Tax Court in ‘Altera' Strikes Down 2003 Cost-Sharing Rules

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July 27 — In what one practitioner called a “stunning rebuke” to the IRS, the U.S. Tax Court struck down 2003 cost-sharing regulations that require the sharing of stock-based compensation, holding that the rules lack “a basis in fact” and are invalid as a matter of law (Altera Corp. v. Commissioner, T.C., No. 6253-12, 7/27/15).


In a July 27 division opinion, ruling on cross-motions for summary judgment, a panel of 15 judges agreed with taxpayer Altera Corp. that the final regulations (T.D. 9088) violate the arm's-length standard because there is no evidence unrelated parties ever share such costs.


The court faulted the Treasury Department for ignoring the extensive testimony of taxpayers who argued that unrelated parties don't share stock-based compensation costs, and noted that in adopting the final rules, Treasury never responded to those comments and never explained its basis for concluding otherwise.