On January 27, 2022, the NAM filed an amicus brief urging the Sixth Circuit to grant rehearing en banc after the court disregarded valid Treasury Department regulations relied upon by manufacturers in running their global operations for over 50 years. This case, Whirlpool v. Comm’r of Internal Revenue, involves a complex international tax issue—foreign base company sales income (FBCSI). Subpart F of the Internal Revenue Code prohibits a U.S. parent company from using sales of finished goods between foreign subsidiaries to generate income in a “tax haven” country—that income is known as FBCSI. Despite an express statutory delegation of authority to Treasury to write the regulations that determine when income qualifies as FBCSI, the 6th Circuit put aside those regulations—which had been around for decades—and held that under the statutory text alone the defendant taxpayer’s subsidiary in Mexico generated FBCSI.
The NAM’s brief argues that the majority’s novel interpretation of the Internal Revenue Code conflicts with over 50 years of tax law. If allowed to stand, the court’s decision could result in hundreds of millions of dollars of unexpected and unjustified taxes, disrupt efficient global business operations, and confuse taxpayers (and the government) concerning how to apply the tax laws. All manufacturers have an interest in the consistent and predictable application of regulations, especially where the administration of tax laws is concerned.
Unfortunately, on March 2, 2022, the Sixth Circuit denied the petition for rehearing.