILTI regime to apply to taxable years of CFCs beginning after

December 31, 2017, and to taxable years of U.S. shareholders in which

or with which such taxable years of foreign corporations end. TCJA

§ 14201(d), 131 Stat. at 2213.

Congress also chose the measurement date for determining

income subject to the MRT. The income included is the greater of two

measurements of certain foreign income of a CFC as of November 2,

2017, or as of December 31, 2017. § 965(a).

There is no ambiguity regarding the effective dates of the start of

the GILTI regime and the end of the MRT. As in Varian, if the Senate

version of section 245A had been adopted, there would be no mismatch

of effective dates. See Varian, 163 T.C. at 103.

The House and Senate committee reports reflect on the

interaction of the three provisions. See H.R. Rep. No. 115-409, at 375;

Staff of S. Comm. on the Budget, 115th Cong. 363. Congress could have

chosen for section 245A and section 951A to have the same effective

dates. Congress chose not to do so, and as in Varian, we will respect the

choice that Congress made. See Varian, 163 T.C. at 103.

15

Respondent contends that this case can be distinguished from

Varian because here the Extraordinary Disposition Rules target a

narrow set of related party transactions and do not change an effective

date as the regulation did in Varian. Treasury Regulation § 1.78-1 gives

an earlier effective date to one of the TCJA’s amendments to section 78.

Varian, 163 T.C. at 104. We agree that the Extraordinary Disposition

Rules do not specifically change an effective date, but Treasury

specifically drafted the Extraordinary Disposition Rules to address a

gap created solely by different effective dates. Thus, while the

mechanism for addressing the perceived problem is different, the effect

is materially the same.

To recap, instead of changing an effective date, the Extraordinary

Disposition Rules create a disqualified period that addresses the gap.

Treasury promulgated the Extraordinary Disposition Rules to address

the situation in which a “literal application” of section 245A could result

in the section 245A deduction applying to income that is usually subject

to subpart F or the GILTI regime. T.D. 9865, 2019-27 I.R.B. at 29.

Treasury explained that the escape from taxation occurs “when a CFC’s

fiscal year results in a mismatch between the effective date for GILTI

and the final measurement date under section 965.” Id. In Varian and

here, the regulations accomplish the same goal. In Varian the rule

adopted by the regulation gave an earlier effective date to a TCJA

amendment to section 78, see Varian, 163 T.C. at 104, and here, the

temporary regulation imposes a limitation on section 245A which

mimics the effects of the MRT and the GILTI regime. Or, thinking of it

another way, the temporary regulation delays the effective date of

section 245A for 50% of the dividends for certain taxpayers. In either

case the results of the regulation here and in Varian are the same and

that is that they are in conflict with a plain reading of the statute. See

Varian, 163 T.C. at 104–05.

Additionally, respondent contends that the Extraordinary

Disposition Rules affect only certain transactions. Transactions of CFCs

that are calendar year taxpayers, transactions in the ordinary course of

business, and any transaction with an unrelated party are not limited.

See Temp. Treas. Reg. § 1.245A-5T(c)(3)(ii). Essentially, respondent

argues the rules here are narrowly tailored to target specific problematic

transactions.

That may be so, but it does respondent no good. Section 245A

allows a 100% deduction for qualifying distributions after December 31,

2017. Treasury’s adopted regulation disallows 50% of the deduction for

16

distributions that Treasury admits satisfy the plain terms of the statute,

using criteria that appear nowhere in the statute. This creates a

contradiction, and the statute must prevail.

In sum, even though the Extraordinary Disposition Rules are

crafted to affect only certain transactions that, in Treasury’s view, have

“the effect of avoiding tax under section 965, 951A, or 951 by

inappropriately converting income that should have been subject to U.S.

tax into nontaxed income,” these rules are needed only because of the

effective date mismatches. See T.D. 9865, 2019-27 I.R.B. at 28. Limiting

the section 245A deduction to certain transactions is inconsistent with

a plain reading of the statute. Thus, the Extraordinary Disposition

Rules cannot govern the outcome here.

C.

Whether the Extraordinary

Necessary and Appropriate

Disposition

Rules

Are

Respondent argues that Congress delegated broad authority to

Treasury to promulgate “necessary or appropriate” rules to define the

limits of the dividends-received deduction. § 245A(g). Respondent also

relies upon section 7805(a), which provides that Treasury “shall

prescribe all needful rules and regulations for the enforcement” of the

Code.

For the reasons we have already described, the Extraordinary

Disposition Rules are inconsistent with section 245A and are outside the

boundaries of regulatory authority that Congress provided Treasury in

section 245A(g). The role of the reviewing court under the APA is “to

independently interpret the statute and effectuate the will of Congress

subject to constitutional limits.” Loper Bright Enters. v. Raimondo, 144

S. Ct. 2244, 2263 (2024). The reviewing court performs this role by

“recognizing constitutional delegations, ‘fix[ing] the boundaries of [the]

delegated authority,’ . . . and ensuring the agency has engaged in

‘“reasoned decisionmaking”’ within those boundaries.” Id. (first quoting

Henry P. Monaghan, Marbury and the Administrative State, 83 Colum.

L. Rev. 1, 27 (1983); and then quoting Michigan v. EPA, 576 U.S. 743,

750 (2015)).

Because the sections are interrelated and part of provisions to

move the United States towards a territorial tax system, respondent

relies upon the Supreme Court decision in Turkiye Halk Bankasi A.S. v.

United States, 143 S. Ct. 940 (2023), to argue that the text of section

245A is necessary and appropriate. The Supreme Court stated that “the

17

Court must read the words Congress enacted ‘in their context and with

a view to their place in the overall statutory scheme.’” Turkiye Halk

Bankasi A.S., 143 S. Ct. at 948 (quoting Davis v. Mich. Dep’t of Treasury,

489 U.S. 803, 809 (1989)).

Post Loper Bright, the Supreme Court stated that “appropriate”

is a “quintessentially ‘context dependent’ term [that] often draws its

meaning from surrounding provisions.” Harrington v. Purdue Pharma

L.P., 144 S. Ct. 2071, 2083 (2024) (quoting Sossamon v. Texas, 563 U.S.

277, 286 (2011)). But context does not help respondent. Here, Treasury

is not trying to construe the language of section 245A. Instead, Treasury

is trying to correct the mismatch in effective dates by changing the plain

meaning of the statute.

The statute provides a 100% dividends-received deduction, and

the Extraordinary Disposition Rules limit the deduction by 50% for

dividends attributable to extraordinary dispositions. Temp. Treas. Reg.

§ 1.245A-5T. As already discussed, the statute contains no hint of such

a rule. That is why, for justification, Treasury relies not on the statutory

text, but instead on assertions regarding Congress’s intent, gleaned

from the overall structure of the TCJA. Treasury does not explain,

however, why the effective dates Congress chose should be disregarded

as evidence of its intent. In any event, when there is a direct conflict

between a statute and a regulation, the statute prevails. See In re

Complaint of Nautilus Motor Tanker Co., 85 F.3d 105, 111 (3d Cir. 1996)

(“[I]t is axiomatic that federal regulations can not ‘trump’ or repeal Acts

of Congress.”). And a regulation that purports to contradict the statute

can be neither necessary nor appropriate.

Treasury, not Congress, was concerned that, for some taxpayers,

foreign income might be earned after the measurement date for the MRT

and before the start of the GILTI regime, and that this income might be

eligible for the section 245A deduction. And Treasury, not Congress,

decided unilaterally to approximate the tax treatment of the MRT and

the GILTI by disallowing 50% of the section 245A deduction. See T.D.

9865, 2019-27 I.R.B. at 30–31. But the effective dates for the MRT and

the start of the GILTI regime are clear. Therefore, Treasury does not

have the authority to impose the MRT or the GILTI on foreign-source

income subject to neither. See Util. Air Regul. Grp. v. EPA, 573 U.S.

302, 328 (2014) (“[A]n agency may not rewrite clear statutory terms to

suit its own sense of how the statute should operate.”).

18

Section 245A applies to distributions after 2017 regardless of

whether a dividend is paid out of earnings that would have been subject

to the MRT or the GILTI if they had been earned at a different time, or

neither. Nothing in the text of section 245A limits the section 245A

dividends-received deduction because of the inapplicability of the MRT

or the GILTI. 8

The Extraordinary Disposition Rules were never contemplated by

the statutory text. The Supreme Court has said that “self-serving

regulations never ‘justify departing from the statute’s clear text.’” NizChavez v. Garland, 141 S. Ct. 1474, 1485 (2021) (quoting Pereira v.

Sessions, 585 U.S. 198, 217 (2018)); see also Varian, 163 T.C. at 104–05.

We have previously held that the Commissioner’s regulations “cannot

change the result dictated by an unambiguous statute.” Abdo v.

Commissioner, 162 T.C. 148, 168 (2024) (citing Niz-Chavez, 141 S. Ct.

at 1485).

The Supreme Court concluded in Loper Bright that “statutes, no

matter how impenetrable, do—in fact, must—have a single, best

meaning. That is the whole point of having written statutes; ‘every

statute’s meaning is fixed at the time of enactment.’” Loper Bright, 144

S. Ct. at 2266 (quoting Wis. Cent. Ltd. v. United States, 585 U.S. 274,

284 (2018)); see Varian, 163 T.C. at 105.

Respondent contends that Treasury was filling up the details of a

statutory scheme. Adding entirely new rules at odds with the statute

goes beyond filling in the gaps. We have to ask the same question that

we did in Varian: “Does the statute authorize the challenged agency

action?” Varian, 163 T.C. at 106 (quoting Loper Bright, 144 S. Ct.

at 2269). In Loper Bright, the Supreme Court noted that even under

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S.

837 (1984), “[i]f the intent of Congress is clear, that is the end of the

matter,” and courts were therefore to “reject administrative

constructions which are contrary to clear congressional intent.” Loper

Bright, 144 S. Ct. at 2264 (quoting Chevron, 467 U.S. at 842, 843 n.9).

Before Loper Bright, courts often applied Chevron deference to

defer to agencies’ “permissible” interpretation of ambiguous statutes

even when the reviewing court read the statute differently. Id. at 2254.

8 As already discussed, earnings that are taxed under subpart F, the MRT, or

the GILTI generally are not eligible for the section 245A dividends-received deduction

because they are classified as PTEP under section 959(a) and are not treated as

dividends. § 959(d).

19

The Supreme Court has made it clear that courts should “use every tool

at their disposal to determine the best reading of the statute and resolve

the ambiguity.” Id. at 2266.

As we concluded in Varian, 163 T.C. at 107, the rulemaking

authority “does the Commissioner no good here.” Section 245A makes

it clear that there is no limitation like the one Treasury proposed on the

dividends-received deduction. The Extraordinary Disposition Rules fall

outside the boundaries of any authority that Congress may have

delegated under section 245A(g) or 7805. See Varian, 163 T.C. at 107.

Therefore, because the Extraordinary Disposition Rules conflict with the

statute, they do not affect our conclusion that petitioner is entitled to

the full dividends-received deduction for the March 2019 Dividend.

VI.

Conclusion

For reasons stated above, we will grant petitioner’s Motion and

deny respondent’s Cross-Motion.

To reflect the foregoing,

An appropriate order and decision will be entered.

Reviewed by the Court.

URDA, C.J., and BUCH, NEGA, PUGH, ASHFORD,

COPELAND, JONES, TORO, GREAVES, MARSHALL, WEILER,

WAY, LANDY, ARBEIT, GUIDER, and FUNG, JJ., agree with this

opinion of the Court.

JENKINS, J., did not participate in the consideration of this

opinion.