Keysight Technologies, Inc. & Subsidiaries v. United States, No. 25-137 (Fed. Cl. July 2, 2026)

The United States Court of Federal Claims has held that the Department of the Treasury lacked the statutory authority to promulgate Treasury Regulation Section 1.951A-2(c)(5), which sought to deny amortization and depreciation deductions on assets transferred during the "disqualified period". This controversy arose from what the court characterized as the "Treasury’s self-inflicted fix of a mismatch between foreign subsidiaries with fiscal- or calendar-year tax filing requirements that Congress quietly built into the global intangible low-taxed income ('GILTI') statutory scheme".

By granting partial summary judgment to the taxpayer, the court’s decision in Keysight Technologies, Inc. & Subsidiaries v. United States represents a landmark post-Chevron application of the statutory interpretation principles established in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). For tax professionals, including CPAs and EAs, the decision provides a critical blueprint of how federal courts will scrutinize Treasury regulations that seek to rewrite clear statutory provisions under the guise of preventing tax-advantaged transactions.

Case Background and the Disqualified Period Mismatch

Historically, United States companies generally did not pay tax on the earnings of their foreign subsidiaries until those earnings were returned or repatriated to the United States. Congress fundamentally altered this deferral approach in the Tax Cuts and Jobs Act of 2017 (TCJA) by enacting I.R.C. Section 951A, which created a new category of taxable income—GILTI—taxed in the year it is earned regardless of repatriation.

However, "Enactment of the TCJA created an inconsistency between treatment of certain taxpayers depending on whether they were fiscal-year or calendar-year filers". Because of the effective dates chosen by Congress, certain taxpayers with foreign subsidiaries filing on a fiscal-year basis obtained a "gap period" or "disqualified period" before the GILTI provisions took effect. During this period, taxpayers could engage in non-taxable intercompany transfers of assets (such as intangible property) from a fiscal-year controlled foreign corporation (CFC) to a calendar-year CFC. This transaction generated a stepped-up "disqualified basis" in the hands of the transferee CFC without triggering immediate U.S. tax liability.

In an effort to prevent taxpayers from "gam[ing] the new rules", the Secretary of the Treasury promulgated Treasury Regulation Section 1.951A-2(c)(5). Under the Regulation, any deduction, loss, depreciation, or amortization attributable to such "disqualified basis" is allocated and apportioned "solely to residual CFC gross income". Residual CFC gross income is defined as gross income other than gross tested income, subpart F income, or effectively connected income. Consequently, the Regulation rendered these amortization deductions completely unavailable to reduce the CFC's gross tested income subject to U.S. tax under the GILTI regime.

Taxpayer Request for Relief and Refund Claims

The Plaintiff, Keysight Technologies, Inc. & Subsidiaries (Keysight), is a multinational technology provider that operates three foreign subsidiaries organized in Singapore and one in Delaware. Keysight filed refund claims for the 2020, 2021, and 2022 tax years. Keysight argued that it "is entitled to an amortization deduction under section 197 of the Internal Revenue Code when computing its [GILTI] inclusion under section 951A".

If Treasury Regulation Section 1.951A-2(c)(5) had never been promulgated, Keysight would have been permitted to use its Section 197 amortization deductions to reduce its GILTI inclusion. Keysight challenged the validity of the Regulation itself, asserting that it "contradicts the promulgating statute; exceeds the Treasury’s authority; and is not a logical outgrowth of the proposed rule in violation of the Administrative Procedure Act ('APA')".

The economic stakes of this legal challenge are exceptionally high. During oral argument, the government’s counsel explicitly noted the following:

"If you rule in our favor, not only would Keysight not be able to claim the $500 million in amortization deductions for each of the three years, Keysight’s intending to make that same claim through 2033. So we’re talking upwards possibly of $500 million".

Because neither party presented any contested material facts, the court proceeded to resolve the cross-motions for summary judgment exclusively as a pure question of law.

The Post-Chevron Judicial Review Framework

The court’s analysis in Keysight begins by addressing the profound shift in administrative law following the Supreme Court’s recent term. Judge Tapp observed:

"When Chevron fell, so too did the presumption that statutory ambiguity favors the agency. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024)".

Under this new reality, "Loper Bright unambiguously reassigned interpretive authority to the courts", establishing that courts have the final word on statutory meaning and that "agency interpretations of statutes 'are not entitled to deference'".

Instead, judicial evaluation of an agency's interpretation is guided by the persuasive weight standard established in Skidmore v. Swift Co., 323 U.S. 134 (1944). Under Skidmore, an agency’s interpretation constitutes a body of experience and informed judgment to which courts may resort for guidance, but its weight depends entirely upon "the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control".

Additionally, pursuant to the Tucker Act, 28 U.S.C. Section 1491, the court reviews agency actions under the judicial-review standards of the APA. Under 5 U.S.C. Section 706(2)(A) and (C), a court must "hold unlawful and set aside" any agency regulation that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or is "in excess of statutory jurisdiction, authority, or limitations". A regulation that is contrary to the underlying statute is, by definition, invalid.

Analysis of Promulgating Authority Under Section 7805(a)

The United States cited multiple sources of authority to justify the Regulation, relying heavily on the broad grant of authority under I.R.C. Section 7805(a), which directs the Secretary to "prescribe all needful rules and regulations for the enforcement of this title". The government argued that, even post-Chevron, Section 7805(a) should be read as a broad delegation of authority allowing the agency to issue regulations ensuring that the application of the law matches Congress's unexpressed intent, citing Lesko v. United States, 161 F.4th 1352 (Fed. Cir. 2025).

The court rejected this argument, holding that "The general grant of authority in Section 7805(a), standing alone, is insufficient to supply the requisite authority to the Secretary". Judge Tapp reasoned:

"To follow the United States’ logic to its conclusion and find that Section 7805(a) grants the Secretary unfettered discretion to not only prescribe 'needful rules' but to also define when rules are and are not 'needful' would invalidate Loper Bright itself".

Under the Treasury's view, an agency's mere disagreement with the scope of congressional action would suffice to justify restructuring federal law. If Section 7805(a) operated as a pre-packaged Loper Bright exception, virtually every agency regulation would be presumptively valid, rendering the Supreme Court's decision meaningless. Furthermore, if Section 7805(a) broadly authorized substantive tax regulations whenever Treasury deemed them "needful," there would be no reason for Congress to expressly write specific regulatory authorizations elsewhere in the Code—yet Congress has done so many times, such as in I.R.C. Sections 245A(g) and 951A(d)(4).

The court also scrutinized the Treasury's shifting statutory justifications. In the proposed rule, the Treasury relied principally on its anti-abuse authority under Section 951A(d)(4), but in the final rule, it rested almost entirely on its general rulemaking authority under Section 7805(a). Section 951A(d)(4) permits the Secretary to issue regulations "appropriate to prevent the avoidance of the purposes of this subsection". However, Judge Tapp emphasized that "'this subsection' refers to Section 951A(d), which encompasses rules about qualified business asset investment ('QBAI')". GILTI tested income is governed by a separate subsection, Section 951A(c). Under subsequent legislative history, the court noted that Congress had an opportunity to change the language of Section 951A(d)(4) to "section" rather than "subsection" in the failed Build Back Better Act of 2021, but did not do so, confirming that the anti-abuse authority remains strictly confined to QBAI.

Rejection of the Subsection 951A(c) and 954(b)(5) Regulatory Mandates

Pursuing another angle, the government argued that Section 7805(a), in conjunction with Section 951A(c)(2)(A)(ii), gave the Secretary broad discretion to fill in statutory gaps resulting from the TCJA's changes. Section 951A(c)(2)(A)(ii) defines GILTI "tested income" by subtracting deductions "properly allocable to such gross income under rules similar to the rules of section 954(b)(5)".

The United States contended that this was an express delegation because Section 954(b)(5) states that foreign personal holding company, sales, and services income shall be reduced "under regulations prescribed by the Secretary, so as to take into account deductions (including taxes) properly allocable to such income". The government asserted that the cross-reference to "rules similar to the rules of section 954(b)(5)" permitted the Treasury to define "properly allocable" via regulation for GILTI purposes.

The court disagreed with this expansive interpretation, ruling:

"Section 951A(c)(2)(A)(ii) does not grant the Treasury specific authority, neither expressly nor impliedly. The statute is altogether ambiguous".

The court highlighted that the subsection at issue, Section 951A(c), "does not reference the Secretary at all". Citing Watt v. Alaska, 451 U.S. 259 (2011), and Scripps-Howard Radio, Inc. v. FCC, 316 U.S. 4 (1942), the court noted that "the silence of Congress" is "a treacherous guide to its intent". It found it curious that Congress explicitly delegated regulatory authority in other subsections of Section 951A (such as Sections 951A(d)(4) and 951A(f)(1)(B)) but remained completely silent in Section 951A(c).

Furthermore, the court read the Code narrowly, concluding that Section 954(b)(5) only grants regulatory authority "‘[f]or purposes of subsection (a),’ which in turn describes foreign base company income, not GILTI". Consequently, the cross-reference to Section 954(b)(5) in Section 951A(c)(2)(A)(ii) was a reference to substantive statutory principles, not an import of regulatory power to rewrite the definition of "properly allocable". The government's reliance on pre-Loper Bright appellate decisions, such as Redlark v. Commissioner, 141 F.3d 936 (9th Cir. 1998) and Miller v. United States, 65 F.3d 687 (8th Cir. 1995), to claim an implicit legislative delegation was dismissed as an "over-extension of the Treasury’s statutory authority, of which the Court can find none other than the overly broad Section 7805(a)".

The Factual Relationship Test and Ordinary Meaning of 'Properly Allocable'

At the core of the dispute was whether the Secretary could redefine the term "properly allocable" to deny deductions that were factually related to GILTI gross tested income. The government argued that because "properly allocable" is not defined in the Tax Code, it is ambiguous, thereby granting the Secretary the authority to define the term how it wishes.

The court strongly rejected this premise:

"The premise that the Secretary is allowed to read ambiguity into the Tax Code and then resolve the ambiguity without constraint is antithetical to the very core of Loper Bright. It confers unfettered discretion to administrative agencies".

To divine the ordinary meaning of "properly allocable" at the time Section 951A was adopted in 2017, the court turned to Savage v. Commissioner, 165 T.C. 54 (2025), which analyzed the phrase in the context of Section 199A. In Savage, the Tax Court determined that "the ordinary meaning of the phrase ‘properly allocable’ refers to something that may be designated to go with something else and fits appropriately or correctly (permissibly, one might say) with it".

According to Keysight, the rule of Section 954(b)(5) at the time of GILTI's enactment was the "factual relationship test," implemented through Treasury Regulation Section 1.954-1(c)(1)(i)(B), which incorporates the principles of Sections 861, 864, and 904(d). Crucially, the companion regulation under Section 861, Treasury Regulation Section 1.861-8(a)(2), states:

"Allocations and apportionments are made on the basis of the factual relationship of deductions to gross income".

Furthermore, Section 1.861-8(b)(2) defines a deduction as definitely related and allocable to a class of gross income "if it is incurred as a result of, or incident to, an activity or in connection with property from which such a class of gross income is derived".

The court agreed that "properly allocable" is contextual, but concluded that Keysight "demonstrated a clear thread of legislative intent that supports a definition of 'properly allocable' more akin to the factual relationship test". Because the amortization deductions on the acquired assets were factually related to the assets generating Keysight's GILTI gross tested income, they were "properly allocable" to that gross tested income under traditional statutory principles. The Treasury's attempt to force these factually related deductions into a "residual" non-GILTI category commanded no persuasive weight under Skidmore because its reasoning and consistency were entirely lacking.

The Court's Ultimate Conclusions and Professional Takeaways

The Court of Federal Claims ultimately concluded that the Department of the Treasury lacked the statutory authority to promulgate Treasury Regulation Section 1.951A-2(c)(5). Judge Tapp declared:

"To allow the Secretary to define terms it deems ambiguous, untethered to congressional grants of authority or the underlying statutory context, is precisely the kind of agency overreach Loper Bright was designed to foreclose".

In doing so, the court dismissed the government’s policy-driven justifications. The United States argued that the regulation was necessary to prevent an "abusive result" and that Congress did not intend a "massive tax holiday" for fiscal-year CFCs. The court held that if a taxpayer acts within the literal bounds of the statute as Congress chose to enact it, "characterizing Keysight's statutorily authorized conduct as 'abusive' is simply incorrect".

Furthermore, the court dismissed the Treasury's focus on revenue protection:

"Whether the outcome of litigation financially benefits one party over the other, even when one of the parties is the Department of Treasury, is not the Court’s concern".

Consequently, the court denied the government's Cross-Motion for Summary Judgment and granted Keysight's Partial Motion for Summary Judgment, invalidating the Regulation.

For CPAs, EAs, and corporate tax directors, this decision is highly significant. It signals that courts will no longer permit the IRS to use "anti-abuse" arguments to override the literal text of the Code unless Congress has explicitly granted the agency specific, targeted regulatory authority to do so. Tax practitioners should review client GILTI filings from open years and consider filing protective refund claims if those clients were forced to allocate amortization or depreciation deductions to "residual CFC gross income" under the now-invalidated Regulation.

Prepared with assistance from NotebookLM.