The US Court of Appeals for the Ninth Circuit today announced the withdrawal of a decision filed 24 July 2018, in the Altera Corp. v. Commissioner case “to allow time for the reconstituted panel to confer on this appeal.”
On 24 July 2018, the Internal Revenue Service (IRS) received (or so they thought) a much-needed, and by most accounts highly unexpected, victory in a significant transfer pricing case. The U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”), by way of a 2-1 vote, reversed a prior 2015 decision of the Tax Court (Altera v. Commissioner), holding that related parties in a qualified cost-share arrangement (QCSA) must also share stock-based compensation (SBC) costs. For all companies currently in a QCSA, or considering entering into one, this is a fundamental court ruling, especially for those which rely on stock-based compensation as a significant portion of their payroll and incentive to attract and retain top talent. Following the initial 2015 Tax Court decision, companies continued to exclude SBC costs from their QCSAs, but would often include language in the QCSA agreements to specifically mention the Altera ruling and any impact that a reversal of this case would have.
Authored by Margaret Critzer
This one sentence carries major implications for corporate taxpayers who participate in a QCSA. The safest bet for the time being may be to carry on with “business as usual” because with the withdraw of the Ninth Circuit’s opinion, it is as if the 24 July ruling never happened. This is potentially another victory for the taxpayer (and also another defeat for the IRS), but companies should keep their ear to the ground as we have certainly not heard the last out of this case.