Tenth Circuit Limits Reach of Treasury Regulations in Liberty Global Case

Reliance on regulatory text alone no longer ensures safety—courts are reasserting the statute as the ultimate boundary for tax outcomes.

The Tenth Circuit’s ruling in Liberty Global Inc. v. Commissioner underscores a growing judicial trend: courts are less willing to defer to Treasury regulations when statutory text is clear.

The case, involving the foreign tax credit limitation under IRC §904(f)(3), rejected the taxpayer’s reliance on pre-2012 regulations that treated all gain from the sale of certain foreign stock as foreign source income.

This outcome aligns with recent cases such as Whirlpool Financial Corp. and TBL Licensing LLC, showing that courts are prioritizing statutory interpretation over regulatory guidance.

Treasury’s recent pullback from its own expansive rulemaking reflects an acknowledgment of this shift.

The Law in Play

IRC §904(f)(3), which governs how taxpayers recapture prior overall foreign losses (OFLs), was at issue.

When a U.S. taxpayer sells property or stock of a controlled foreign corporation (CFC) used predominantly outside the United States, the statute deems part of the gain as foreign source…