Tax Insight

Tax Court rejects Section 245A limitation

Insight
5 minute read
July 30, 2026

What happened?

The United States Tax Court, in an opinion filed July 15, 2026, held that Siemens Medical Solutions USA, Inc. was entitled to a full dividends-received deduction under Section 245A for a dividend received from a foreign subsidiary in March 2019. The court concluded that the rules governing certain extraordinary dispositions under Temp. Treas. Reg. 1.245A-5T (the ‘Extraordinary Disposition Rules’) could not reduce the deduction because the regulation conflicted with the clear statutory text.

Why is it relevant?

The opinion rejects a Treasury regulation that attempted to close a transition-period gap created by differing effective dates in the Tax Cuts and Jobs Act (TCJA). The court reasoned that Treasury may not use regulatory authority to add a limitation that Congress did not include in the statute, even where Treasury believes the limitation is consistent with the broader policy of the international tax regime and where Congress has granted limited regulatory authority.

The decision closely follows the Tax Court’s reasoning in Varian Medical Systems, Inc. & Subs. v. Commissioner, 163 T.C. 76 (2024), and applies the post-Loper Bright framework requiring courts to independently determine the best reading of the statute. It reinforces that a general grant of authority to issue ‘necessary or appropriate’ regulations does not permit Treasury to contradict an unambiguous statutory rule.

Actions to consider

Taxpayers with prior year or pending Section 245A positions involving the Extraordinary Disposition Rules should identify affected years, quantify potential adjustments, and consider whether protective or affirmative refund claims, amended returns, or changes to pending controversy positions may be appropriate. Taxpayers also should consider reviewing documentation supporting the statutory qualification analysis, relevant controlled foreign corporation (CFC) tax years, the source and timing of earnings and distributions, and any disclosure positions previously taken.