Tax Court Rules in Favor of Medtronic in Transfer Pricing Case Against IRS

At least a partial taxpayer victory in the Medtronic case, T.C. Memo. 2016-112. The Tax Court held that Medtronic met its burden of showing the Internal Revenue Service (IRS) abused its discretion by  making arbitrary and capricious Internal Revenue Code (IRC) Section 482 reallocations with respect to taxable income of Medtronic’s Puerto Rico subsidiary. It further concluded that the IRS’s use of the comparable profits method is not required under the IRC Section 482 commensurate with income standard. Although the Tax Court found the taxpayer’s royalty rates established using the comparable uncontrolled transaction method to be unreasonable, the court undertook to determine the proper allocations itself, and made two significant adjustments to the taxpayer’s royalty rates. Finally, the court rejected the IRS’s alternative allocation that intangibles were transferred under IRC Section 367(d).

McDermott Will & Emery






Robin L. Greenhouse
Robin L. Greenhouse represents businesses and individuals in resolving complex, large-dollar federal tax controversies. Robin is adept at using dispute resolution techniques, including fast track mediation, pre-filing agreements, Internal Revenue Service (IRS) appeals and post-appeals mediation, and has been the lead lawyer in significant litigation. Over her 30-year career as a government and private practice tax litigator, she has argued more than 100 cases in federal courts at every level. Read Robin Greenhouse's full bio.

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