Daily Tax Report ®

Deference to Tax Court Isn’t Needed in Altera Case, Academics Say

Sept. 9, 2019, 6:26 PM

Intel-owned Altera Corp. misrepresented how the Ninth Circuit should treat conflicting decisions between its own three-judge panel and the U.S. Tax Court, a group of legal academics said.

“No special deference is due to Tax Court decisions,” the 29 academics argued in an amicus brief filed with the U.S. Court of Appeals for the Ninth Circuit. They were responding to Altera Corp.'s request for a rehearing in a tax dispute with the IRS.

The three-judge panel ruled that the IRS could require Altera to include the stock-option compensation of its employees in a cost-sharing arrangement used to shift intangible property to a foreign subsidiary. The decision reversed a Tax Court ruling that favored Altera, saying the government hadn’t followed proper administrative procedure when it issued the rule it applied to the cost-sharing arrangement.

The appeals court is deciding now whether a larger panel of its judges should rehear that reversal.

If left in place, the court’s ruling could mean loss of tax deductions for Altera and other tech companies that share costs of intellectual property with their offshore units.

In its July 22 request for a rehearing, Altera argued that the competing rulings jeopardized legal uniformity, since the Tax Court doesn’t have to follow the appeals court panel’s decision in cases arising in other circuits.

But it isn’t certain that the Tax Court will apply its own ruling after the Ninth Circuit reversal, even in other circuits, the academics said. They said that the Tax Court regularly changes its stance when it looks at appeals decisions that reverse its holdings.

The situation shouldn’t be treated any differently from any other reversal, they said.

“When a Court of Appeals panel decision corrects a Tax Court mistake, it acts in the ordinary course of the relationship between a trial court and an appellate court,” they said in the Sept. 6 brief.

The academics noted that the Ninth Circuit sometimes says it owes respect to the Tax Court’s expertise on tax issues.

“But respect does not mean extra deference, even on questions of tax law (let alone administrative law),” they said.

That questioning of the Tax Court’s expertise in this case echoes a jab from the government’s Aug. 29 response to Altera’s appeal, where the IRS said the Tax Court’s “area of specialized expertise” doesn’t extend to the question of whether Treasury met the proper legal standards when it issued the tax rules that Altera is challenging.

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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