As they head into earnings season, drug and medical-device companies stand poised to take advantage of a one-time federal tax holiday that could help repair and bolster their balance sheets. Analysts expect big medical companies -- including Schering-Plough ( SGP) and Johnson & Johnson ( JNJ) -- to be among the most aggressive in exploiting this opportunity to soften the tax bite on profits from foreign subsidiaries, thanks to a law signed by President George W. Bush on Oct. 22. "Some of these companies have a huge piggy bank overseas," said Greg Kelly, a public policy analyst for Susquehanna Financial Group. "Until the law was passed, you couldn't use the overseas money in a domestic fashion unless you were willing to pay a big tax." The law lowers that tax rate to 5.25% from 35% for one year. Large medical companies "certainly have been keenly interested in this law," said David Lugg, a credit analyst for Standard & Poor's. "It's a tremendous opportunity." However, these companies -- and many others -- seeking to repatriate earnings from foreign subsidiaries don't really know what they can do with the tax holiday because the law remains shrouded in ambiguity. The law says the tax break can't be used for executive compensation, but almost everything else is on the table -- or at least subject to interpretation. Pay down debt? Definitely. Finance stock buybacks? Probably. Raise dividends? Likely. Finance mergers and acquisitions? Probably. Pay litigation expenses? Possibly. Bolster underfunded pensions? Maybe. The law is so filled with uncertainty that S&P, which wrote a report in mid-September while Congress was still debating repatriation, won't write an update until it gets a clearer signal from the Treasury Department. "We believe the Treasury Department will give companies fairly strong leeway," said Kelly of Susquehanna Financial. The Treasury Department is expected to issue guidelines this month.