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 The Ninth Circuit ruled 2-1 for the government in both its original opinion, which was withdrawn due to the death of one of the judges on the panel, and again in a revised opinion.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: Continue reading “More on Altera v. Commissioner” →

Update on Altera

By: Leandra Lederman

I’m currently at the #SEALS2018 conference in Ft. Lauderdale, but I wanted to quickly note that the opinion of the 9th Circuit panel in Altera Corp. v. Commissioner was withdrawn today. This follows the replacement of Judge Reinhardt, who passed away on March 29, with Judge Graber. Recall that the July 24 opinion in this important case reflected a 2-1 decision, with the late judge in the majority, as Christopher Walker and others had noted. (For my previous coverage of Altera, see here and here.)

A screenshot of the court’s order appears below. It will be interesting to see what happens after the new panel confers!

Reversing the U.S. Tax Court, 9th Circuit Rules for IRS in Altera

In a 2-1 opinion, a panel of the Court of Appeals for the Ninth Circuit has reversed the U.S. Tax Court in Altera v. Commissioner. (I don’t have a link yet to the opinion because it just came out this morning, but will add it as a comment when I do.) The decision is great news for IRS rulemaking: the Court of Appeals upheld a Treasury regulation in the face of a procedural challenge that alleged that “although Treasury solicited public comments, it did not adequately consider and respond to those responses, rendering the regulations arbitrary and capricious under State Farm.” Altera, slip. op. at 27. The court found that Treasury’s approach to the regulation (a cost-sharing regulation under Code section 482) satisfied State Farm‘s requirements. Id. at 37. The Court of Appeals also accorded the regulation Chevron deference. Id. at 46.

In my view, this is the right outcome. (Full disclosure: Susan Morse and Stephen Shay spearheaded an amicus brief in the Ninth Circuit in favor of the Commissioner, in which I joined, along with Dick Harvey, Ruth Mason, and Bret Wells.) Treasury did consider and respond to the comments it received on the regulation; it simply had a different approach to the substance of the regulation than the taxpayers commenting did. The Court of Appeals explains:

“In short, the objectors were arguing that the evidence they cited—showing that unrelated parties do not share employee stock compensation costs—proved that Treasury’s commensurate with income analysis did not comport with the arm’s length standard. Thus, the thrust of the objection was that Treasury misinterpreted § 482. But that is a separate question—one properly addressed in the Chevron analysis. That commenters disagreed with Treasury’s interpretation of the law does not make the rulemaking process defective.”

Altera, supra, at 31-32.

It is worth noting that the court did not address larger questions of the applicability of the APA or Chevron in tax cases, stating in a footnote (and citing Stephanie Hoffer & Chris Walker and Kristin Hickman):

“Because the Commissioner does not contest the applicability of the APA or Chevron in this context, this case does not require us to decide the broader questions of the precise contours of the application of APA to the Commissioner’s administration of the tax system or the continued vitality of the theory of tax exceptionalism.”

Id. at 25 n.5. Dan Shaviro has blogged about the decision on Start Making Sense, noting that “the Chevron standard for reviewing administrative regulations . . . may well be on the Supreme Court’s chopping block in the near future.”

I would expect more coverage of the Altera decision soon. For prior Surly coverage, see here.

Tomorrow’s Ninth Circuit Oral Argument in Altera

By: Leandra Lederman

Susan Morse and Stephen Shay have blogged today on Procedurally Taxing about the Ninth’s Circuit oral argument tomorrow in Altera Corp. v. Commissioner, as has Dan Shaviro on his blog, Start Making Sense. Altera is the transfer pricing and administrative law case involving the Treasury’s cost-sharing agreement regulation. The Tax Court invalidated the regulation under the Administrative Procedure Act, as arbitrary and capricious. That is because the Tax Court accepted the taxpayer’s argument that it need not share stock-based compensation costs under a qualified cost-sharing agreement because arm’s length parties would not do so. The Tax Court found that Treasury had inadequately addressed evidence in the notice-and-comment process that parties not under common control did not share stock-based compensation costs, although Treasury explained in the Preamble to the regulation that cost-sharing agreements between uncontrolled parties are not sufficiently comparable to those in controlled-party transactions.

Altera raises an important administrative law question about what is required of Treasury for its regulations to be valid. Susie and Steve spearheaded an amicus brief in the Ninth Circuit in favor of the Commissioner, in which I joined, along with Dick Harvey, Ruth Mason, and Bret Wells. An amicus brief prepared by another group of professors also supports the Commissioner. There are also amicus briefs by business groups on the other side. See Susie and Steve’s blog post for more detail. And for prior coverage on the Surly Subgroup, see this post on our amicus brief, explaining why the Ninth Circuit should reverse the Tax Court’s decision invalidating the regulation.

Apple, Ireland, and State Aid: The EC Decision

By: Sam Brunson

In August, the European Commission announced that Ireland had illegally granted state aid to Apple, and that it would be required to recoup over $13 billion in back taxes from Apple. (Surly coverage here.)

All of the analysis at the time was tentative, though, because, before it could release its decision, the EC had to redact it. And on Monday, it released the redacted version.[fn1] All 130 pages of the redacted version. So now we get to dig into its content. Continue reading “Apple, Ireland, and State Aid: The EC Decision” →

Ireland, Apple, and State Aid

Maybe you heard: Apple owes up to €13 billion in back taxes, plus interest, to Ireland. And maybe you also heard that Ireland doesn’t want Apple to pay. So what’s up?

First a caveat: I don’t have any particular expertise in European Union law, so I’m going off of news reports[fn1] and the European Commission’s press release. (As of when I’m writing this on Tuesday afternoon, the actual opinion isn’t up on the EC’s website. I’ll add a link when it’s available.)

In short: members of the EU can establish their own tax systems; the EU doesn’t have any authority over those systems. Over the last two years or so, though, the EC has been looking at special tax deals member countries have been giving to companies; where it finds that a country has provided special tax treatment to one particular company (and not granted similar tax treatment to other companies), it has held that the country provided “state aid” to that company. The EU treaty prohibits state aid and, when a member country provides such aid, the EC can require that country to recover the taxes it should have collected from the company in question. Though this Apple ruling is the most recent, last year the EC determined that Luxembourg and the Netherlands had used tax rulings to provide state aid to Fiat and Starbucks, and it is still looking into tax rulings provided by Luxembourg to McDonald’s and Amazon. Continue reading “Ireland, Apple, and State Aid” →