Treasury wrote a rule. The Tax Court just said the rule doesn't matter.
On July 15, 2026, the U.S. Tax Court handed down Siemens Medical Solutions USA, Inc. v. Commissioner, 167 T.C. No. 5 — and in doing so, struck down a regulation the IRS had relied on for years to claw back roughly half of a corporate deduction that, according to the plain text of the statute, taxpayers were entitled to in full. If your business owns a foreign subsidiary, is thinking about restructuring cross-border operations, or works with a CFO who signs off on international tax positions, this case is worth understanding — not because everyone needs to know the mechanics of Section 245A, but because it's the latest data point in a much bigger shift: agencies can no longer quietly rewrite what a tax law says just because they think Congress left a gap.
The $315 million question
Here's the setup, stripped of jargon.
Siemens' U.S. entity owns a Dutch subsidiary. That subsidiary sold off part of its foreign operations, generating €819 million in new earnings. Later, the Dutch subsidiary distributed €1.75 billion up to its shareholders — and Siemens' U.S. parent received about $670 million of that as a dividend that, under ordinary rules, qualifies as foreign-source income eligible for a full deduction.
The IRS disagreed. Citing a Treasury regulation known as the "Extraordinary Disposition Rule," the IRS disallowed about $315 million of that deduction — nearly half. Its theory: the underlying sale happened during a narrow window when the earnings it generated escaped two other taxing regimes (the one-time Mandatory Repatriation Tax and the ongoing GILTI regime), so Treasury built a rule to make sure those earnings didn't also slip past the dividend deduction untaxed anywhere at all.
It's a defensible policy instinct. It just isn't what Congress wrote.
What Section 245A actually says
Section 245A, added by the 2017 Tax Cuts and Jobs Act, is one of the cornerstones of the U.S. shift toward a "territorial" corporate tax system. In plain terms: when a U.S. corporation owns at least 10% of a foreign subsidiary and that subsidiary pays it a dividend out of foreign earnings, the U.S. parent gets a 100% deduction on the foreign-source portion of that dividend. No U.S. tax on money that was already earned and (in theory) taxed abroad.
Treasury's 2019 regulations layered a limitation on top of that clean rule: if the earnings behind the dividend came from an "extraordinary disposition" — a sale of assets to a related party, outside the ordinary course of business, during a specific "disqualified period" when the earnings weren't going to be caught by GILTI or the repatriation tax — then only 50% of the deduction was allowed on that slice.
The problem, as the Tax Court saw it, is that none of those concepts — "extraordinary disposition," "disqualified period," the 50% haircut — appear anywhere in the statute Congress actually passed. Treasury built them from scratch to patch what it viewed as a timing loophole.
Why the court sided with the plain text
Judge Kerrigan's opinion leans heavily on Loper Bright Enterprises v. Raimondo, the 2024 Supreme Court decision that ended Chevron deference — the old doctrine under which courts largely deferred to an agency's "reasonable" interpretation of an ambiguous statute. Post-Loper Bright, courts are expected to determine the single best reading of a statute themselves, and an agency doesn't get the benefit of the doubt just because a question is technical.
Applying that standard, the court found Section 245A's language unambiguous: if a distribution meets the statute's requirements, the deduction applies in full. Treasury's regulation didn't clarify an ambiguity — it added a new limiting condition that Congress never wrote. As the opinion put it, an agency "may not rewrite clear statutory terms" no matter how sound the underlying policy goal.
The court also pointed to something telling: Congress set different effective dates for Section 245A and for GILTI, the anti-deferral regime Treasury was trying to protect. That gap is why some earnings could, in theory, dodge both regimes. But a timing mismatch that Congress created on purpose isn't a defect for Treasury to fix by regulation — it's a policy choice for Congress to revisit if it wants a different outcome.
This isn't even the first time a version of this fight has played out. An earlier case, Varian Medical Systems v. Commissioner, applied the same Loper Bright logic to allow a full Section 245A deduction, and a follow-on Tax Court opinion in April 2026 partially limited a taxpayer's DRD claim on separate grounds — so this is an active, unsettled area, not a single one-off ruling. Siemens is the clearest and largest version of the pattern so far.
Why this matters beyond one Dutch subsidiary
Most beancount.io readers aren't running a multinational with a €1.75 billion distribution to worry about. But the underlying lesson scales down in three ways that matter to any business with cross-border structure or an eye on regulatory risk:
1. "The regulation says so" is no longer the end of the analysis. For decades, a lot of tax planning simply deferred to whatever Treasury's regulations said, on the assumption courts would too. That assumption is now much weaker. If you or your advisor have been avoiding a position purely because a regulation — not the statute — seemed to forbid it, Siemens is a reason to take a second look, with counsel, at whether the regulation actually has statutory footing.
2. Documentation is what makes a plain-text argument work. Siemens didn't win by getting lucky — it won because the transaction, the dividend, and the earnings and profits pools behind it were tracked cleanly enough to show the distribution matched the statute's literal requirements. A business that can't reconstruct which earnings pool a dividend came from, or when a disposition happened relative to a "disqualified period," can't make this argument even if the law is on its side. Clean, auditable records are the prerequisite for winning an argument like this one, not an afterthought to it.
3. Disclosure was part of the winning position. Filing Form 8275-R (the Regulation Disclosure Statement) to flag that a return position departs from a regulation is a well-worn defensive move — it can blunt certain penalties even when the IRS disagrees, and transparent disclosure appears to have strengthened Siemens' footing here. The broader habit — take a position, but show your work and flag where you're departing from published guidance — is good practice at any size of business, not just Fortune 500 tax departments.
The bigger pattern: plain text beats agency gap-filling
Zoom out, and Siemens fits a trend that's been building since Loper Bright: courts are increasingly willing to strike down regulations that go further than the statute's actual words, even when the agency's policy rationale is reasonable. That has implications well past international tax — anywhere Treasury (or the IRS, or any federal agency) has filled a perceived statutory gap with a regulation, that regulation is now more exposed to challenge than it was two years ago.
For a small or mid-size business, the direct takeaway is narrower and more practical: if a rule that's costing you money or restricting a deduction is regulatory rather than statutory, it's worth asking your CPA whether that rule actually traces back to the law Congress passed — or whether it's an agency's gloss on top of it. The gap between "what the regulation says" and "what the statute says" is exactly where cases like this one get won.
Keep the Records That Make These Arguments Possible
Whether you're navigating a cross-border dividend or a routine deduction, the strength of any tax position — including a plain-text argument against an overreaching regulation — depends on records that clearly show what happened and when. Beancount.io offers plain-text accounting that's transparent, version-controlled, and easy to hand to a tax advisor without translation loss. Get started for free and keep books that hold up to scrutiny, not just to habit.