When regs lose their deference: Three cases rewrite the tax playbook: PwC

When regs lose their deference: Three cases rewrite the tax playbook

Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Laura Williams, an international tax partner in PwC’s Washington National Tax Services office and former branch chief in the IRS Office of Chief Counsel. Doug and Laura discuss the role of Treasury regulations, Section 7805(a), and the post-Loper Bright limits on agency deference and delegated authority. They explain why TCJA’s mismatched effective dates created a ‘donut hole’ and examine three recent regulation-validity decisions: Varian Medical Systems, Keysight Technologies, and Siemens Medical Solutions. These cases concern the Section 78 gross-up, GILTI deductions, extraordinary dispositions, and the Section 245A dividends-received deduction. The conversation also addresses judicial precedent, protective refund claims, return and financial-statement positions, possible government appeals, and the IRS’s potential use of economic substance and other alternative arguments when challenged regulations do not survive.

[01:12] College football, Tennessee, Missouri and the SEC set the stage.
[03:00] Regulations overview and what Section 7805(a) authorizes for Treasury and the IRS.
[05:00] Loper Bright overturns 'Chevron deference' and preserves a role for delegated authority.
[07:35] How Treasury and the IRS draft regulations and identify statutory authority.
[09:30] Why TCJA’s international tax overhaul generated regulation-validity disputes.
[11:20] Toll charge ,100% DRD and GILTI; mismatched effective dates create the 'donut hole,' or gap period.
[14:40] Varian: The Section 78 gross-up and Section 245A DRD effective-date mismatch.
[17:05] Varian: Section 7805(a), Section 245A(g), and the limits of policy arguments.
[19:05] Keysight: Extraordinary dispositions, basis step-ups, and future GILTI deductions.
[20:55] Keysight’s Court of Federal Claims challenge and its limited precedential value. No express Section 951A delegation, and why Section 7805(a) alone was insufficient.
[22:15] Tax Court precedent, appellate routes, and possible Supreme Court review.
[24:00] Keysight’s 'properly allocable' analysis under the Loper Bright standard.
[25:10] Siemens: Gap-period E&P and the 50% denial of the Section 245A DRD.
[26:18] Siemens: The government’s Section 245A(g) delegation and policy-context arguments.
[27:05] The Tax Court rejects an attempt to repair clear statutory effective dates.
[28:00] Protective refund claims, amended returns, and financial-statement implications.
[29:20] Possible government appeals and continuing uncertainty over final resolution. Can Treasury fix historical problems through new regulations?
[30:55] Liberty Global and economic substance as an alternative government argument.
[33:20] Evaluating business purpose and economic substance for gap-period transactions.
[34:00] Broader implications for Section 7805(a) and future regulatory drafting.