Tax Insight

Court rejects Treasury’s GILTI regulation

Insight
5 minute read
July 21, 2026

What happened?

The United States Court of Federal Claims on July 2, 2026, resolved cross-motions for summary judgment in Keysight Technologies, Inc. & Subsidiaries v. United States, No. 25-137. The case addressed whether Treasury had authority to promulgate Reg. 1.951A-2(c)(5), which limits deductions attributable to ‘disqualified basis’ in computing global intangible low-taxed income (GILTI) under Section 951A.

The court granted Keysight’s partial motion for summary judgment and denied the government’s cross-motion. Applying a post-Loper Bright framework, the court held that Treasury lacked authority to promulgate the regulation and that Treasury’s interpretation of ‘properly allocable’ was not persuasive under Skidmore v. Swift & Co.

Why is it relevant?

The decision is one of the first to interpret the scope of the Treasury Department’s regulatory authority under Section 7805(a) after the Supreme Court overturned Chevron in Loper Bright Enterprises v. Raimondo.

The opinion reinforces the post-Chevron principle that courts, not agencies, decide statutory meaning. It also illustrates that Treasury’s interpretation may receive little or no persuasive weight under Skidmore when the court finds reasoning, consistency, and statutory footing lacking.

Because this is a trial-level refund decision, taxpayers should evaluate its relevance in light of their own facts, procedural posture, and any further appellate developments. The opinion also could be relevant to taxpayers with open GILTI years, pending refund claims, or disputes in which Treasury relies on broad rulemaking authority rather than a specific statutory delegation.

Actions to consider

Taxpayers whose fiscal-year controlled foreign corporations (CFCs) may have been subject to the disqualified basis rules due to transactions occurring during the “GILTI gap period” in 2018 should consider whether the court’s holding may affect current or prior years, including by reviewing documentation supporting the relationship between deductions and gross tested income. Additionally, taxpayers considering the validity of other regulations should evaluate the relevance of the court’s reasoning to the basis for which Treasury and the IRS have asserted authority to promulgate those other regulations.