A loophole in the 2017 tax law is allowing large corporations to save millions of dollars that would have otherwise been paid to the government.

What Happened: The Internal Revenue Service (IRS) attempted to rectify the issue with regulations, but the U.S. Tax Court unanimously ruled last week that the law’s explicit language provides a double benefit to some companies, even if it wasn’t Congress’ intention.

Medical device maker Varian Medical Systems won a case involving over $150 million in deductions. Electronics manufacturer Kyocera and food distributor Sysco have similar cases pending, each involving over $100 million in deductions, reports the Wall Street Journal.

The loophole resulted from mismatched effective dates for new tax rules in the 2017 tax law, which Congress failed to correct. The IRS tried to fill the gap with regulations, but the U.S. Tax Court ruled in favor of the companies.

“Effectively, they are getting a deduction and a credit on the same income which is, I think, clearly contrary to what has ever been allowed at any other time," Seth Green, a principal in KPMG's Washington national tax office, told the outlet.  

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The dispute revolves around Section 245A, a 2017 addition to the tax code that allows U.S. companies to repatriate their foreign profits without paying U.S. taxes.

However, lawmakers set different effective dates for the new tax break and the new limits, creating a discrepancy that allowed companies with non-calendar tax years to benefit.

"What I would hope is that it will go back to the good old days and have bipartisan technical corrections," Reuven Avi-Yonah, a tax-law professor at the University of Michigan, said.  

Why It Matters: This case highlights the cost of legislative gridlock, with Republicans and Democrats unable to cooperate to rectify errors in legislation.

The recent Supreme Court ruling puts more emphasis on the literal text of laws, increasing pressure on Congress to avoid or quickly fix mistakes.

This loophole is not just a windfall for corporations, but it also underscores the need for more careful drafting and review of tax laws to prevent such unintended consequences in the future.

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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.