Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 1 FILED United States Court of Appeals PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS August 22, 2025
Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _________________________________
LIBERTY GLOBAL, INC.,
Petitioner - Appellant,
v. No. 24-9004
COMMISSIONER OF INTERNAL REVENUE,
Respondent - Appellee. _________________________________
Appeal from the United States Tax Court (CIR No. 341-21) _________________________________
Parker Rider-Longmaid (Shay Dvoretzky, Rajiv Madan, Christopher Bowers, Nathan Wacker, and Sylvia O. Tsakos, with him on the briefs), Skadden, Arps, Slate, Meagher & Flom LLP, Washington, D.C., for Petitioner-Appellant.
Judith A. Hagley (David A. Hubbert, Deputy Assistant Attorney General, Francesca Ugolini, and Jennifer M. Rubin, Attorneys, Tax Division, with her on the brief), Department of Justice, Washington, D.C., for Respondent-Appellee. _________________________________
Before TYMKOVICH, McHUGH, and CARSON, Circuit Judges. _________________________________
TYMKOVICH, Circuit Judge. _________________________________
How much of the gain from a United States company’s sale of stock in a
foreign company should be considered foreign-sourced? Liberty Global says all of it.
That matters because after Liberty Global sold its controlling interest in a Japanese Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 2
company for $3.9 billion, it claimed all of the gain was foreign-sourced income,
making it eligible for a $240 million tax credit.
The Commissioner of the Internal Revenue Service disagreed, characterizing
all of the gain as U.S. income. Liberty Global challenged that determination in Tax
Court, but the court agreed with the IRS.
Exercising jurisdiction under Internal Revenue Code § 7482(a), we AFFIRM.
We agree with the Commissioner and the Tax Court that under the plain language of
the Tax Code, Liberty Global cannot characterize the gain as foreign-sourced. It
therefore is not eligible for the claimed tax credit.
I. Background
The United States taxes domestic corporations on income earned at home and
abroad. In doing so, it gives corporations credit for foreign taxes paid to avoid
double taxation and allows them to deduct foreign losses much of the time. This
scheme is complex, as we explain.
A. Tax Code Provisions
1. Foreign Income & Credits
When a U.S. corporation does business overseas, its activity is usually taxed
both by the United States and the country in which it does business. The United
States wants to incentivize corporations to incorporate in the United States even if
they do business overseas. To avoid double taxation, the Tax Code credits the
taxpayer for taxes paid on overseas income. The credit is capped—it does not apply
to foreign taxes paid above the comparable U.S. tax rate. For example, if a U.S. 2 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 3
corporation has $100 in foreign income taxed by a foreign country at 40%, it only
receives credit up to the U.S. rate at the time it reports its gain. Thus, if the U.S. rate
is 35%, the corporation receives a $35 credit even though it paid $40 in taxes. I.R.C.
§ 904(a).
In addition to the tax rate cap, the foreign tax credit has another limitation: a
maximum credit. Section 904 also limits the maximum credit by a formula tied to the
corporation’s worldwide taxable income. The ratio of the foreign tax credit to the
taxpayer’s U.S. tax liability cannot exceed the ratio of foreign income to the
corporation’s worldwide taxable income. The taxpayer’s maximum credit can be
calculated by this formula:
Foreign-Source Income Maximum Credit = × U.S. Taxes Owed. Worldwide Taxable Income
Id.; see also Theo Davies & Co. v. Comm’r of Internal Revenue, 75 T.C. 443, 444–45
(1980) (using the same formula). Section 904 is one of many provisions “designed to
prevent the tax credit from reducing or eliminating the United States tax on income
from sources within the United States.” Motors Ins. Corp. v. United States, 530 F.2d
864, 869 (Ct. Cl. 1976) (quoting Missouri Pac. R.R. v. United States, 392 F.2d 592,
601 (Ct. Cl. 1968)).
To understand how this works, imagine a hypothetical corporate taxpayer with
$1,000 in worldwide taxable income. At a 35% U.S. rate, it would owe $350 before
any credit is applied. To calculate its maximum foreign tax credit, we need to know
how much of its income is foreign-sourced—the numerator in the equation above. If
3 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 4
$100 of its income is foreign-sourced, its maximum credit under the formula is only
$35:
$100 $35 = × $350. $1000
But, if $500 of its income is foreign-sourced, its maximum credit jumps to $175:
$500 $175 = × $350. $1000
So the amount of foreign-sourced income determines the maximum credit. If 10% of
a taxpayer’s income is foreign-sourced, it can write off up to 10% of its tax bill. But
if 50% of its income is foreign-sourced, it can write off up to 50%. The more
foreign-sourced income, the larger the credit. And, relevant here, if a taxpayer has
no foreign-sourced income, it cannot take any foreign tax credit at all. In that case,
the numerator in the equation is zero, so the result is a zero-dollar credit:
$0 $0 = × $350. $1000
2. Foreign Losses
U.S. corporations can also deduct foreign losses, reducing the taxes a
corporation owes on domestic income. But the foreign loss deduction used by a
corporation in previous years must be repaid—recaptured—when the corporation
generates foreign income in the future. When a U.S. corporation uses foreign losses
to reduce its tax bill, the Tax Code records this as “overall foreign loss.” I.R.C.
§ 904(f)(2). Over time, taxpayers track their overall foreign loss balance. In future
years where there are gains, foreign-source income is recharacterized—re-sourced—
4 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 5
as U.S.-source income to reduce the overall foreign loss balance. I.R.C. § 904(f)(1).
This reduces the numerator in the equation above and reduces the maximum credit as
a result. So the taxpayer has a choice, it can deduct the foreign loss now or take the
foreign tax credit later, but not both.
Let’s apply this to our hypothetical taxpayer from before. Again, assume it
has $1,000 in total income, owes $350 in U.S. tax, and has $100 in foreign-sourced
income:
But now assume in a previous year that it deducted $50 in foreign loss. To recapture
the $50 in the taxpayer’s overall foreign loss account, the Tax Code re-sources $50 of
the foreign-sourced income to U.S.-sourced. That re-sourcing functionally subtracts
the $50 from the numerator in the equation, and thus reduces the taxpayer’s
maximum credit:
$100 − $50 $17.50 = × $350. $1000
In all of the above examples, the taxpayer’s total worldwide income never
changes. The only variable that changes is how much of that income is deemed
foreign-sourced and therefore the amount of the foreign-source credit.
3. Income Sourcing Legal Framework
The Tax Code and explanatory regulations contain a detailed set of rules to
determine whether income is foreign-sourced. See generally I.R.C. §§ 861–865; 26
5 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 6
C.F.R. § 1.861-1 et seq. This framework tries to capture all income that is subject to
double taxation and no income that is not.
This case is about capital gains from selling stock in a foreign corporation
controlled by a U.S. corporation. The parties agree on the general rule—gain from
the sale of personal property, which includes the gain here, is sourced by the domicile
of the seller. I.R.C. § 865(a). Stated plainly, gain from stock sold by a U.S.
corporation is ordinarily U.S.-sourced.
But there are exceptions to this rule. At issue is § 904(f)(3)(A)(i), which
changes some income to foreign-sourced so that it can be used to recapture the
outstanding overall foreign loss balance. Under this framework, when a U.S.
corporation sells foreign stock, any gain must first be applied to the corporation’s
overall foreign loss account balance. After the overall foreign loss balance is zero,
then the question remains: what remaining gain is eligible for treatment as foreign-
source income?
In relevant part, § 904(f) provides the statutory framework for establishing the
tax credit formula. In (f)(1), the general rule requires the taxpayer to recapture
overall foreign loss when, in later years, it receives foreign-sourced income. That
provision provides:
(f) Recapture of overall foreign loss.-- (1) General rule.--For purposes of this subpart, in the case of any taxpayer who sustains an overall foreign loss for any taxable year, that portion of the taxpayer’s taxable income from sources without the
6 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 7
United States for each succeeding taxable year which is equal to the lesser of-- (A) the amount of such loss (to the extent not used under this paragraph in prior taxable years), or (B) 50 percent (or such larger percent as the taxpayer may choose) of the taxpayer’s taxable income from sources without the United States for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States).
§ 904(f)(1).
The statute goes on to provide that those profits from the sale of overseas
property—foreign capital gains—can also be used to recapture overall foreign loss.
But these gains are not always recognized or can sometimes be U.S.-sourced. So
§ 904(f)(3) provides a special recognition rule that first categorizes at least some gain
as foreign-sourced so that it can be used to recapture overall foreign loss. In full, the
(3) Dispositions.-- (A) In general.--For purposes of this chapter, if property which has been used predominantly without the United States in a trade or business is disposed of during any taxable year-- (i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)), shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under 7 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 8
paragraph (1) [carryover amounts] for such taxable year or any prior taxable year, and (ii) paragraph (1) shall be applied with respect to such income by substituting “100 percent” for “50 percent.”
§ 904(f)(3) (emphases added).
As is often the case, the Department of the Treasury has promulgated tomes of
regulations to clarify and gap-fill where the statute is unclear or silent. The
regulation applicable here states only that, “gain will be recognized on the disposition
of such property” and “such gain will be treated as foreign source income subject to
the same limitation as the income the property generated.” Income Taxes; Recapture
of Overall Foreign Losses, 52 Fed. Reg. 31992-01 (August 25, 1987) (hereinafter
cited as § 1.904(f)-2(d)(1)(i)–(iii)).1
The parties agree that under § 904(f)(3), at least some gain is sourced abroad,
only to be re-sourced back to the United States by § 904(f)(1) to recapture the overall
foreign loss account. When, as here, the gain is initially U.S.-sourced, the process
can be represented visually like this:
§ 904(f)(3) § 904(f)(1)
U.S.-sourced income Foreign-sourced income U.S.-sourced income
1 The applicable regulations were amended in 2007 and again in 2012. But the applicable regulations in 2010 were the rules promulgated in 1987. See 52 Fed. Reg. 31,992 (1987). 8 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 9
The statutory question in this case centers on § 904(f)(3)(A)(i)’s
“notwithstanding” language and how it sources the proceeds from Liberty Global’s
stock sale that exceed its overall foreign loss balance.
B. Liberty Global’s Tax Return
Liberty Global is a U.S. corporation and the parent company of other
corporations around the world. Liberty Global owned a controlling majority stake in
Jupiter Telecommunications (J:COM), a Japanese company, making J:COM a
controlled foreign corporation for tax purposes. In February 2010, Liberty Global
sold its entire interest in J:COM for $3.9 billion, realizing a gain of $3.2 billion.2
Liberty Global timely filed its 2010 taxes and reported the gain as follows:
• $438 million was characterized as a foreign-source dividend, and
• $2.8 billion was treated as foreign-source capital gain. Of that,
o $474 million was re-sourced to the United States to recapture
overall foreign losses, and
o $2.3 billion remained foreign-source capital gain.
Because Liberty Global claimed $2.3 billion in foreign-sourced income, it could also
claim a $240 million foreign tax credit under the formula discussed above.
2 All dollar amounts in this opinion are approximate. The facts and amounts are not at issue here. 9 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 10
The Commissioner of Internal Revenue issued a notice of deficiency for that
$240 million credit. He asserted that the $2.3 billion in excess of the overall foreign
loss account balance was U.S.-sourced. He reasoned that § 904(f)(3) explicitly
limited itself to “the lesser of” the gain and the overall foreign loss balance. As a
result, he concluded Liberty Global had no other foreign-sourced income and so
could not claim any foreign tax credit.
Liberty Global challenged the deficiency in Tax Court. The parties submitted
the case on a fully stipulated record and disputed only one legal question—does
§ 904(f)(3) apply to the excess gain above the overall foreign loss balance?
II. Discussion
Liberty Global offers a three-step argument in support of its position.
First, § 904(f)(3)(A)(i) is silent about the treatment of the excess gain.
Second, the “notwithstanding” clause in § 904(f)(3)(A)(i) means that the
background sourcing rules do not apply to the excess gain.
Third, because of this statutory silence, Treasury is empowered to issue gap-
filling regulations, and the applicable regulation suggests that all gain becomes
foreign-sourced. Since the income from J:COM was considered foreign-sourced,
Liberty Global argues that the regulations require that the gain is also foreign-
sourced.
The Commissioner agrees that the statute is silent as to the excess gain. But he
argues that Liberty Global overreads the “notwithstanding” clause. He reads the
notwithstanding clause to only override other provisions of the Code if there is a 10 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 11
conflict. And here, he says, there is no conflict, so the background provisions apply,
and background principles are clear that the gain will be characterized as U.S.-
sourced income. He finishes by asserting that the regulations cannot be read to
conflict with the statute, so they cannot support Liberty Global’s interpretation.
Despite a complicated statutory and regulatory framework, the $240-million
question is simple: what does “notwithstanding” mean?
A. Section 904 Framework
We review decisions of the United States Tax Court in the same manner as we
do decisions of the district courts. I.R.C. § 7482(a)(1). The only issue in this case is
the interpretation of a federal statute, which we review de novo. True Oil Co. v.
Comm’r of Internal Revenue, 170 F.3d 1294, 1298 (10th Cir. 1999).
The parties agree that § 904(f)(3)(A)(i) does not explicitly source the gain
above the overall foreign loss account balance—so do we. The amount of foreign-
source gain recognized is limited to “the lesser of [the gain from the sale] or the
remaining amount of the [taxpayer’s overall foreign loss account].”
§ 904(f)(3)(A)(i).
No doubt Liberty Global’s gain was greater than its overall foreign loss
account ($2.8 billion and $474 million, respectively). So the statute explicitly
sources $474 million as foreign-sourced. But the statute says nothing about how to
characterize the gain in excess of the overall foreign loss account.
11 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 12
B. The “Notwithstanding” Clause
In that silence, the Commissioner argues we default to the background rule in
the Tax Code. The background sourcing rule comes from I.R.C. § 865(a):
(a) General rule.--Except as otherwise provided in this section, income from the sale of personal property--
(1) by a United States resident shall be sourced in the United States, or (2) by a nonresident shall be sourced outside the United States.
Under this provision, the Commissioner argues that the excess gain should be U.S.-
sourced because Liberty Global is a U.S. resident.
Liberty Global disagrees, claiming that the background rules do not apply
because § 904(3)(A)(i) applies “notwithstanding any other provision of this chapter.”
And Liberty Global argues Treasury has promulgated regulations to fill that statutory
gap.
We agree with the Commissioner. As an initial matter, case law helps us
understand the scope of statutory “notwithstanding” clauses. Both Supreme Court
and our precedents are clear that a notwithstanding clause signals which provision
prevails in the event of a conflict. See, e.g., N.L.R.B. v. SW Gen., Inc., 580 U.S. 288,
301 (2017) (quoting ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE
INTERPRETATION OF LEGAL TEXTS 126–127 (2012)) (“In statutes, the word
[notwithstanding] ‘shows which provision prevails in the event of a clash.’”);
Cisneros v. Alpine Ridge Grp., 508 U.S. 10, 18 (1993) (“As we have noted previously
in construing statutes, the use of such a ‘notwithstanding’ clause clearly signals the
12 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 13
drafter’s intention that the provisions of the ‘notwithstanding’ section override
conflicting provisions of any other section.”); United States v. Dolan, 571 F.3d 1022,
1026 (10th Cir. 2009) (same), aff’d, 560 U.S. 605 (2010). So the notwithstanding
clause displaces the background rules—but only if two provisions conflict.
In Liberty Global’s reading, the statute preempts all other provisions of the
Code. But we find two problems with that argument: (1) § 904(f) limits its own
applicability, and (2) Liberty Global itself does not entirely embrace its own
interpretation.
First, the provision expressly applies only to “an amount equal to the lesser of”
the gain or the overall foreign loss account. § 904(f)(3)(A)(i). Applying Liberty
Global’s interpretation would mean the statute always applies to the full value of the
sale, not the lesser of the two, making much of the provision superfluous. See TRW
Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“It is a cardinal principle of statutory
construction that a statute ought, upon the whole, to be so construed that, if it can be
prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.”
(citation modified)). We cannot read the limiting provision out of the statute.
Second, Liberty Global argues that the rest of the Tax Code is displaced by
this provision while at the same time it still applies other provisions. Recall that
Liberty Global reported $3.2 billion in gain from the sale; claiming that $474 million
offsets the overall foreign loss account, and that $2.3 billion is foreign source capital
gain. But there is an additional $438 million that Liberty Global treated as a foreign-
13 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 14
source dividend pursuant to § 1248.3 Applying § 1248 in this fashion conflicts with
Liberty Global’s argument that the notwithstanding clause displaces the entirety of
the Code.
We think § 904(f)(3) sources only the lesser of the gain and the overall foreign
loss account. The parties agree that the relevant $474 million that offsets the overall
foreign loss account is U.S.-sourced. And, as explained above, the parties agree the
provision is silent about the source of the excess gain.
Since § 904(f)(3)(A)(i) is silent about the excess gain’s sourcing, it cannot
possibly conflict with any other provisions. That is the fatal flaw in Liberty Global’s
argument. Liberty Global tries to argue both that § 904(f) is silent so the regulations
apply, and that it conflicts with § 865(a) so it does not apply. There is no conflict
through silence, so Liberty Global cannot have it both ways.
We agree with the Commissioner and Tax Court that § 865(a) applies, and the
excess gain is U.S.-sourced. Without that $2.8 billion in foreign-sourced capital
gains, Liberty Global is like our hypothetical taxpayer above with no foreign-sourced
3 The Commissioner does not contest Liberty Global’s characterization of the $438 million. When Liberty Global sold J:COM, J:COM had undistributed earnings—likely cash that it had not yet paid out as dividends or used for another purpose. Upon sale, § 1248 converts Liberty Global’s share of the undistributed earnings from capital gains to dividend income because if Liberty Global had not sold J:COM, it could have received that amount as a dividend. See I.R.C. § 1248. 14 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 15
No matter how much worldwide income it has or how much provisional U.S. tax it
owes, Liberty Global cannot claim a foreign tax credit without any foreign income.
C. Tax Code Regulations
Liberty Global’s argument ultimately rests on the then-applicable regulations.
The relevant regulation stated:
(d) Recapture of overall foreign losses from dispositions under section 904(f)(3)—
(1) In general. If a taxpayer disposes of property used or held for use predominantly without the United States in a trade or business during a taxable year and that property generates foreign source taxable income subject to a separate limitation to which paragraph (a) of this section is applicable,
(i) gain will be recognized on the disposition of such property,
(ii) such gain will be treated as foreign source income subject to the same limitation as the income the property generated, and
(iii) the applicable overall foreign loss account shall be recaptured as provided in paragraphs (d)(2), (d)(3), and (d)(4) of this section.
Treas. Reg. § 1.904(f)-2(d)(1)(i)–(iii) (1987) (emphases added).
Liberty Global claims that this regulation seals its argument. It contends that
the regulation broadly provides that “gain will be recognized” and “such gain will be
treated as foreign source income.” Id. In statutory silence, Liberty Global reads
“gain” and “such gain” without limitation. It asserts that without any limitation,
15 Appellate Case: 24-9004 Document: 46-1 Date Filed: 08/22/2025 Page: 16
under the regulation, all gain from the sale “will be treated as foreign source
income.” § 1.904(f)-2(d)(1)(ii).
But we have already rejected Liberty Global’s argument that the statute is
ambiguous and that § 904(f) displaces § 865. Given this, “the agency’s regulations
can only implement the statute’s commands, not vary from them.” Whirlpool Fin.
Corp. v. Comm’r of Internal Revenue, 19 F.4th 944, 952–53 (6th Cir. 2021). Liberty
Global’s interpretation of the regulations would broaden § 904(f) well beyond the
statutory language and create a conflict with § 865. Instead, we interpret the
regulation “so as to harmonize with and further and not to conflict with the objective
of the statute it implements.” Joy Techs., Inc. v. Sec’y of Lab., 99 F.3d 991, 996
(10th Cir. 1996) (citation omitted).
Reading the regulations in harmony, the “gain . . . recognized” by the
regulations is the same as the “recognized taxable income” in § 904(f)(3)(A)(i). And
since the statute limits the recognized income to “the lesser of” the gain from the sale
and the remaining amount of overall foreign losses, id., so too is the gain recognized
by the regulations. Any other reading would allow the regulations to alter the plain
reading of the statute.
In sum, § 904(f) requires the gain remaining after the overall foreign loss
account is zeroed out to be treated as U.S.-sourced income.
III. Conclusion
For these reasons, we affirm the Tax Court’s judgment.