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Tobacco giant Altria Group Inc. has lost its bid for a $38 million tax refund, after a Virginia federal court ruled the company was on the hook for income tied to foreign subsidiaries through its stake in Anheuser-Busch.

Judge Rejects Refund Claim

U.S. District Judge M. Hannah Lauck on Monday sided with the federal government, holding that the 2017 Tax Cuts and Jobs Act (TCJA) eliminated a key rule that once shielded companies like Altria from being taxed as indirect shareholders of controlled foreign corporations (CFCs).

Altria had argued the change was a minor amendment, not a wholesale repeal. But Judge Lauck disagreed, writing that the law “struck the passage” outright, making Altria’s tax liability unavoidable.

How Anheuser-Busch Ties Triggered Taxes

At the heart of the dispute was Altria’s 10.2% stake in Anheuser-Busch InBev SA/NV, which owned the subsidiaries generating taxable income. Under Subpart F rules, the repeal of Section 958(b)(4) meant Altria was treated as indirectly owning the subsidiaries’ stock, regardless of its lack of control.

Altria insisted the arrangement produced an “absurd” result, taxing a minority shareholder with no decision-making power. But Judge Lauck countered that Congress deliberately expanded the reach of Subpart F to prevent U.S. corporations from indefinitely deferring taxes on foreign income.

Broader Legal Context

The decision also leaned on the U.S. Supreme Court’s Moore v. United States ruling, which upheld the TCJA’s mandatory repatriation tax, rejecting arguments that taxing unrealized income violates the Constitution.

Altria’s broader lawsuit sought $106 million in refunds, alleging overpaid transition taxes and miscalculated credits. Monday’s ruling, however, granted judgment for the government on one major count, marking a costly setback for the Marlboro-maker.

Representation and Next Steps

Altria is represented by Hunton Andrews Kurth LLP and Skadden, Arps, Slate, Meagher & Flom LLP, while the U.S. government is defended by the Justice Department’s Tax Division and the U.S. Attorney’s Office for the Eastern District of Virginia.

Neither Altria nor the DOJ offered immediate comment, but the ruling underscores how the TCJA continues to reshape the tax landscape for multinational corporations.