On 8 August 2018 the US Court of Appeals (Ninth Circuit) announced that it was withdrawing its opinion of 24 July 2018 in the Altera Corp case, concerning the treatment of stock based compensation by related parties in a cost sharing arrangement (CSA). According to the Court the opinion has been withdrawn to allow time for a reconstituted panel to confer on the appeal.
In the original hearing in the Altera Corp case in 2015 the Tax Court determined that the regulation requiring related parties to share stock-based compensation in a CSA was invalid. The Court ruled that the Treasury did not follow the Administrative Procedure Act and the Court also considered that the view that sharing stock based compensation was at arm’s length was contrary to all the evidence before it.
The IRS appealed the decision and on 24 July 2018 the Court of Appeals overturned the original decision of the Tax Court and determined that the regulation as framed by the Treasury was a valid exercise of its powers under Section 482. The Court of Appeals also held that the regulation was not inconsistent with the arm’s length principle or with the commensurate with income principle. The Treasury had also complied with the Administrative Procedure Act when issuing the regulation, explaining its reasons for issuing the regulation and considering public comments during the regulatory process.
However as a result of the withdrawal by the Court of that opinion the IRS appeal in the Altera Corp case will now be reheard before the Court of Appeals.
