IRS practice unit, cost-sharing arrangements with stock-based compensation

IRS practice unit, cost-sharing arrangements

The IRS Large Business and International (LB&I) division publicly released a “practice unit”—part of a series of IRS examiner “job aides” and training materials intended to describe for IRS agents leading practices about tax concepts in general and specific types of transactions—concerning cost-sharing arrangements with stock-based compensation.

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Read the IRS practice unit: Cost-sharing arrangements with stock-based compensation [PDF 227 KB] (last updated in September 2020)

KPMG observation

Tax professionals view the new practice unit as a strong signal that the IRS is planning to aggressively audit the inclusion of stock-based compensation in cost-sharing arrangements (CSA) in the wake of the IRS victory in the Ninth Circuit’s decision in Altera Corp. v. Commissioner (2019). Read TaxNewsFlash

The practice unit specifically cites Altera as a key legal authority and points examiners to the various indicators on the tax return that would demonstrate that a taxpayer has a CSA that should be investigated.

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