Tax regulations are going down after Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024), in which the U.S. Supreme Court concluded that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Courts are a coequal branch of government at the federal and state levels. While Loper Bright deference is not binding on state regimes, many states had similar statute construction principles for agency deference and cases that interpret federal tax regulations and deference to the tax-agency can be instructive at the state level.

The U.S. Court of Federal Claims recently struck Global Intangible Low-Taxed Income (“GILTI,” now Net Controlled Foreign Corporation Tested Income (often known as “NCTI”)) regulations promulgated by the U.S. Treasury Department (“Treasury”) as violating agency authority under Loper Bright. Keysight Techs., Inc. & Subsidiaries v. United States, No. 25-137 (Fed. Cl. July 2, 2026). The Keysight decision is a thunder-clapping wake-up call for state tax professionals for the analysis applied.

Keysight claimed entitlement to an amortization deduction under I.R.C. Section 197 when computing its GILTI inclusion under I.R.C. Section 951A. The Treasury saw a timing mismatch during which there could be deductions or losses attributable to non-taxable gap-period transactions, believed that such deductions or losses should not be available to reduce income when computing the GILTI inclusion, and promulgated regulations including 1.951A-2(c)(5)(2022). The question presented and answered is, “was the Treasury permitted to remedy the congressionally created distinction between fiscal-year and calendar-year filers which benefited Keysight and similarly situated domestic companies that controlled foreign corporation subsidiaries? The answer: It was not.” Keysight slip op. at 3. The Keysight court observed that “[s]tatutory interpretation begins with the words of the statute.” Keysight slip op. at 4. It continued:

Loper Bright specified that courts may “seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.’” The weight of these interpretations “depend[s] 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.” This “power to persuade” is especially informative “to the extent it rests on factual premises within [the agency’s] expertise.” However, the Court is the final arbiter and interpreter of statutes, particularly when they are ambiguous.

Keysight slip op. at 4 (citations omitted) (emphasis added).

The Treasury first relied on its general authority to promulgate “all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” I.R.C. § 7805(a). Many states rely on similar general language as purportedly requiring deference to the agency. The Keysight court rejected Treasury’s general authority argument and noted “[t]o 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. The Court declines to cross a bridge the law does not build.” Keysight slip op. at 6-7.

The Treasury also relied on the specific statute (I.R.C. § 951A(c)(2)(A)(ii)) coupled with its general rulemaking authority (I.R.C. § 7805(a)). Yet more states rely on specific statutory language to support deference. The Keysight court rejected Treasury’s specific-statutory argument and stated: 

In principle, the Court agrees—if Section 951A(c)(2)(A)(ii) specifically granted authority to the Secretary to promulgate the Regulation, it would likely be sufficient, coupled with the Secretary’s broader power under Section 7805(a). However, Section 951A(c)(2)(A)(ii) does not grant the Treasury specific authority, neither expressly nor impliedly. The statute is altogether ambiguous. In other parts of Section 951A there are some express delegations of authority to the Secretary, such as “[t]he Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection,” but those express grants are limited to specific subsections and even more specific conditions. The subsection at issue here, Section 951A(c), does not reference the Secretary at all. Generally, “the silence of Congress” is “a treacherous guide to its intent.” Even still, the Court finds it curious that Congress expressly delegated authority to the Secretary to promulgate regulations with regard to some subsections but not others.” 

Keysight slip op. at 7-8 (citations omitted) (emphasis added).

The Treasury also argued that statutory language for “tested income, ” referring to deductions “properly allocable to such gross income,” is ambiguous and provides an opportunity to the Court to review the government’s interpretation of the statute for guidance and that the regulation’s language is persuasive. The Keysight court observed that “[t]he 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.” Keysight slip op. at 11. The Court found the Treasury’s “reasoning and consistency lacking[]” and without “the power to persuade[,]” it earned no deference. Keysight slip op. at 12.

The Takeaway: Words matter! Regulations cannot exceed the scope of their enabling statutes. Courts can interpret tax statutes as they would any other statute and deference is not needed. Courts are taking back their powers to interpret tax statutes and deferring less to interpretations by tax agencies. As states continue to attempt to tax foreign income (GILTI/NCTI) that has nothing to do with business conducted in their states, it is refreshing to see a federal court untying the fabric of the foreign-property grab and declining agency deference.