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Utah District Court clarifies scope of discretionary authority provision as applied to transfer pricing issues

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On Oct. 6, 2016, the Fourth Judicial District Court in Utah County upheld 90% of the deductions for royalty payments made by a taxpayer to a related party for the use of intellectual property. In doing so, the district court rejected an argument by the Utah Tax Commission (UTC) that Utah Code Ann. Sec. 59-7-113 gave it unfettered authority to reallocate income upon a finding of distortion of income for tax purposes. Instead, the court found that the UTC’s discretion is limited by language outside the statute, specifically the regulations promulgated under Internal Revenue Code Sec. 482.