November 16, 2018 At Court in Brief

Update on U.S. Tax Court’s Opinion in Altera

On July 27, 2015, the Tax Court decided Altera Corp,1 ruling for Intel (Altera’s parent company) on the basis that the government had failed to engage in “reasoned decisionmaking” in issuing the cost-sharing regulations.2 The Tax Court result held the government to a rigid interpretation of section 482’s arm’s-length standard as an empirical standard that must be based on “evidence or known transactions” with uncontrolled taxpayers, in spite of the non-commensurability of affiliate transactions to other market transactions. This July, the Ninth Circuit reversed the Tax Court in a split opinion including Judge Reinhardt, who died before the opinion was released, in the majority with Judge Thomas.3   That opinion upheld the government’s cost-sharing regulations requiring stock-based compensation to be taken into account for transfer pricing purposes. Nonetheless, because Judge Reinhardt had died before it was issued, the opinion was withdrawn shortly after by the Ninth Circuit and set for re-deciding by a reconstituted panel with Judge Susan Graber substituting for Judge Reinhardt.4   Amazon had filed an amicus brief in the original Ninth Circuit case in support of Intel arguing against the authority of the government to use anything other than the traditional arm’s-length standard for cost-sharing arrangements.  Several tax professors—including Stephen Shay (Harvard), Daniel Shaviro (NYU), and Reuven Avi-Yonah (Michigan)—have now filed an amicus brief in support of the government position, arguing that the stock-based compensation cost-sharing regulations are consistent with the arm’s-length standard and reasonable under section 482.


1 Altera Corp. v. Commissioner, 145 T.C. No. 3 (July 27, 2015).

3 Altera Cop. v. Commissioner, Nos. 16-70495, 16-70497, ___F.3d, 2018 WL 3542989 (9th Cir. 2018); see also Richard Rubin, IRS Wins Court Case Over Intel Corp, Wall St. J. (July 24, 2018).

4 Altera Corp. v. Commissioner, Order (9th Cir. Aug. 7, 2017).  See, e.g., Peter J. Reilly, Ninth Circuit Pulls Back Big IRS Victory Issued After Judge’s Death, Forbes (Aug 7, 2018); Kristen A. Parillo, Ninth Circuit Withdraws Altera Opinion New Judge to Weigh In, 2018 TNT 153-1 (Aug. 8, 2018) (available here on Tax Litigator blog).


Section of Taxation members can discuss this article in the ABA Tax Times Community. ➔