The U.S. Tax Court today, in a “reviewed opinion,” held that Treasury final regulations issued in August 2003—requiring participants in qualified cost-sharing arrangements to share stock-based compensation costs to achieve an arm’s length result—failed to satisfy the required reasoning and were therefore invalid.
The case is: Altera Corp. v. Commissioner, 145 T.C. No. 3 (27 July 2015)
In the 70-page opinion [PDF 248 KB], the Tax Court held that the final regulations lacked a “basis in fact” and that Treasury had “failed to respond to significant comments” when Treasury issued the final regulations.
The taxpayer introduced information that was available at the time the regulations were in the process of being finalized, that unrelated parties do not engage in the sharing of stock-based compensation costs.
The Tax Court summed up that Treasury’s conclusion that the final regulations were consistent with the arm’s length standard was contrary to all of the evidence before Treasury and that the final regulations failed to satisfy the U.S. Supreme Court’s “reasoned decisionmaking” standard of the State Farm case.
There were no dissenting opinions.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.