The Tax Times: IRS Authority Under Fire: New Court Ruling Limits Treasury’s Regulatory Reach

Thursday, July 30, 2026

IRS Authority Under Fire: New Court Ruling Limits Treasury’s Regulatory Reach

Ruling May Further Erode IRS Authority After Loper Bright

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.

Looking Ahead

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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