USA Trends and Developments Contributed by: Kim Marie Boylan, Kevin Spencer, Nicholas Wilkins and Sean Lyons, White & Case LLP
argument is that prior US Supreme Court prec - edent conclusively established that Section 482 of the Code may not be used to allocate income the payment of which is prohibited by law. The taxpayer also renewed its arguments concerning the procedural invalidity of Treasury Regulation Section 1.482-1(h)(2) (Id at 15–26). The government primarily relied on its argu - ment that the allocation was mandatory under the plain language of Section 482 of the Code, such that the court need not reach the question of the validity of the regulation (Suppl Brief for the Appellee at 2–3, 3M Co v Commissioner, No 23-3772 (8th Cir 2 October 2024)). The govern - ment argued that, should the court reach that question, Loper Bright supports the validity of the regulation (Id at 13). The government stated that “courts have long recogni[s]ed” that Section 482 of the Code delegates discretionary author - ity to the IRS and the Treasury (Id at 15). Given the discretionary grant of authority, the govern - ment argued that the court must only “ensure that [the] Treasury acted within ‘the boundaries of the delegated authority’ and ‘engaged in rea- soned decision[-]making within those bounda- ries’ in promulgating [Treasury Regulation Sec- tion] 1.482-1(h)(2)” (Id at 17) (quoting Loper Bright at 395). The government then explained how the regulation was consistent with govern - ment’s reading of Section 482 of the Code and made arguments in response to the taxpayer’s position concerning the procedural validity of Treasury Regulation Section 1.482-1(h)(2) (Id at 17–31). Oral arguments in 3M took place in October 2024. At the time of writing (March 2025), the court’s opinion has not been issued.
ii) Coca-Cola case The issue of blocked income in Coca-Cola was decided after the US Tax Court issued its opinion in 3M. Noting that the court had already upheld Treasury Regulation Section 1.482-1(h)(2) as valid in 3M, the US Tax Court simply applied the regulation to the taxpayer’s facts (see Coca- Cola Co v Commissioner, TC Memo 2023-135 at 14 ( “[B]ecause the [US Tax] Court sustained the regulation’s validity [in 3M], we proceed to con- sider how the regulation applies here…” )). The court concluded that the relevant Brazilian legal restrictions would not be taken into account under the regulation (Id). On appeal, the taxpayer advanced arguments similar to those offered by the taxpayer in the 3M appeal (see Opening Brief for Petitioner-Appel - lant the Coca-Cola Co & Subsidiaries at 53–57, Coca-Cola v Commissioner, No 24-13470 (11th Cir 12 March 2025)). The taxpayer argued that Section 482 of the Code unambiguously pro - vides that no allocations of blocked income are permissible and also argued that the US Tax Court’s Chevron analysis in 3M is “untenable” under Loper Bright (Id at 54–55). The taxpay - er also raised arguments concerning Treasury Regulation Section 1.482-1(h)(2)’s procedural invalidity under the APA (Id at 55–56). At the time of writing (March 2025), the govern - ment has not yet submitted its brief in Coca- Cola. Consequences of Loper Bright, 3M, and Coca-Cola Following Loper Bright, additional challenges to the Treasury Regulations seem certain. Given the less deferential standard that now applies, it seems likely that such challenges will succeed more often, as demonstrated by FedEx. How -
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