Ninth Circuit Reaffirms Validity of Treasury Regulations on Cost-Sharing Arrangements: After New Judge Joins the Panel, the Ninth Circuit Again Reverses the Tax Court Decision in Altera

Sullivan & Cromwell LLP - June 20, 2019

On June 7, 2019, in Altera Corporation v. Commissioner, the U.S. Court of Appeals for the Ninth Circuit, in a two-to-one decision which was substantially similar to its previous withdrawn decision from July 24, 2018, reversed a U.S. Tax Court ruling and deferred to the U.S. Treasury’s interpretation of Section 482 of the Internal Revenue Code stating that U.S. corporations must allocate, and therefore cannot deduct, a portion of the cost of stock-based compensation for employees to the extent those employees’ work is for the benefit of the corporations’ non-U.S. affiliates pursuant to what is referred to as “qualified cost sharing arrangements.”