More on Altera v. Commissioner

By: Leandra Lederman

Susan Morse and Stephen Shay have blogged on Procedurally Taxing on both May 22 and June 11 on Altera’s efforts to have the U.S. Supreme Court grant certiorari in Altera v. Commissioner. Altera is a closely followed case involving an administrative law challenge to the validity of a Treasury regulation, so I wanted to flag those blog posts for Surly Subgroup readers.

Recall that in Altera, the Court of Appeals for the Ninth Circuit upheld a cost-sharing regulation under IRC § 482, reversing the Tax Court’s unanimous decision invalidating the regulation as arbitrary and capricious. The Ninth Circuit ruled 2-1 for the government in both its original opinion, which was withdrawn due to the death of one of the judges on the panel, and again in a revised opinion. The Ninth Circuit also denied rehearing en banc, a victory for the IRS’s rulemaking process. (Full disclosure: in addition to joining in two earlier amicus briefs in favor of the Commissioner, which Susie and Steve spearheaded, I co-authored with them and Clint Wallace a 2019 amicus Brief in Opposition to the Petition for Rehearing En Banc.)

In February, Altera petitioned for certiorari, stating the following questions presented:

1. Whether the Treasury Department’s regulation is arbitrary and capricious and thus invalid under the Administrative Procedure Act, 5 U.S.C. 551 et seq.
2. Whether, under SEC v. Chenery Corp., 332 U.S. 194 (1947), the regulation may be upheld on a rationale the agency never advanced during rulemaking.
3. Whether a procedurally defective regulation may be upheld under Chevron on the ground that the agency has offered a “permissible” interpretation of the statute in litigation.

Thus, Altera seeks to have the U.S. Supreme Court grant certiorari to reverse the Ninth Circuit and invalidate the regulation on administrative law grounds. Steve and Susie’s recent blog posts on Procedurally Taxing cover the government’s brief in opposition to Altera’s certiorari petition and Altera’s reply brief. In my view, their posts persuasively rebut Altera’s claim that the government “changed its tune” about the relevance of comparables involving unrelated parties to the cost-sharing arrangements of related entities. I encourage readers to read their posts! And for prior Surly coverage of the Altera litigation, see here.