A recent decision by the U.S. Court of Federal Claims, Keysight Techs., Inc. v. United States, No. , slip op. at (Fed. Cl. July , 2026), may significantly narrow the Treasury Department’s ability to rely on broad regulatory authority in the wake of the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo. For tax practitioners, the ruling signals a continued shift toward stricter judicial scrutiny of Treasury regulations—particularly those that extend beyond the clear text of the Internal Revenue Code.
Background: The Post-Loper Bright Landscape
In Loper Bright, the Supreme Court eliminated Chevron deference,
fundamentally altering how courts evaluate agency regulations. Rather than
deferring to an agency’s reasonable interpretation of ambiguous statutes,
courts now apply independent judgment in determining statutory meaning.
For the IRS and Treasury,
this shift raised an immediate question: what authority remains to support
longstanding regulations, especially those grounded in broad or implied
statutory mandates?
Historically, Treasury has
leaned on Internal Revenue Code Section 7805(a), which grants authority to
“prescribe all needful rules and regulations” for enforcement of the Code.
Post-Loper Bright, many anticipated
that Section 7805(a) would serve as a fallback to sustain regulatory frameworks
lacking explicit statutory grounding.
The Court of Federal Claims Decision
In a case involving Keysight
Technologies Inc., the Court of Federal Claims rejected that approach. The
court held that the Tax Cuts and Jobs Act of 2017 did not provide either
express or implied authority for the challenged GILTI-related regulations. More
notably, the court concluded that Section 7805(a), standing alone, cannot
supply the necessary authority to uphold such rules.
This is a critical
development. The court effectively rejected the notion that a general grant of
regulatory authority can fill statutory gaps or justify expansive rulemaking.
Instead, Treasury must point to a specific delegation of authority tied to the
provision at issue.
Implications for Tax Regulation
The decision carries several
important implications:
·
Narrower Regulatory
Authority: Treasury
may face increasing difficulty defending regulations that stretch beyond the
statutory text, particularly in complex international tax regimes like GILTI,
Subpart F, and BEAT.
·
Increased Litigation Risk: Taxpayers now have
stronger grounds to challenge regulations that lack clear statutory support,
especially where Treasury relied heavily on policy-driven interpretations.
·
Heightened Importance of
Statutory Drafting: Congressional precision will become more critical. Ambiguities
are less likely to be resolved in favor of the government.
·
Potential Retroactive Impact: Existing
regulations—particularly those issued under broad interpretive authority—may
face renewed scrutiny and possible invalidation.
Practical Takeaways for Taxpayers and Advisors
For multinational taxpayers
and their advisors, this evolving landscape presents both risks and
opportunities. Regulatory positions once considered settled may now be open to
challenge, particularly in areas where Treasury relied on expansive interpretations
of ambiguous statutory provisions.
At the same time,
uncertainty may increase in the short term as courts continue to define the
limits of agency authority post-Loper
Bright. Taxpayers should carefully evaluate positions taken in reliance on
regulations that could be vulnerable under this new standard.
This decision is unlikely to
be the final word. Appeals and further litigation will continue to shape the
contours of Treasury’s authority. However, the trend is clear: courts are no
longer willing to defer to agency interpretations absent clear congressional
authorization.
For the IRS, Section 7805(a)
may no longer serve as a reliable safety net. For taxpayers, that shift may
open the door to meaningful challenges—and potentially significant planning
opportunities.
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