The government appealed
Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015), to the
Ninth Circuit Court of Appeals on Feb. 19. The IRS lost the
Altera case on July 27, 2015, in the Tax Court, which held
that a 2003 Treasury regulation mandating that controlled entities
entering into qualified cost- sharing arrangements (QCSAs) must
share stock-based compensation (SBC) costs, was invalid.
The Tax Court’s decision was unanimous and concluded that the
regulation was invalid because the IRS and Treasury failed to
satisfy the requirements of the Administrative Procedure Act. Both
the Ninth Circuit and the Tax Court had previously invalidated the
1995 version of the same regulation in Xilinx Inc. v. Commissioner, 125 T.C. 37
(2005), aff’d, 598 F.3d 1191 (9th Cir. 2010). The
Ninth Circuit held in Xilinx that SBC costs were not required to be
shared under the prior cost-sharing regulation.
The Tax Court’s decision raised many questions regarding how
taxpayers with QCSAs should treat SBC costs. The IRS’s appeal
adds uncertainty to the future of the regulation and how taxpayers
with QCSAs should proceed as the case moves through the Ninth
Circuit.
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