On July 24, the Ninth Circuit Court of Appeals, in Altera Corp. v. Comm’r, reversed the Tax Court’s Altera ruling that the Treasury’s section 482 transfer-pricing regulations on cost-sharing arrangements was “arbitrary and capricious” under the Administrative Procedure Act. 1 The 2-1 decision found that the agency had followed proper procedures and was not arbitrary and capricious under the APA standard of review. “[T]he dispute here is not truly whether stock-based compensation is a cost but whether Altera—rather than the Commissioner—may decide how to apportion that cost between related entities.” 2 It went on to defer to the agency’s interpretation under Chevron. Judge Kathleen M. O’Malley, sitting by designation from the U.S. Court of Appeals for the Federal Circuit, dissented from the reversal.
This was an important case with a long list of interested parties represented in Amicus Curiae briefs, including academics, the Chamber of Commerce, Amazon, Cisco Systems, the Software and Information Industry Association, National Association of Manufacturers, and others. The decision at least temporarily dashes the hopes of those planning further regulatory challenges based on the Altera success. ■
1 See Clint Wallace, The Tax Court’s Decision in Altera, ATT July 2017.
2 Altera Corp. v. Comm’r, at 35.