Ninth Circuit Withdraws Altera Opinion Reversing Tax Court on Cost-Sharing Arrangements: New Judge Added to Panel to Reconsider the Appeal

Sullivan & Cromwell LLP - August 7, 2018
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On August 7, 2018, the U.S. Court of Appeals for the Ninth Circuit withdrew its July 24, 2018 opinion in Altera Corporation v. Commissioner to allow a reconstituted panel to confer on the decision. The withdrawn decision held that a Treasury rule requiring sharing of stock-based compensation costs in qualified cost sharing arrangements was valid, overruling an earlier U.S. Tax Court decision.  However, at the time the Ninth Circuit decision was issued, Judge Stephen Reinhardt, a member of the majority in the 2-1 decision, had been deceased for over three months, calling the majority opinion’s validity into doubt.  The Ninth Circuit has since added Judge Susan P. Graber to the panel to replace Judge Reinhardt.  This reconstituted panel will reconsider the validity of the cost sharing regulations at issue. Until the reconstituted panel issues a decision, the Tax Court’s decision in Altera is controlling law, and parties to qualified cost sharing arrangements are not required to share stock-based compensation costs.