In a recent trend of regulatory challenge cases, the Tax Court has this time addressed the validity of Treasury Regulation § 1.482-1(h) in 3M Company & Subsidiaries v. Commissioner, 160 T.C. No. 3 (2023). This regulation interprets Internal Revenue Code § 482, a statute that allows the IRS to “distribute, apportion, or allocate gross income, deductions, credits, or allowances” between organizations or businesses if the IRS “determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of” the organizations or businesses.

One of the goals of section 482 is to ensure that US corporations do not avoid US tax by improperly shifting income and profit to subsidiaries in lower-taxed jurisdictions. But what happens if a foreign law prohibits a parent corporation from receiving profit from an overseas subsidiary?

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