In Altera Corp. v. Commissioner, 145 T.C. No. 3 (July 27, 2015), the Tax Court, in a unanimous reviewed opinion, held that regulations under Section 482 requiring parties to a qualified cost-sharing agreement (“QCSA”) to include stock-based compensation costs in the cost pool to comply with the arm’s-length standard were procedurally invalid because Treasury and the IRS did not engage in the “reasoned decisionmaking” required by the Administrative Procedures Act and the cases interpreting it. The Commissioner of Internal Revenue (“Commissioner”) appealed this holding to the Ninth Circuit Court of Appeals, Dkt. Nos. 16-70496, 16-70497. The Commissioner filed his opening brief on June 27, 2016. Two groups of law school professors filed amicus briefs in support of the Commissioner’s position. On September 9, 2016, Altera Corporation (“Altera”) filed its answering brief with the Ninth Circuit.

Altera begins with the observation that the Commissioner “has remarkably little to say” about the Tax Court’s rationale in holding the QCSA regulation invalid. According to Altera, the Commissioner either did not respond to the salient points in the Tax Court’s analysis or, more often, actually admitted that those points were correct. Instead, the Commissioner advanced a “new, litigation-driven position” that Section 482’s “commensurate with income” requirement is an independent “internal standard” that “does not require consideration of transactions between unrelated parties.” Indeed, Altera notes, the Commissioner now argues “that the arm’s-length standard may be applied without considering any facts at all.” Thus, rather than engage with the Tax Court’s reasoning, the Commissioner “mistakenly accuses the Tax Court of overlooking an argument that is missing from the administrative record.”


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