As reported in today’s issue of Transfer Pricing Report, two recent U.S. Tax Court petitions filed by Altera Corp. almost certainly represent the IRS’s chosen litigating vehicle for the issue of stock option cost sharing.
In the Altera cases, the IRS allocated $96 million to the company for 2004-07, most of it based on the argument that Altera should have included costs from employee stock options in its cost sharing agreement with a Cayman Islands affiliate.
The IRS has made this argument before—first against Seagate Technology in a dispute over the company’s 1991-92 years, and more recently against Xilinx for 1997-99. The IRS ended up conceding the issue in Seagate, and lost the Xilinx case in the Tax Court and (eventually) on appeal to the Ninth Circuit.
Two factors could cause a different outcome this time around, however:
(1 ) regulations issued in 2003 specifically stating that employee stock options must be included in cost sharing agreements; and
(2) the Supreme Court’s decision in the Mayo Foundation case, which makes it harder for taxpayers to challenge the validity of IRS regulations.
Samuel Maruca, the IRS’s director of transfer pricing operations, has said for more than a year that the agency needs to “produce some winners” to improve its credibility in the transfer pricing area.
We’ll stay tuned!
Managing Editor, Transfer Pricing Report
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)