Briefing Underway in Kisor

The opening salvo has been filed in the Supreme Court challenge to the continuing vitality of what is usually called either Seminole Rock or Auer deference – the rule that a court owes deference to an agency’s interpretation of its own regulations. See our prior report here. The petitioner, a Vietnam veteran seeking disability benefits, has filed his opening brief, supported by 25 different amicus briefs.

The petitioner argues that Auer deference is unjustified for three principal reasons. First, petitioner contends that it is incompatible with the Administrative Procedure Act (APA) because it allows an agency to exercise lawmaking authority through administrative interpretation without adhering to the APA’s procedural safeguards of public participation and agency accountability through notice-and-comment rulemaking.

Second, petitioner argues that Auer is a judge-made rule that destabilizes administrative law because it allows an agency to receive deference to what may not be the best interpretation of a regulation, even if it is “reasonable.” That can unfairly confound an individual who can only try to conform his or her conduct to what appears to be the best interpretation of the regulation. Petitioner adds that Auer deference is “especially suspect . . . where the agency has an economic interest in the outcome,” such as when the interpretive issue relates to a monetary claim against the government.

Third, petitioner contends that Auer is incompatible with separation-of-powers principles because it “renders an agency simultaneously a law’s maker and its expositor.” That is in contrast to Chevron deference, which respects Congress’s power because it “rests on agency compliance with the APA.”

The petitioner adds that principles of stare decisis should not deter the Court from overruling Auer. He notes that this is a purely judge-made rule and that the seminal 1945 decision in Seminole Rock provided no reasoning for the doctrine. The petitioner also argues that “no private reliance interests rest on Auer’s continuing vitality” and that reexamination is warranted because of the substantial expansion of the role of administrative agencies in our government since Seminole Rock was decided.

Linked below is the petitioner’s brief and the amicus brief of Professor Thomas Merrill, a leading academic expert on administrative law, who argues that Auer should be overruled and that instead agency interpretations of regulations should be afforded the much more modest recognition of so-called Skidmore deference, which gives weight to an agency interpretation to the extent it has the “power to persuade.” Professor Merrill argues that “the persuasiveness standard would require reviewing courts to engage with and give respectful consideration to the agency’s experience in implementing the statutory regime and familiarity with its own regulations, respect that de novo review would not require.” Like the petitioner, Professor Merrill states that Chevron deference is consistent with the APA, and he does not suggest that the Court should retreat from Chevron. The other 24 amicus briefs can be found on the Supreme Court’s website.

The government’s response brief is due February 25. Oral argument has been scheduled for March 27.

Kisor – Petitioner’s Opening Brief

Kisor – Amicus Brief of Professor Merrill

Altera Case Submitted for Decision

The reargument of the Altera case was held on October 16. Chief Judge Thomas, who penned the original majority decision, was quiet during the argument, asking only one question. But both Judge O’Malley, who wrote the original dissent, and Judge Graber, who is the new judge on the panel and who might reasonably be expected to cast the deciding vote, were very active questioners. A video tape of the argument can be viewed at this link.

The oral argument was not quite the last gasp in the parties’ presentations to the panel. At the end of the week, counsel for Altera filed a post-argument letter further addressing some of the points that were raised at the argument. The letter stated that some of the statements made by government counsel at the argument were contrary to the provisions of Treas. Reg. § 1.482-4(f)(2)(ii), and that these departures from the existing regulations underscored why adminstrative law principles “do not permit an abandonment of arm’s-length evidence and the parity principle, even if the statute permitted it, without complying with the rules governing administrative procedure.” The government filed its own letter in response, asserting that its counsel’s statements did “not contradict any Treasury regulations” and did not implicate the administrative law principles referenced by Altera.

These letters are attached below.

The case is now submitted for decision. Ordinarily, one would expect several months to elapse after argument before a decision from the Ninth Circuit would issue in a complex case. (The original opinion in this case was issued more than nine months after the oral argument.) Given that Judges Thomas and O’Malley have already written opinions in the case, however, it is very possible that a decision could come much sooner.

Altera – Altera post-argument letter

Altera – Government post-argument letter

 

Supplemental Briefing Completed in Altera

Attached are the four supplemental briefs filed by the parties in the Altera case.  First, in anticipation of the reargument of the case, with Judge Graber now sitting on the panel in place of the deceased Judge Reinhardt, the court invited the parties to file supplemental briefs limited to half of the length of a normal court of appeals brief.  This briefing opportunity was designed to give the parties the chance to restate or add to their arguments on the issues previously addressed in the case, having now had the opportunity to read the competing opinions of Judges Reinhardt and O’Malley that had been vacated.  Although the court’s order took pains to tell the parties that they were “permitted, but not obligated,” to file “optional” supplemental briefs, it will surprise no one that both parties took advantage of the option and filed supplemental briefs on September 28 that pressed right up against the 6500 word limit.  In addition to the parties’ briefs, four supplemental amicus briefs were filed by:  1) the Chamber of Commerce; 2) a group of trade associations; 3) Cisco; and 4) a group of law school professors, with that last one being in support of the government.

This deluge of paper, however, was not enough for the panel.  On the same day that the supplemental briefs were due, the court issued the following order inviting another set of supplemental briefs on the question whether Altera’s suit was barred by the statute of limitations:

“The parties should be prepared to discuss at oral argument the question as to whether the six-year statute of limitations applicable to procedural challenges under the Administrative Procedure Act, 28 U.S.C. 2401(a), applies to this case and, if it does, what the implications are for this appeal. Perez-Guzman v. Lynch, 835 F.3d 1066, 1077-79 (9th Cir. 2016), cert. denied, 138 S. Ct. 737 (2018). Additionally, the parties are permitted, but not obligated, to file optional simultaneous supplemental briefs on this question on or before October 9, 2018. The briefs should be no longer than 6,500 words [that is, half the length of an ordinary appellate brief].”

The court’s injection of this new issue into the case was potentially a very significant development.  If the court were to conclude that Altera’s APA challenge was barred by the statute of limitations, the Ninth Circuit decision in Altera would not shed any light on any of the important issues thought to be presented involving the APA or the substance of the cost-sharing regulations.

In the end, however, it appears that the court’s latest order will not amount to anything.  Altera filed a full-fledged supplemental brief in response to the court’s order in which it raised several objections to the court’s suggestion, including an argument that the government had waived any possible statute of limitations claim.

More significantly, the government did not embrace the court’s suggestion either.  The government simply filed a short letter brief in which it stated that any prepayment suit filed by Altera within the six-year limitations period would have been barred by the Tax Anti-Injunction Act.  (In this connection, the government cited to its brief in the Chamber of Commerce case; see our coverage of that appeal here.)  Hence, the government acknowledged that it would be “unfair” to Altera if that six-year period were held to bar its later suit because that would have the effect of depriving Altera of any ability to sue in the Tax Court.   Moreover, the government noted that the limitations period is not “jurisdictional” and therefore, even if it would otherwise be applicable, the government had waived its right to invoke a limitations defense just as Altera argued in its brief.  The government concluded by stating its position that the six-year statute of limitations that is generally applicable to  APA challenges “does not apply to this case.”  Thus, there is no realistic possibility that the Ninth Circuit will toss the case on statute of limitations grounds, and it can be expected to address the important issues presented by the Tax Court’s opinion.

The oral argument is scheduled for October 16.

Altera – Altera Supplemental Brief

Altera – Government Supplemental Brief

Altera – Altera Statute of Limitations Supplemental Brief

Altera – Government Statute of Limitations Letter Brief

Altera Opinion Withdrawn

In a surprising move, the Ninth Circuit announced today that it has withdrawn its opinion in Altera “to allow time for the reconstituted panel to confer on this appeal,” even though no petition for rehearing has been filed yet.  See our prior report on the Altera decision here.  The mention of  the “reconstituted panel” refers to an order issued by the court last week that appointed Judge Graber as a replacement judge for Judge Reinhardt, who passed away in March.

At the time, the order appointing Judge Graber seemed to be an exercise in closing the barn door after the horse is gone.  But it now appears that Judge Graber is being asked to review the case and give her independent judgment regarding the issues, notwithstanding the decision issued in July.  If so, that would place the outcome in doubt again, since the two other living judges, Chief Judge Thomas and Judge O’Malley, differed on their views of the case.

In some courts, the death of a judge while a case is under consideration automatically means that the judge’s vote will not count.  Unless the remaining two judges agree, that death would necessitate appointing a third judge to render a decision.  But the Ninth Circuit does not follow that approach.  The now-withdrawn opinion recited that “Judge Reinhardt fully participated in this case and formally concurred in the majority opinion prior to his death.”  For whatever reason, the court now seems to have decided on its own that it made a mistake in allowing Judge Reinhardt to cast the decisive vote from the grave in such an important case.

Altera – Ninth Circuit order substituting Judge Graber

Altera – Ninth Circuit order withdrawing opinions

 

Chamber of Commerce Appeal Dismissed

We reported earlier that it was likely the government would dismiss its appeal in the Chamber of Commerce case once final regulations were issued addressing inversion transactions.  Those regulations were issued on July 11.  Yesterday, the government moved to dismiss the appeal with prejudice as moot (without specifying the final regulations as the cause), and the court immediately entered an order dismissing it.  Thus, there will be no appellate review of the novel issues raised by the district court’s decision in this case regarding temporary regulations and the Administrative Procedure Act.  See our prior report here.

It is possible that the government will consider asking the district court to vacate its decision because the appeal became moot.  Vacatur might have been appropriate under the old rule of United States v. Munsingwear, Inc., 340 U.S. 36 (1950).  But because the mootness was caused by the government’s own action of issuing final regulations, a motion to vacate likely will not be granted under the current standard set forth in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18 (1994).

Chamber of Commerce – Fifth Circuit Order Dismissing Appeal

Chamber of Commerce – Government Motion to Dismiss

Ninth Circuit Reverses Altera and Revives Cost-Sharing Regulations

The Ninth Circuit today by a 2-1 vote reversed the Tax Court’s Altera decision that had invalidated Treasury regulations requiring taxpayers to include employee stock options in the pool of costs shared under a cost-sharing agreement. See our previous reports here. The court’s decision (authored by Chief Judge Thomas) held that the regulations were a permissible interpretation of Code section 482 in imposing that requirement even in the absence of any evidence that taxpayers operating at arm’s length actually share such costs in similar arrangements. The court also held that Treasury’s rulemaking did not violate the Administrative Procedure Act (APA).

The court’s opinion follows the structure of the government’s brief in first analyzing section 482, even though the Tax Court decision rested on the APA. The court began with a detailed history of the development of section 482 and the related regulations. Quoting a law review article, the court stated that Congress and the IRS gradually realized in the years after 1968 that the arm’s-length standard “did not work in a large number of cases” and therefore they made “a deliberate decision to retreat from the standard while still paying lip service to it.” Relying heavily on legislative history, the court stated that the addition of the “commensurate with income” language in the 1986 Act was intended “to displace a comparability analysis where comparable transactions cannot be found.”

Armed with that conclusion, the court found that there was no violation of the APA. The court explained that the commenters had attacked the regulation as inconsistent with the arm’s-length standard, but Treasury in its notice had “made clear that it was relying on the commensurate with income provision”; therefore, the comments in question were just “disagree[ing] with Treasury’s interpretation of the law,” and there was no reason for Treasury to address those comments in any detail. The taxpayer argued that the notice of rulemaking indicated that Treasury would be applying the arm’s-length standard and therefore the Chenery principle of administrative law did not permit the regulations to be defended on the ground that the arm’s-length standard did not apply. See our prior summary of the parties’ arguments here. The court rejected this argument in cursory fashion, stating that it “twists Chenery . . . into excessive proceduralism.” It maintained that the citation of legislative history in the notice was a sufficient indication that Treasury believed that it could dispense with comparability analysis, and therefore the regulations were not being upheld on a different ground from the one set forth by the agency.

Having concluded that there was no APA violation in issuing the regulations, the court then applied the Chevron standard of deferential review to analyze the regulations, and it concluded that they were a reasonable interpretation of the statute. Pointing to the legislative history, the court ruled that the “commensurate with income” language was intended to create a “purely internal standard . . . to ensure that income follows economic activity.” The court added that “the goal of parity is not served by a constant search for comparable transactions.” Rather, by amending section 482 in 1986, Congress had “intended to hone the definition of the arm’s length standard so that it could work to achieve arm’s length results instead of forcing application of arm’s length methods.”

Finally, the court rejected the argument that the new regulations were inconsistent with treaty obligations. It remarked that “there is no evidence that the unworkable empiricism for which Altera argues is also incorporated into our treaty obligations,” describing the arm’s-length standard as “aspirational, not descriptive.”

Judge O’Malley (of the Federal Circuit, sitting by designation) dissented. She approached the case along the lines of the taxpayer’s argument and concluded that the Tax Court had correctly found an APA violation because “[i]n promulgating the rule we consider here, Treasury repeatedly insisted that it was applying the traditional arm’s length standard and that the resulting rule was consistent with that standard.” And “Treasury never said . . . that the nature of stock compensation in the [cost-sharing] context rendered arm’s length analysis irrelevant.” Accordingly, “Treasury did not provide adequate notice of its intent to change its longstanding practice of employing the arm’s length standard.” Finally, Judge O’Malley also noted her disagreement with the majority’s conclusion on the merits that the regulations are consistent with section 482. She explained that the plain language of the commensurate with income provision restricts its application to a “transfer (or license) of intangible property,” which would not encompass a cost-sharing agreement, even if the agreement relates to joint development of intangibles.

It is likely that the taxpayer will seek rehearing of the decision by the full Ninth Circuit, especially since such a rehearing petition was successful a decade ago in Xilinx. A rehearing petition would be due on September 7. If the taxpayer elects not to seek rehearing, a petition for certiorari would be due October 22.

Altera – Ninth Circuit opinion

 

Briefing Delays in Chamber of Commerce Could Portend Dismissal of Appeal

The government’s appeal in the Chamber of Commerce case raises important issues of administrative law (see our previous report here), but it seems increasingly unlikely that the court of appeals will ever reach those issues.

The government’s opening brief was filed in March. That brief (linked below) addresses several issues—including standing, the Anti-Injunction Act, and the authority of temporary regulations issued without notice-and-comment. At the time, the government had sought to avoid having to file its brief at all, filing a motion shortly before the (already extended) due date that asked the court of appeals to stay the briefing schedule indefinitely to await the “imminent” issuance of final regulations addressing inversions. The motion explained that, “having completed notice and comment, Treasury and IRS plan to finalize the proposed regulation,” and stated that the government would then “reevaluate whether it should proceed with this appeal.” As an alternative to a complete stay of the briefing, the government asked for an additional 45-day extension until April 30 to file its brief, and the plaintiffs consented to that extension request.

The court of appeals, however, did not act on the extension request before the due date, and the government accordingly filed its brief on March 16. It thus appeared for a time that the court of appeals might move forward towards deciding the case without waiting for the issuance of final regulations. That is no longer the case.

The court first granted the plaintiffs a fairly routine 45-day extension until May 31. But today the court granted the plaintiffs an additional 60-day extension until July 30. This extension, to which the government consented, is expressly linked to the issuance of the final regulations. Treasury has announced that those regulations will be issued in June, and the plaintiffs state in their motion that the extension is necessary to “facilitate the parties’ efforts to determine whether the final rule will cause the Government to dismiss its appeal or will otherwise affect the presentation of the issues.”

Although the government’s original motion back in March did not commit it to dismissing the appeal, it strongly signaled that the government is inclined towards that course of action once the final regulations are in place. Under Federal Rule of Appellate Procedure 42, an appellant can voluntarily dismiss its appeal as long as it pays certain costs to the appellee. Thus, even if the plaintiffs would want the appeal to continue in order to obtain an appellate decision on the broad administrative law issues, they cannot prevent the government from dismissing the appeal if it chooses to do so.

Chamber of Commerce – Appellees Request for Extension

Chamber of Commerce – Opening Brief for US

Chamber of Commerce – US motion for stay

Fifth Circuit Poised to Consider Validity of Temporary Regulations Aimed at Curbing Inversions

We present here a guest post by our colleague Katherine Zhang.

In Chamber of Commerce v. Internal Revenue Service, the Fifth Circuit will consider whether “tax exceptionalism” exists in the context of temporary regulations. At issue in the case are Treasury regulations that provide special rules for calculating the “ownership fraction” for entities engaged in inversion transactions. The district court set aside the regulations as promulgated in violation of the Administrative Procedure Act (APA), and the government has appealed.

Since the Supreme Court consigned the broad notion of “tax exceptionalism” to the scrap heap in Mayo Foundation, 562 U.S. 44 (2011) (see our prior reports here and here), by applying Chevron deference principles to Treasury regulations, the courts have increasingly grappled with the extent to which the APA constrains the promulgation of Treasury regulations. The Altera case pending in the Ninth Circuit presents another important facet of the general interplay between the APA and Treasury regulations (see our reports on Altera here). In this case, the focus is on APA constraints on the issuance of temporary regulations.

Generally, an “inversion transaction” occurs where a foreign corporation replaces the U.S. parent of a multinational group. If the transaction meets certain criteria, then Code section 7874 applies to impose adverse U.S. tax consequences on the parties involved. One key criterion is that, after the transaction, former shareholders of the U.S. parent hold at least 60 percent of the stock of the new foreign parent. This percentage is commonly referred to as the “ownership fraction,” and it may be measured by either vote or value. If the ownership fraction is at least 60 percent and less than 80 percent, then in the ten-year period after the transaction, U.S. tax is imposed on income or gain recognized in this period from transfers or licenses that are part of the transaction or that are made to foreign related persons after the transaction. The resulting liability cannot be reduced by tax attributes such as net operating losses or foreign tax credits. If the ownership fraction is at least 80 percent, then the new foreign parent is treated as a domestic corporation.

In April 2016, the Treasury Department invoked its broad regulatory authority under section 7874 to adopt special rules for calculating the ownership fraction. Under one of these rules, the denominator of the ownership fraction (by value) disregards stock of the foreign corporation attributable to certain prior domestic entity acquisitions. As a result, the ownership fraction increases, and the 60 percent threshold brings more transactions within the ambit of section 7874. The rule is designed to prevent companies from using a series of transactions to safely achieve an inversion that would fall within section 7874 if done all at once or as part of a single plan. The rule was issued both as a temporary regulation that was effective immediately and as a proposed regulation.

This rule is the central focus of Chamber of Commerce. In August 2016, the U.S. Chamber of Commerce and the Texas Association of Business filed suit in the Western District of Texas, arguing that the rule was invalid for failure to meet the requirements of the APA. The government contested both the plaintiffs’ power to bring suit and the merits of the APA objections.

The district court first rejected the government’s jurisdictional challenges that were raised in a motion to dismiss. A plaintiff generally must establish standing by demonstrating that it suffered an “injury in fact” that was caused by the defendant’s conduct and that likely would be redressed by a favorable decision. But an association has standing to bring suit on behalf of its members if, among other elements, the members would have standing to sue in their own right. The court agreed that both plaintiffs had standing because Allergan plc was a member of each trade association.

Shortly after Treasury and the IRS issued the rule in April 2016, Allergan announced the cancellation of a previously announced merger with Pfizer Inc. According to the plaintiffs, the rule eliminated the tax benefits of the merger—because Allergan’s “corporate composition” included several prior acquisitions of domestic corporations, the rule would have applied to cause the entity resulting from the merger to be treated as a domestic corporation subject to U.S. federal income tax. On this basis, the court found that Allergan would have standing to sue in its own right. Although Allergan did not have a specific transaction pending, there was no need for it to “engage in futile negotiations” for a transaction that the rule has “altogether foreclosed or made economically impracticable.” Instead, it was sufficient that Allergan “identified a specific transaction that was thwarted by the Rule and asserted that it would actively pursue other inversions if this court were to set aside the challenged Rule.” The court went on to conclude that the plaintiffs demonstrated “injury in fact” by showing that Allergan was the “targeted object” of the rule. Therefore, the plaintiffs “have alleged an actual, concrete injury, that is fairly traceable to implementation of the Rule, and that would be redressed by a decision setting aside that Rule.”

The court also determined that the suit was not barred by the Anti-Injunction Act, which prohibits suits “restraining the assessment or collection of any tax.” According to the court, the plaintiffs’ suit did not seek to restrain the assessment or collection of tax. Citing Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (2015), which analyzed the analogous Tax Injunction Act applicable to state taxes, the court reasoned that “[a]ssessment and collection of taxes does not include all the activities that may improve the government’s ability to assess and collect taxes.” Here, rather than trying to restrain the assessment or collection of tax, the plaintiffs merely challenged the validity of a rule “so that a reasoned decision can be made about whether to engage in a potential future transaction that would subject them to taxation under the Rule.” The rule itself did not constitute the assessment or collection of tax, but only determined who was subject to tax and facilitated the assessment or collection of tax.

The court then turned to the plaintiffs’ motion for summary judgment, which raised the substantive claims of an APA violation. Broadly speaking, the APA governs agency actions and judicial review of such actions. Provisions of the APA governing agency rulemaking require agencies to publish a notice of proposed rulemaking in the Federal Register and to provide “interested persons” with an opportunity to comment. The proposed rule must be published no less than 30 days before its effective date, to allow for adequate opportunity to comment. The APA also directs a reviewing court to “hold unlawful and set aside” certain types of agency action, including actions that exceed statutory jurisdiction, actions that are arbitrary and capricious, and actions taken without procedure required by law. The plaintiffs challenged the rule on all three of these grounds.

The district court rejected the plaintiffs’ first two arguments, finding that the rule did not exceed Treasury and the IRS’s statutory jurisdiction and did not constitute arbitrary and capricious rulemaking. The court reached a different result, however, with respect to the plaintiffs’ third argument, ruling that issuance of the rule as an immediately effective temporary regulation violated the APA’s notice-and-comment requirements.

The government argued for a form of “tax exceptionalism” based on Code section 7805(e), which states that Treasury can issue temporary regulations (subject to automatic expiration after three years), as long as those temporary regulations are accompanied by proposed regulations that are subject to notice and comment. Although that provision contains no language restricting temporary regulations from becoming effective immediately, the court was not persuaded. The APA specifically contemplates that subsequent statutes might override its notice-and-comment requirements, but it requires that statutes make this change “expressly.” 5 U.S.C. § 559. According to the court, section 7805 did not make any such change “expressly”—it refers to effective dates of regulations in connection with limitations on retroactivity in section 7805(b), but “neither explicitly states nor suggests congressional intent to allow a regulation to become effective earlier in relation to publication than provided for in the APA.” The court also declined to look for any such intent in the legislative history, saying that it “will not disregard explicit directives of the APA in favor of legislative history.”

The court also held that the rule did not qualify for the APA’s exception for “interpretative” rules, which exempts such rules from notice-and-comment requirements. 5 U.S.C § 553(b)(A). As described by the court, an interpretative rule advises the public as to the “agency’s construction of the statutes and rules which it administers,” while a substantive rule “affects individual rights and obligations” and “is issued by an agency pursuant to statutory authority.” The court determined that the rule at issue was a substantive rule—it was promulgated pursuant to subsections of section 7874 that authorized Treasury to issue regulations to provide for “adjustments to the application of this section” and to “treat stock as not stock.” These types of rules are “modifications to the application of the statute,” not mere interpretations.

The impact of the Fifth Circuit’s decision in Chamber of Commerce could extend well beyond its effect on the particular inversion rule that is directly at issue. If the court of appeals agrees with the district court’s approach, its decision could well cast doubt on the validity of all temporary Treasury regulations. Conversely, the court of appeals may decide that, under section 7805, tax still is exceptional in at least one important respect.

The government’s opening brief is due March 16.

Chamber of Commerce – District Court opinion

 

Government Files Notice of Appeal in Altera

We have previously reported on the Tax Court’s important decision in Altera, which has significant implications both for IRS regulation of cost-sharing agreements under the transfer pricing rules and, more broadly, for how the Administrative Procedure Act might operate as a constraint on rulemaking by the Treasury Department in the tax area.  Although there were some tactical considerations that could have made the government hesitant to seek appellate review from its defeat in Altera (see here), the government has now filed a notice of appeal to the Ninth Circuit.

The court of appeals will issue a briefing schedule in due course, and we will keep you posted on the progress of the appeal.

Altera Decision Now Ripe for Appeal

We reported earlier on the Tax Court’s important decision in Altera, which invalidated a transfer-pricing regulation for failure to satisfy the “reasoned decisionmaking” standard for rulemaking under the Administrative Procedure Act.  At the time, there were outstanding issues that prevented the Tax Court from entering a final decision.  The parties have now submitted agreed-upon computations, and on December 1 the Tax Court entered a final decision.  The government has 90 days to file a notice of appeal from that decision.

As we noted previously, the government will be motivated to appeal this decision both because of its specific impact on the regulation of cost-sharing agreements and, more broadly, because it could open the door to APA challenges to other regulations, including but not limited to other transfer pricing rules.  On the other hand, the government could make a judgment that this particular case is not an ideal vehicle for litigating the broader APA issue, in part because an appeal would go to the Ninth Circuit where the Xilinx precedent on cost-sharing is on the books (see here for a report on Xilinx).  It might then make the tactical choice to forego appeal in this case and await a stronger setting in which to litigate the APA issue for the first time in an appellate court.  The Department of Justice will be weighing these competing considerations, and its conclusion should be evident when the 90-day period expires next March.

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