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In 3M Co. v. Commissioner,1 the Tax Court upheld the validity of a regulation—Treas. Reg. § 1.482-1(h)(2) (the “Blocked Income Regulation”)—that effectively taxed income the taxpayer was barred from receiving under foreign law. The result is counterintuitive, and arguably flies in the face of Tax Court, circuit court, and Supreme Court precedents, which previously held that section 482 does not permit the Commissioner to allocate income “that [the taxpayer] did not receive and that he was prohibited from receiving.”2 The Tax Court upheld the Blocked Income Regulation by the slimmest of margins: seven judges joined a plurality opinion authored by Judge Richard T. Morrison, two judges concurred in result only, and eight judges dissented. The diversity of opinions reveals deep disagreement among the judges on the proper framework to apply in regulatory-challenge cases and leaves considerable room for a successful appellate challenge.
1 160 T.C. No. 3 (2023).
2 Commissioner v. First Sec. Bank of Utah, 405 U.S. 394, 403 (1972); see Procter & Gamble Co. v. Commissioner, 95 T.C. 323 (1990), aff’d, 961 F.2d 1255 (6th Cir. 1992).
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