9th Circuit withdraws Altera decision pending review by replacement judge

Tax Hot Topics newsletter The 9th Circuit Court of Appeals on Aug. 7 abruptly withdrew its decision in Altera Corp. v. Commissioner, Nos. 16-70496, 16-70497 (9th Cir. 2018).

The one sentence order came on the heels of the court’s split decision upholding cost-sharing regulations under Treas. Reg. Sec. 1.482-7(d)(2) that required the inclusion of stock-based compensation in cost-sharing cost pools. That July 24 decision reversed the Tax Court’s unanimous opinion in Altera Corp. v. Commissioner, 145 T.C. 91 (2015), which invalidated the regulations under the Administrative Procedure Act.

One of the judges in the majority, Judge Stephen Reinhardt, died in March 2018, five months after the oral arguments were held in October 2017. On Aug. 2, the 9th Circuit replaced Judge Reinhardt with Judge Susan P. Graber.

The order to withdraw the decision could have a significant impact on the eventual outcome of the case. Judge Graber will review the Tax Court record de novo and may come to a different conclusion than the majority of the original three-judge panel. Her vote will be critical to determining whether the cost-sharing regulations at issue are invalidated or not.

It is unclear how long Judge Graber’s review will take, and it is possible that the reconstituted judicial panel will issue its decision after the extended corporate tax return due date of Oct. 15. Thus, for now, the Tax Court’s original decision invalidating the regulations stands, and taxpayers who were in the process of responding to the 9th Circuit’s reversal might want to consider changing course.

For more information contact: David Sites
National Managing Partner, International Tax Services 
Washington National Tax Office
T +1 202 861 4104

Elizabeth Askey
Managing Director, National IRS Practice and Procedure Leader
T +1 202 521 1513

Matthew Kramer
Managing Director, Transfer Pricing, International Tax Services
T +1 415 365 5442
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