by Julie Martin, MNE Tax
The US IRS will once again examine allocations between group members of employee stock-based compensation in cost-sharing arrangements for transfer pricing purposes.
A memo from Douglas W. O’Donnell, IRS Commissioner, Large Business and International Division, dated July 31 but made public today, withdraws Directive LB&I-04-0118-005, dated January 12, 2018.
The earlier directive instructed examiners to stop opening new examinations for issues related to stock-based compensation included in cost-sharing agreement intangible development costs while the IRS appeal of the Tax Court’s decision in Altera was pending. The Tax Court in Altera had invalidated Treasury’s cost-sharing regulations on the treatment of stock-based compensation expenses.
The United States Court of Appeals for the Ninth Circuit reversed the US Tax Court’s opinion in Altera on June 7.
In the memo, O’Donnell states:
“Based on the Ninth Circuit’s decision in Altera, I am formally withdrawing Directive LB&I-04-0118-005. With the issuance of this Withdrawal, examiners should continue applying Treas. Reg. §§ 1.482-7A(d)(2) and 1.482-7(d)(3), including opening new examinations of CSA SBC issues when appropriate. These issues may be factually intensive, and transfer pricing teams should develop the facts to support their analyses and conclusions. Where appropriate, Issue Teams should consider consulting the Practice Network and Counsel for support in developing the most reliable analyses of this issue. We will continue to monitor any further developments related to the Ninth Circuit’s decision. “
It should be noted that Altera has filed a petition for rehearing in en banc of the majority decision of the Ninth circuit.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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