Key Takeaways
- The U.S. Court of Federal Claims held that Treasury did not have authority to issue Treas. Reg. §1.951A-2(c)(5), commonly referred to as the GILTI disqualified basis rule.
- The decision may affect certain taxpayers, particularly those that were denied depreciation or amortization deductions in computing GILTI due to basis created during the Tax Cuts and Jobs Act (TCJA) transition period.
- The ruling is a post-Loper Bright1 decision addressing the scope of Treasury’s regulatory authority.
The Bottom Line
In Keysight Technologies Inc. & Subsidiaries v. United States,2 the U.S. Court of Federal Claims granted the taxpayer’s partial motion for summary judgment and denied the government’s cross-motion for summary judgment. The court concluded that Congress did not authorize Treasury to issue Treas. Reg. §1.951A-2(c)(5), commonly referred to as the global intangible low-taxed income (GILTI) disqualified basis rule.
The dispute arose from the transition to the GILTI regime enacted as part of the TCJA. GILTI generally applies to taxable years of controlled foreign corporations (CFCs) beginning after December 31, 2017, and to U.S. shareholders’ taxable years in which or with which those CFC taxable years end. The effective date structure created a timing mismatch for certain fiscal-year CFCs and calendar-year CFCs during the TCJA transition period.
Treasury issued Treas. Reg. §1.951A-2(c)(5) to address what it viewed as an unintended benefit from the mismatch. The regulation generally limited deductions attributable to “disqualified basis,” including depreciation and amortization deductions attributable to basis created during the TCJA transition period, by treating those deductions as not properly allocable to gross tested income for GILTI purposes.
The transaction at issue involved related CFCs with different taxable years. According to the court, Treasury viewed the effective-date mismatch as allowing certain related-party asset transfers during the “disqualified period” to create stepped-up basis that could generate amortization or depreciation deductions without a corresponding GILTI inclusion during the transition period. Keysight challenged the regulation after the IRS denied refund claims for the 2020, 2021, and 2022 tax years, arguing that it was entitled to §197 amortization deductions when computing its GILTI inclusion.
The court held that neither Treasury’s general rulemaking authority under IRC §7805(a) nor the specific GILTI statutory provisions authorized Treasury to redefine which deductions were “properly allocable” to gross tested income. The court described the regulation as Treasury’s attempt to address a gap in the statutory framework but concluded that the agency could not use a regulation to impose a result that Congress did not authorize.
Limits of Regulatory Authority
The decision follows a broader pattern of post-TCJA cases, including Varian3 and Liberty Global,4 in which taxpayers relied on transition-period or effective-date mismatches and Treasury attempted to limit those results through regulation.5 In each case, courts scrutinized whether Treasury had sufficient statutory authority to close the legislative void. Keysight adds a regulatory-authority angle to that pattern, inferring that Treasury’s general rulemaking authority under §7805(a) may not be substantial enough to close a perceived statutory gap where the specific GILTI provisions do not authorize the regulatory result. These cases may not necessarily undermine §7805(a) as a general rulemaking provision, but they may suggest that the statute may be insufficient where a regulation changes the result intended by the statutory text.
Action Items
Taxpayers that applied Treas. Reg. §1.951A-2(c)(5) should review whether depreciation or amortization deductions attributable to disqualified basis were limited in prior or current GILTI computations. Depending on the taxpayer’s facts and the applicable statutes of limitation, the decision may affect current-year positions or identify potential refund opportunities for open tax years.
Taxpayers should also monitor whether the government appeals or Treasury or the IRS issues additional guidance addressing the disqualified basis rule.
- 1Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
- 2Keysight Technologies Inc. & Subsidiaries v. United States, No. 25-137 (Fed. Cl. July 2, 2026).
- 3Varian Medical Systems, Inc. & Subsidiaries v. Commissioner, 163 T.C. 76 (2024).
- 4Liberty Global, Inc. v. United States, No. 23-1410 (10th Cir. Apr. 21, 2026).
- 5KLA Corp. v. Commissioner, T.C. No. 6241-26 is another case currently in the Tax Court with similar arguments.