Professor Bret Wells, the John Mixon Chair at the University of Houston Law Center
Feb. 20, 2026 - Professor Bret Wells, the John Mixon Chair at the University of Houston Law Center, filed an amicus brief on Tuesday, urging the U.S. Court of Appeals for the Eighth Circuit to reconsider a major tax ruling involving 3M and the Internal Revenue Service.
Wells, a leading scholar of international taxation argued that a recent decision threatened U.S. tax sovereignty by allowing foreign law to determine how American companies were taxed.
“The effect of the panel decision is that foreign jurisdictions can supplant US transfer pricing rules and design their regimes to qualify them as ‘blocked income’ even though the foreign income in substance could be repatriated back to the ultimate US parent company,” Wells said. “The Eighth Circuit’s panel opinion, if not withdrawn, provides a roadmap for migrating US intangible property out of the US tax base.”
The dispute centered on whether 3M had to report income earned by its Brazilian subsidiary from intellectual property developed in the U.S. Although the subsidiary generated substantial profits, Brazilian law limited how much it could formally remit to the U.S. parent as royalties but were available to be repatriated back to the US parent company through other means. A three-judge panel sided with 3M, concluding that the IRS could not tax income that was legally blocked under foreign law even though the income was ultimately accessible by the US parent company albeit not as a royalty.
In his brief, Wells contended that the court misread federal tax law and overlooked Congress’s intent. When lawmakers strengthened the statute in 1986, they required that income earned within an affiliated group is attributed to intellectual property developed in the United States, then the US affiliate that developed the intangible must be allocated an amount of income “commensurate with the income” it produced overseas. Wells argued that the ruling effectively created a new exception for foreign legal restrictions that did not appear in the statute’s text.
Wells warned that elevating foreign legal labels over economic reality invited other countries to adopt similar restrictions, potentially shifting profits out of the U.S. tax base. By seeking an en banc rehearing, he argued that the case raised issues of national importance for the integrity of U.S. transfer-pricing rules.
