Ninth Circuit Affirms Tax Court in Amazon.com

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August 16, 2019

In a unanimous opinion issued today, the Ninth Circuit affirmed the taxpayer’s victory in the Tax Court in Amazon.com. We previously covered the case and oral argument here. We will take some time to digest the opinion and post on its finer points soon. In the meantime, one key sentence in the opinion is worth noting because it appears to capture the thrust of the Ninth Circuit’s decision about the disputed scope of the relevant regulatory definition for the term “intangible”: “Although the language of the definition is ambiguous, the drafting history of the regulations shows that ‘intangible’ … Read More

Petition for Rehearing En Banc Filed in Altera

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July 24, 2019

As most expected, Altera filed a petition for rehearing en banc after the reconstituted three-judge panel decided to reverse the Tax Court’s invalidation of Treasury’s cost-sharing regulations. (A link to the petition is below.) As we explained previously, those regulations have been the subject of much controversy over the last two decades, and the success that Xilinx had with its petition for rehearing several years ago made it likely that Altera would ask for rehearing.

The petition picks up on one of the themes we discussed in our most recent post here. The taxpayer takes aim at the majority’s … Read More

Rehearing Denied in SIH Partners

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July 3, 2019

The Third Circuit today denied a petition for rehearing en banc in SIH Partners.  See our prior reports here.  The taxpayer now has 90 days to file a petition for certiorari.

The petition for rehearing focused more on general administrative law principles than on the substantive section 956(d) issue in the case.  In particular, the petition criticized the panel for applying Chevron deference to a regulation that did little more than parrot the statutory language.  It also argued that the panel erred in stating that the IRS was not bound by a previously published Revenue Ruling.  Given the … Read More

Observations on Changes in the Ninth Circuit’s Second Altera Decision

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June 27, 2019

As we posted earlier here (with a link to the new decision), the Ninth Circuit issued a new decision in Altera after replacing the late Judge Reinhardt with Judge Graber on the panel. But the result was the same as the withdrawn July 2018 decision—the Ninth Circuit upheld the validity of Treasury’s cost-sharing regulation that requires taxpayers to include the cost of employee stock options under qualifying cost sharing arrangements (QCSAs). Today, we present some observations after comparing the majority and dissent in the new decision with those in the Ninth Circuit’s withdrawn decision.

In the new decision, Judge Thomas … Read More

Ninth Circuit Again Upholds Cost-Sharing Regulation in Altera

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June 7, 2019

The Ninth Circuit issued a new opinion in Altera today after having withdrawn its July 2018 opinion. But today’s opinion does not change the result—by a 2-1 vote, the Ninth Circuit upheld the validity of the Treasury Regulation under section 482 that requires taxpayers to include the cost of employee stock options in the pool of costs that must be shared in qualifying cost sharing arrangements. Judge Thomas again wrote the panel’s opinion, Judge O’Malley again dissented, and Judge Graber—who was added to the panel to replace the late Judge Reinhardt—voted with Judge Thomas.

Although it borrows heavily from the … Read More

Briefing Complete in Mazzei

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May 20, 2019

The taxpayers have filed their reply brief in Mazzei, completing the briefing.  The reply brief is colorful–perhaps to a fault–in critiquing the government’s arguments.  For example: the issue is whether a Roth IRA can hold stock in a DISC “without suffering multitudinous nasties at the hands of the Commissioner”; the government’s arguments are “disingenuous” and “odd” and the Tax Court performed “judicial alchemy”; and the cases cited by the government are “as devoid of landing space herein as Noah’s crow” [actually a raven, according to the King James Bible].

Looking beyond the rhetoric, which is unlikely to make a … Read More

Third Circuit Affirms Subpart F Income Inclusion Ruling in SIH Partners

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May 7, 2019

A unanimous Third Circuit this morning affirmed the Tax Court in SIH Partners in an opinion that will please government lawyers who are increasingly dealing with APA challenges to Treasury regulations.  As explained in our previous posts here, the issue in SIH Partners was whether loan guarantees by two CFCs resulted in income exclusions, even though the guarantees were not equivalent to an actual repatriation because, among other things, there were many other guarantors.  Because the regulations on their face set forth a bright-line rule that takes no account of the individual circumstances of particular loan guarantees, the taxpayer … Read More

Both Parties Face Tough Questions in Amazon.com Ninth Circuit Argument

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May 1, 2019

As we previewed here, the Ninth Circuit heard oral argument in Amazon.com v. Commissioner on Friday, April 12. Before giving a detailed recap of that oral argument, some background on the dispute is in order.

The Primary Issue in Dispute

Amazon.com, the U.S. parent company (Amazon US), entered into a qualified cost-sharing agreement with its Luxembourg subsidiary (AEHT) in 2005. Amazon US contributed the intangible assets required to operate its European website business to that cost-sharing agreement. Then effective Treas. Reg. § 1.482-7(g)(2) provided that AEHT owed Amazon US a buy-in payment for the “pre-existing intangibles” that Amazon US … Read More

Ninth Circuit to Hear Oral Argument in Amazon Transfer-Pricing Dispute Friday

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April 10, 2019

We wanted to alert our readers that oral argument in the Ninth Circuit in Amazon.com Inc. v. Commissioner will be held this Friday. Similar to Veritas Software Corp. v. Commissioner, this transfer-pricing dispute is about the value of intangibles that the U.S. parent contributed to a cost-sharing arrangement with a foreign subsidiary. In particular, the parties dispute whether particular intangibles, like goodwill and going concern values, are compensable and thus require a buy-in payment upon their contribution to a cost-sharing arrangement. The government lost in the Tax Court.

The briefs are below. The Ninth Circuit will stream the oral … Read More

Government Brief Filed in Mazzei

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April 9, 2019

The government has filed its response brief in Mazzei urging the Ninth Circuit to accept the Tax Court’s recharacterization of the taxpayer’s transaction using the substance-over-form doctrine.  See our prior reports here.  The government’s brief starts by highlighting the IRS’s issuance of Notice 2004-8, which related to certain “abusive Roth IRA transactions” between: (1) a taxpayer’s pre-existing business, (2) the taxpayer’s Roth IRA, and (3) “a corporation (the Roth IRA Corporation), substantially all the shares of which are owned or acquired by the Roth IRA.”  Notice 2004-8 identified potentially abusive situations where the Roth IRA’s acquisition of shares, the … Read More

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