Varian’s Foreign Tax Credit Maneuver Can Stand, With Limits

Congress acted with intent when it created a tax loophole allowing certain companies to claim both a deduction and a credit on foreign income, and the IRS must respect it, the US Tax Court said.

The court’s opinion conferred a win upon the Palo Alto, Calif.-based Varian Medical Systems, which had been seeking to benefit from the deduction permitted by IRC Section 245A. The measure was enacted by the Tax Cuts and Jobs Act in 2017, and provides a deduction for certain dividends U.S. corporations receive from foreign subsidiaries.

The Dividends Received Deduction, or DRD, interacts with the older IRC ...