The U.S. Court of Appeals for the Ninth Circuit today reversed a decision of the U.S. Tax Court, and the appeals court upheld the validity of the regulations under Code section 482 with respect to cost-sharing arrangements.
At issue was the validity of the Treasury regulations implementing section 482—the Code provision that provides for the allocation of income and deductions among related entities. Specifically, this case focused on Reg. section 1.482-7A(d)(2) that provides that related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements. The Tax Court found this regulation was invalid under the Administrative Procedure Act.
The Ninth Circuit today reversed and held that:
The case is: Altera Corp. v. Commissioner, Nos. 16-70496 and 16-70497 (9th Cir. June 7, 2019). Read the Ninth Circuit’s decision [PDF 342 KB] (81 pages) that includes a dissenting opinion.
The Ninth Circuit in July 2018 reversed the 2015 decision of the Tax Court finding that the Treasury regulations—Reg. section 1.482-7A(d)(2) that requires related entities to share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as “qualified cost-sharing arrangements” and to avoid an IRS adjustment—were invalid. Then, in August 2018, the Ninth Circuit announced the withdrawal of the July 2018 decision “to allow time for the reconstituted panel to confer on this appeal.” Judge Reinhardt had fully participated in the July 2018 decision and formally concurred in the majority opinion prior to his death. The August 2018 order replaced him with Judge Graber. Read TaxNewsFlash
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