BMC Software, Incorporated v. Comm'r Internal Revenue, No. 13-60684 (5th Cir. 2015)
Annotate this CaseThis case involves the intersection of sections 482 and 965 of the United States Tax Code. Foreign subsidiaries of United States-based companies sometimes pay dividends to their United States-based parent companies, which constitute taxable income for the United States-based parent company. However, rather than pay these dividends, and the accompanying taxes, many United States-based multinational corporations park large sums of earnings in accounts owned by their foreign subsidiaries. Doing so allows these corporations to avoid federal income taxes, but only as long as the cash remains overseas. This case involves a decision by the Commissioner of Internal Revenue to partially disallow BMC Software, Inc.’s (BMC) repatriated-dividends tax deduction under 26 U.S.C. 965(b)(3) on the ground that subsequently created accounts receivable constituted "indebtedness" and reduced BMC’s eligibility for the deduction. Because the plain text of section 965 did not support the Commissioner’s interpretation, and because BMC never agreed to treat the relevant accounts receivable as indebtedness, the Fifth Circuit reversed.
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