3 Tax Court Decisions That Could Impact Your Bottom Line
Tax law may seem like it moves slowly, but last year brought several U.S. Tax Court decisions that could have real consequences for businesses and individuals—especially those dealing with international tax compliance, corporate deductions, or IRS penalties. We’ve pulled together three recent key cases and broken down what happened, what it means, and why it matters.
1. Varian Medical Systems Inc. v. Commissioner (2024)
The Tax Court held that Varian was entitled to a section 245A deduction for amounts properly treated as dividends under section 78 for its 2018 tax year. The Court found the statutory text to be clear and ruled that the Treasury regulation could not override it. It also reaffirmed that under §245A(d)(1), foreign tax credits must be disallowed to the extent they are attributable to amounts deducted under §245A. Importantly, the Court cited the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo to emphasize that agency interpretations are not entitled to deference when the statute itself is unambiguous. As a result, the regulation could not change the effective date set by Congress.
Why it matters: This decision underscores that statutory clarity takes precedence over regulatory interpretation. Taxpayers claiming foreign dividends received deductions or foreign tax credits should rely on the Internal Revenue Code, especially when the law’s language is explicit.
2. Safdieh v. Commissioner (2024)
The Tax Court held that for cases appealable to circuits other than the D.C. Circuit, it would continue to follow its prior decisions that the IRS lacks authority to assess section 6038 penalties. These civil penalties apply to U.S. persons who fail to timely file required international information returns, such as Form 5471. Because this case was appealable to the Second Circuit, the Court declined to follow the D.C. Circuit’s reversal in Farhy and held that the penalty was not validly assessed.
Why it matters: Taxpayers facing international information reporting penalties should be aware that the enforceability of these penalties depends on jurisdiction. The IRS’s authority to assess can vary by circuit, making legal strategy and location crucial.
3. Acqis Technology Inc. v. Commissioner (2024)
The Tax Court found that the settlement agreements, which were structured as stock purchases, were economic shams that lacked both business purpose and economic substance. As a result, the transactions were disregarded for tax purposes. The Court also held that the extended six-year limitations period under §6501(e) applied because the company had omitted amounts from gross income that exceeded 25% of the income reported on its return—and its disclosures were not adequate. Additionally, the Court sustained the imposition of accuracy-related penalties.
Why it matters: The IRS and courts will look beyond the form of a transaction if there’s no underlying substance. Failing to report significant income accurately—or disguising it through sham transactions—can expose taxpayers to extended audit windows and steep penalties.
The Bottom Line: Compliance, Clarity, and Consequences
These cases serve as a powerful reminder that clarity, transparency, and substance matter. Whether you’re managing a multinational business, responding to an IRS audit, or navigating penalty relief, having experienced tax counsel can make all the difference.
At Kundra & Associates, we stay on top of the latest court decisions and policy changes to protect your interests. We provide tax representation and advisory services across the U.S. and internationally, with clients based in Washington, D.C., Maryland, Virginia, and abroad.
If these rulings raise questions about your own filings or risk exposure, let’s talk. We're here to help you take the next right step.