Section 245A: Tax Court Rejects Conflicting Tax Regulation

Filed under

Siemens Medical Solutions USA, Inc. v. Commissioner, 167 T.C. No. 5 (July 15, 2026)

The U.S. Tax Court held that Siemens Medical Solutions USA, Inc. was entitled to the full dividends-received deduction under IRC § 245A for a foreign-source dividend. The court held that the temporary “extraordinary disposition” rules could not override the clear statutory text and did not apply to disallow 50% of an otherwise qualifying deduction. This was a reviewed opinion joined by 17 judges.

Section 245A Transaction and Tax Court Analysis

Section 245A generally provides a 100% deduction for the foreign-source portion of certain dividends received by a domestic corporation from a specified 10%-owned foreign corporation. The provision applies to distributions made after December 31, 2017.

The dispute arose from differences in the effective dates of several provisions enacted by the Tax Cuts and Jobs Act. Section 245A applied to distributions made after December 31, 2017, while the global intangible low-taxed income rules generally applied to taxable years of foreign corporations beginning after that date. For some fiscal-year foreign corporations, this created a transition period during which earnings could fall outside both the transition tax and the GILTI regime but still qualify for the § 245A deduction when distributed.

Through Siemens Healthcare Diagnostics, Inc., a member of its consolidated group that owned 67.78% of the distributing foreign corporation, Siemens received a March 19, 2019 dividend following two related-party sales of subsidiary stock in 2018. The dividend portion was $670,616,109, all of which was foreign source and satisfied the statutory requirements for the § 245A deduction. Siemens concluded that the sales likely qualified as extraordinary dispositions but claimed the full deduction on the basis that the temporary rules could not override the statute. It disclosed that position on Form 8275-R. The IRS later issued a notice of deficiency disallowing $314,992,962 of the deduction.

The Tax Court concluded that the temporary regulation conflicted with § 245A. Relying heavily on Varian Medical Systems, the court noted that Congress selected a distribution-based effective date for § 245A instead of the Senate’s alternative and that this legislative choice must be respected. Although the IRS argued that Varian was distinguishable because the extraordinary-disposition rules targeted a narrow category of transactions rather than expressly changing an effective date, the court found their effect materially the same: the rules effectively delayed § 245A for 50% of certain dividends.

Applying Loper Bright, the court also rejected the IRS’s reliance on Treasury’s authority under § 245A(g) to issue regulations that are “necessary or appropriate.” A regulation that contradicts the statute it implements, the court explained, cannot be necessary or appropriate and falls outside the authority granted by Congress.

Why the Siemens Section 245A Decision Matters

Siemens reinforces that Treasury regulations must remain within the authority granted by Congress and cannot override unambiguous statutory language to address a perceived policy gap. The decision is particularly relevant to taxpayers whose § 245A deductions were limited under the extraordinary-disposition rules. Siemens’s use of Form 8275-R also illustrates the importance of evaluating disclosure obligations and penalty exposure when taking a return position contrary to a regulation. Before pursuing a refund, amended-return, or controversy position, taxpayers should also consider procedural requirements and any appellate or administrative developments.