On June 7, 2019, the Ninth Circuit re-issued a decision in Altera v. Commissioner, upholding an IRS Regulation that had been previously struck down by the Tax Court. (This follows a decision in the same case that had previously been released by the Ninth Circuit on July 24, 2018, only to be precipitously withdrawn on August 7, 2018, as previously reported by Ropes & Gray with respect to the July 2018 and August 2018 decisions).
At issue is Treasury Regulation 1.482-7A(d)(2)’s requirement that related parties allocate stock-based compensation costs when entering into cost-sharing agreements to develop intangible assets. The Ninth Circuit upheld the Treasury Regulation 1.482-7A(d)(2) (the “Regulation”), reversing the Tax Court’s decision. The court held that the Regulation did not exceed the authority delegated to the Commissioner by 26 U.S.C. §482, regarding the allocation of income and deductions among taxpayers. The court then applied Chevron deference to conclude that the Regulation was a reasonable method for achieving the results required by 26 U.S.C. §482. The decision was again 2-1, with Chief Judge Sidney R. Thomas and Judge Susan P. Graber in the majority, and Judge Kathleen M. O’Malley again dissenting. The decision is available here.