The Tax Times: When Treasury Oversteps: Keysight, GILTI, and Post

Keysight in a nutshell

GILTI, enacted in the Tax Cuts and Jobs Act, was designed to impose current U.S. tax on certain low‑taxed foreign earnings of controlled foreign corporations (CFCs). Treasury identified what it viewed as a design flaw: when a CFC’s tax year did not align with the U.S. shareholder’s year, timing mismatches could arise between foreign‑law accounting and U.S. inclusions.

To address this, Treasury promulgated regulations—most notably Treas. Reg. § 1.951A‑2(c)(5)—that effectively reallocated or adjusted tested income across years to neutralize perceived timing distortions. Keysight, a U.S. multinational, filed a refund suit in the Court of Federal Claims attacking that “fix” and the way it impacted its GILTI calculations, including the government’s position on amortization deductions under section 197 within GILTI.

In a July 2026 decision, the Court of Federal Claims held the GILTI regulation invalid, concluding that Treasury had gone beyond the statute Congress actually enacted. The decision rejects the idea that Treasury can cure structural or timing mismatches by rewriting section 951A’s framework via regulation when Congress itself did not provide that solution.

Why the regulation fell: statutory limits after Loper Bright

Although Keysight is a tax case, its logic sits comfortably in the broader administrative law shift following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo. In Loper Bright, the Court curtailed the deference traditionally afforded to agencies in interpreting ambiguous statutes, emphasizing that it is the judiciary’s role—not the agency’s—to determine what the law means, and that “gap‑filling” cannot amount to rewriting statutory schemes under the guise of interpretation.

Keysight applies that same sensibility to GILTI. Treasury saw a mismatch problem with fiscal‑year CFCs and decided to fix it by regulation. The Court of Federal Claims, however, focused on statutory boundaries: section 951A lays out a detailed scheme for computing tested income, determining the inclusion, and coordinating timing, and the regulation’s cure could not be squared with that statutory architecture.

In effect, the court treats Treasury’s fix as policy‑driven rather than text‑driven. Where Loper Bright insists courts must independently construe statutes without reflexive deference to agency “solutions,” Keysight demonstrates what that looks like in the international tax context: if the statute doesn’t authorize the timing reallocation Treasury prefers, the regulation cannot stand—even if Treasury’s policy concerns are real.

Practical implications for multinationals

For U.S. multinationals with CFCs on fiscal years, Keysight has immediate practical consequences:

· It undercuts the government’s ability to rely on Treas. Reg. § 1.951A‑2(c)(5) to force timing adjustments that increase GILTI inclusions, at least for taxpayers similarly situated to Keysight.

· It invites taxpayers to revisit prior‑year GILTI computations where the now‑invalid regulation moved income into, or out of, particular years in a way that was unfavorable, and to evaluate refund or protective claims for open years.

· It strengthens arguments that existing deduction regimes—such as section 197 amortization—must be respected in GILTI computations where the statute, rather than regulation, leads to that result.

More broadly, Keysight will likely become a key citation for challenges to other TCJA regulations that “fix” perceived statutory flaws by stretching interpretive authority. In a post–Loper Bright world, courts are increasingly willing to ask whether the statute itself authorizes the agency’s solution; if it does not, the regulation is vulnerable even in complex tax areas.

What tax departments should do now

In light of Keysight and Loper Bright, tax departments and advisors should:

· Inventory situations where GILTI computations relied on Treas. Reg. § 1.951A‑2(c)(5) or similar “fix‑it” rules and quantify the impact on inclusions and deductions.

· Consider refund or protective claims for affected years, balancing potential benefits against controversy risk and IRS responses as the government reassesses its position.

· Monitor closely for IRS or Treasury reactions—whether in the form of litigation strategy, non‑acquiescence, new guidance, or a push for legislative change to address timing mismatches expressly.

For cross‑border clients, the key takeaway is that agency efforts to repair perceived statutory defects are now subject to much stricter judicial review. GILTI may have been designed quickly and imperfectly, but under Loper Bright and cases like Keysight, it is Congress—not Treasury—that must fix those imperfections.

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