Whirlpool Financial Corporation, et al. v. Commissioner of Internal Revenue

Numerous statutes are expressly conditioned on the promulgation of regulations that delineate when or how a particular statutory provision applies. In Section 954(d)(2) of the Internal Revenue Code, for example, Congress declared that certain income earned abroad by foreign corporations is subject to U.S. taxation; but Congress explicitly conditioned § 954(d)(2)’s execution on “regulations prescribed by the Secretary [of the Treasury]” delineating the income subject to taxation. 26 U.S.C. § 954(d)(2). Regulations implementing § 954(d)(2) have been in place, and relied upon by taxpayers in structuring their foreign operations, for over 50 years. In this case, the Internal Revenue Service claimed that certain income earned abroad was taxable under those regulations. The taxpayer strongly disagreed. The parties, in turn, vigorously debated the application and validity of the regulations, and the Tax Court decided the case under the regulations. In the decision below, however, a divided panel of the Sixth Circuit held that the taxpayer’s income was taxable under § 954(d)(2) without even consulting the regulations—even though, as the dissent below recognized, the income would not be taxable under the regulations. The question presented is: Whether the divided Sixth Circuit properly held— in conflict with precedent of this Court and settled administrative-law principles—that a statute that is conditioned on regulations delineating its reach may be enforced without regard to those regulations?