With tax season drawing to a close, clients who are nearing retirement should take stock of the assets held within their 401(k)s while it is still early in the year to determine whether the potentially valuable net unrealized appreciation (NUA) tax minimization strategy might work for them in 2019 or the coming years. read about it here on ThinkAdvisor
Friday, August 2, 2019
Individual High Income Tax Returns OneSheet, 2010 (PDF)
The OneSheet presents a project description, highlights of the data, and selected figures.
The Tax Reform Act of 1976 requires annual publication of data on individual income tax returns reporting income of $200,000 or more, including the number of such returns reporting no income tax liability and the importance of various tax provisions in making these returns nontaxable. The bulletin articles and related statistical tables present detailed data for these high income returns.
The following are available as Microsoft Excel® files. A free Excel viewer is available for download, if needed.
The tables are grouped into the following categories:
- Returns With and Without U.S. Income Tax
- Returns With and Without Worldwide Income Tax
- Returns With and Without U.S. Income Tax and With Income of $200,000 or More Under Alternative Concepts
- Returns Without U.S. Income Tax and With Income of $200,000 or More Under Alternative Concepts
- Returns With and Without Worldwide Income Tax and With Income of $200,000 or More Under Alternative Concepts
- Returns Without Worldwide Income Tax and With Income of $200,000 or More Under Alternative Concepts
Table 1 -- Number of Returns Classified by: Size of Income Under Alternative Concepts Tax Years: 2016 (XLS) 2015 (XLS) 2014 (XLS) 2013 (XLS) 2012 (XLS) 2011 (XLS) 2010 (XLS) 2009 (XLS) 2008 (XLS) 2007 (XLS) 2006 (XLS) 2005 (XLS) 2004 (XLS) 2003 (XLS) 2002 (XLS) 2001 (XLS) 2000 (XLS) 1999 (XLS) 1998 (XLS) 1997 (XLS) 1996 (XLS) 1995 (XLS) 1994 (XLS) 1993 (XLS)
Table 11 -- Number and Percentages of Returns Classified by: Effective Tax Rate and Size of Income Under Alternative Concepts Tax Years: 2016 (XLS) 2015 (XLS) 2014 (XLS) 2013 (XLS) 2012 (XLS) 2011 (XLS) 2010 (XLS) 2009 (XLS) 2008 (XLS) 2007 (XLS) 2006 (XLS) 2005 (XLS) 2004 (XLS) 2003 (XLS) 2002 (XLS) 2001 (XLS) 2000 (XLS) 1999 (XLS) 1998 (XLS) 1997 (XLS) 1996 (XLS) 1995 (XLS) 1994 (XLS) 1993 (XLS)
Table 2 -- Number of Returns Classified by: Size of Income Under Alternative Concepts Tax Years: 2016 (XLS) 2015 (XLS) 2014 (XLS) 2013 (XLS) 2012 (XLS) 2011 (XLS) 2010 (XLS) 2009 (XLS) 2008 (XLS) 2007 (XLS) 2006 (XLS) 2005 (XLS) 2004 (XLS) 2003 (XLS) 2002 (XLS) 2001 (XLS) 2000 (XLS) 1999 (XLS) 1998 (XLS) 1997 (XLS) 1996 (XLS) 1995 (XLS) 1994 (XLS) 1993 (XLS)
Table 12 -- Number and Percentages of Returns Classified by: Effective Tax Rate and Size of Income Under Alternative Concepts Tax Years:
Table 3 -- Distribution of Returns Classified by: Ratio of Adjusted Taxable Income to Income Per Concept Tax Years:
Table 5 -- Income, Deductions, Credits, and Tax Classified by: Tax Status Tax Years:
Table 7 -- Number of Returns and Percentages Classified by: Item With the Largest Tax Effect and Item With the Second Largest Tax Effect Tax Years: 2016 (XLS) 2015 (XLS) 2014 (XLS) 2013 (XLS) 2012 (XLS) 2011 (XLS) 2010 (XLS) 2009 (XLS) 2008 (XLS) (XLS) 2007 (XLS) 2006 (XLS) 2005 (XLS) 2004 (XLS) 2003 (XLS) 2002 (XLS) 2001 (XLS) 2000 (XLS) 1999 (XLS) 1998 (XLS) 1997 (XLS) 1996 (XLS) 1995 (XLS) 1994 (XLS) 1993
Table 9 -- Number of Returns with Itemized Deductions, Credits, and Tax Preferences, as Percentages of Income Tax Years:
Table 4 -- Distribution of Returns Classified by: Ratio of Adjusted Taxable Income to Income Per Concept Tax Years:
Table 6 -- Income, Deductions, Credits, and Tax Classified by: Tax Status Tax Years:
Table 8 -- Number of Returns and Percentages Classified by: Item With the Largest Tax Effect and Item With the Second Largest Tax Effect Tax Years:
Table 10 -- Number of Returns with Itemized Deductions, Credits, and Tax Preferences, as Percentages of Income Tax Years:
The Bulletin articles are in PDF format. A free Adobe® reader is available for download, if needed.
Thursday, July 25, 2019
- New leak reveals how multinational companies used Mauritius to avoid taxes in countries in Africa, Asia, the Middle East and the Americas
- Law firm Conyers Dill & Pearman and major audit firms, including KPMG, enabled corporations operating in some of the world’s poorest nations to exploit tax loopholes
- A private equity push into Africa backed by anti-poverty crusader and rock star Bob Geldof benefited from Mauritius’ treaties that divert tax revenue away from Uganda and elsewhere
- Multi-billion dollar U.S. companies Aircastle and Pegasus Capital Advisers cut taxes through confidential contracts, leases and loans involving Mauritius and other tax havens
- Officials from countries in Africa and Southeast Asia told ICIJ that tax treaties signed with Mauritius had cost them greatly and that renegotiating them was a priority
Wednesday, July 24, 2019
Where does the residual value for "Just Do it" and the 'cool kids' retro branding of All Stars belong? I have received several requests in the U.S. about my initial thoughts on the EU Commission’s 56-page published (public version) State Aid preliminary decision with the reasoning that The Netherlands government provided Nike an anti-competitive subsidy via the tax system. My paraphrasing of the following EU Commission statement [para. 87] sums up the situation:
The Netherlands operational companies are remunerated with a low, but stable level of profit based on a limited margin on their total revenues reflecting those companies’ allegedly “routine” distribution functions. The residual profit generated by those companies in excess of that level of profit is then entirely allocated to Nike Bermuda as an alleged arm’s length royalty in return for the license of the Nike brands and other related IP”
The question that comes to my mind is: "Would I pay $100 for a canvas sneaker designed the 20's that I know is $12 to manufacture, distribute, and have enough markup for the discount shoe store to provide it shelf space?" My answer is: "Yes, I own two pair of Converse's Chuck Taylor All Stars." So why did I spend much more than I know them to be worth (albeit, I wait until heavily discounted and then only on clearance). From a global value chain perspective: "To which Nike function and unit does the residual value for the 'cool kids' retro branding of All Stars belong?"
U.S. international tax professionals operating in the nineties know that The Netherlands is a royalty conduit intermediary country because of its good tax treaty system and favorable domestic tax system, with the intangible profits deposited to take advantage of the U.S. tax deferral regime that existed until the TCJA of 2017 (via the Bermuda IP company). Nike U.S., but for the deferral regime, could have done all this directly from its U.S. operations to each country that Nike operates in. No other country could object, pre-BEPs, because profit split and marketing intangibles were not pushed by governments during transfer pricing audits.
The substantial value of Nike (that from which its profits derive) is neither the routine services provided by The Netherlands nor local wholesalers/distributors. The value is the intangible brand created via R&D and marketing/promotion. That brand allows a $10 – $20 retail price sneaker to sell retail for $90 – $200, depending on the country. Converse All-Stars case in point. Same $10 shoe as when I was growing up now sold for $50 – $60 because Converse branded All-Stars as cool kid retro fashion.
Nike has centralized, for purposes of U.S. tax deferral leveraging a good tax treaty network, the revenue flows through NL. The royalty agreement looks non-traditional because instead of a fixed price (e.g. 8%), it sweeps the NL profit account of everything but for the routine rate of return for the grouping of operational services mentioned in the State Aid opinion. If Nike was an actual Dutch public company, or German (like Addidas), or French – then Nike would have a similar result from its home country base because of the way its tax system allows exemption from tax for the operational foreign-sourced income of branches. [Having worked back in the mid-nineties on similar type companies that were European, this is what I recall but I will need to research to determine if this has been the case since the nineties.]
I suspect that when I research this issue above that the NL operations will have been compensated within an allowable range based on all other similar situated 3rd parties. I could examine this service by service but that would require much more information and data analysis about the services, and lead to a lesser required margin by Nike. The NL functions include [para 33]: “…regional headquarter functions, such as marketing, management, sales management (ordering and warehousing), establishing product pricing and discount policies, adapting designs to local market needs, and distribution activities, as well as bearing the inventory risk, marketing risk and other business risks.”
By example, the EU Commission states in its initial Nike news announcement:
Nike European Operations Netherlands BV and Converse Netherlands BV have more than 1,000 employees and are involved in the development, management and exploitation of the intellectual property. For example, Nike European Operations Netherlands BV actively advertises and promotes Nike products in the EMEA region, and bears its own costs for the associated marketing and sales activities.
Nike’s internal Advertising, Marketing, and Promotion (AMP) services can be benchmarked to its 3rd party AMP providers. But by no means do the local NL AMP services rise to the level of Nike’s chief AMP partner (and arguably a central key to its brand build) Wieden + Kennedy (renown for creating many industry branding campaigns but perhaps most famously for Nike’s “Just Do it” – inspired by the last words of death row inmate Gary Gilmore before his execution by firing squad).
There is some value that should be allocated for the headquarters management of the combination of services on top of the service by service approach. Plenty of competing retail industry distributors to examine though. If by example the profit margin range was a low of 2% to a high of 8% for the margin return for the combination of services, then Nike based on the EU Commission’s public information falls within that range, being around 5%.
The Commission contends that Nike designed its transfer pricing study to achieve a result to justify the residual sweep to its Bermuda deferral subsidiary. The EU Commission states an interesting piece of evidence that may support its decision [at para 89]: “To the contrary, those documents indicate that comparable uncontrolled transactions may have existed as a result of which the arm’s length level of the royalty payment would have been lower…”. If it is correct that 3rd party royalty agreements for major brand overly compensate local distributors, by example provide 15% or 20% profit margin for local operations, then Nike must also. [I just made these numbers up to illustrate the issue]
All the services seem, on the face of the EU Commission’s public document, routine to me but for “adapting designs to local market needs”. That, I think, goes directly to product design which falls under the R&D and Branding. There are 3rd parties that do exactly this service so it can be benchmarked, but its value I suspect is higher than by example ‘inventory risk management’. We do not know from the EU document whether this ‘adapting product designs to local market’ service was consistent with a team of product engineers and market specialists, or was it merely occasional and outsourced. The EU Commission wants, like with Starbucks, Nike to use a profit split method. “…a transfer pricing arrangement based on the Profit Split Method would have been more appropriate to price…”. Finally, the EU Commission asserts [para. 90]: “…even if the TNMM was the most appropriate transfer pricing method…. Had a profit level indicator been chosen that properly reflected the functional analysis of NEON and CN BV, that would have led to a lower royalty payment…”.
But for the potential product design issue, recognizing I have not yet researched this issue yet, based on what I know about the fashion industry, seems rather implausible to me that a major brand would give up part of its brand residual to a 3rd party local distributor. In essence, that would be like the parent company of a well-established fashion brand stating “Let me split the brand’s value with you for local distribution, even though you have not borne any inputs of creating the value”. Perhaps at the onset of a startup trying to create and build a brand? But not Nike in the 1990s. I think that the words of the dissenting Judge in Altera (9th Cir June 2019) are appropriate:
An ‘arm’s length result is not simply any result that maximizes one’s tax obligations’.
The EU Commission obviously does not like the Bermuda IP holding subsidiary arrangement that the U.S. tax deferral regime allows (the same issue of its Starbucks state aid attack), but that does not take away from the reality that legally and economically, Bermuda for purposes of the NL companies owns the Nike brand and its associated IP. The new U.S. GILTI regime combined with the FDII export incentive regime addresses the Bermuda structure, making it much somewhat less comparably attractive to operating directly from the U.S. (albeit still produces some tax arbitrage benefit). Perhaps the U.S. tax regime if it survives, in combination with the need for the protection of the IRS Competent Authority for foreign transfer pricing adjustments will lead to fewer Bermuda IP holding subsidiaries and more Delaware ones.
My inevitable problem with the Starbucks and Nike (U.S. IP deferral structures) state aid cases is that looking backward, even if the EU Commission is correct, it is a de minimis amount (the EU Commission already alleged a de minimis amount for Starbucks but the actual amount will be even less if any amount at all). Post-BEPS, the concept and understanding of marketing intangibles including brands is changing, as well as allowable corporate fiscal operational structures based on look-through (GILTI type) regimes. More effective in the long term for these type of U.S. IP deferral structures is for the EU Commission is to spend its compliance resources on a go-forward basis from 2015 BEPS to assist the restructuring of corporations and renegotiation of APAs, BAPAs, Multilateral PAs to fit in the new BEPS reality. These two cases seem more about an EU – U.S. tax policy dispute than the actual underlying facts of the cases. And if as I suspect that EU companies pre-BEPS had the same outcome based on domestic tax policy foreign source income exemptions, then the EU Commission’s tax policy dispute would appear two-faced.
I’ll need to undertake a research project or hear back from readers and then I will follow up with Nike Part 2 as a did with Starbucks on this Kluwer blog previously. See Application of TNMM to Starbucks Roasting Operation: Seeking Comparables Through Understanding the Market and then My Starbucks’ State Aid Transfer Pricing Analysis: Part II. See also my comments about Altera: An ‘arm’s length result is not simply any result that maximizes one’s tax obligations’.
Want to help me in this research or have great analytical content for my transfer pricing treatise published by LexisNexis? Reach out on email@example.com
Prof. William Byrnes (Texas A&M) is the author of a 3,000 page treatise on transfer pricing that is a leading analytical resource for advisors.
Monday, July 22, 2019
Tuesday, July 2, 2019
This bill revises requirements for the Internal Revenue Service (IRS) regarding its organizational structure, customer service, enforcement procedures, cybersecurity and identity protection, management of information technology, and use of electronic systems.
The bill includes provisions that
- establish the IRS Independent Office of Appeals to resolve federal tax controversies without litigation;
- require the IRS to develop comprehensive customer service and IRS personnel training strategies;
- exempt certain low-income taxpayers from payments required to submit an offer-in-compromise;
- modify certain tax enforcement procedures and requirements;
- establish requirements for responding to Taxpayer Advocate Directives;
- establish a Community Volunteer Income Tax Assistance Matching Grant Program;
- require the IRS to give public notice of the closure of taxpayer assistance centers;
- modify procedures for whistle-blowers;
- establish requirements for cybersecurity and identity protection;
- provide notification to taxpayers of suspected identity theft;
- require the appointment of a Chief Information Officer who shall develop and implement a multiyear strategic plan for IRS information technology needs;
- modify requirements for managing IRS information technology;
- expand electronic filing of tax returns;
- prohibit the rehiring of certain IRS employees who were removed for misconduct;
- require mandatory e-filing by tax-exempt organizations and notice before revocation of tax-exempt status for failure to file; and
- increase penalties for failure to file tax returns.
The bill also requires the IRS to implement
- an Internet platform for Form 1099 filings,
- a fully automated program for disclosing taxpayer information for third-party income verification using the Internet, and
- uniform standards and procedures for accepting electronic signatures.
Friday, June 28, 2019
read the debate transcript here: A Democratic leader's proposal is meant to protect lower- and middle-income taxpayers.
Wednesday, June 26, 2019
Monday, June 24, 2019
read the ThinkAdvisor analysis here: Clients who are nearing retirement should take stock of the assets held within their 401(k)s while it is still early in the year.
Sunday, June 23, 2019
read the full debate transcript here: Democrats have proposed increasing the corporate tax rate in order to offset a repeal of the controversial deduction cap.
Saturday, June 22, 2019
read on ThinkAdvisor the full analysis: The recharacterization door has closed, but a huge window to do Roth conversions while minimizing taxes has opened.
Despite this, tax reform may have actually opened a huge window for clients looking to do Roth conversions while minimizing their tax liability for these conversions. The new tax rate system, combined with the general “moodiness” of the stock market of late, have created conditions that can make Roth IRA conversions attractive for an entirely new group of clients despite the inability to undo the transaction at a later date. With proper planning, these clients may be able to benefit substantially from a Roth conversion strategy without even jumping income tax brackets.
Thursday, June 20, 2019
Bloink and Byrnes debate their opinions on ThinkAdvisor about the viability of the tax and the implications if this bill is passed.
House Democrats introduced a bill in March that would impose a tax on certain types of financial transactions, including a 0.1% tax on various securities transactions, including sales of stocks, bonds and derivatives. While the bill would generally exempt initial securities issuances and short-term debt from the tax, most securities transactions and taxpayers who invest would be subject to the tax at some point.
We asked Professors Robert Bloink and William Byrnes, who write for ALM’s Tax Facts and hold opposing political views, to share their opinions about the viability of the financial transactions tax and the potential implications if this bill is passed. Read the debate on ThinkAdvisor here
Wednesday, June 19, 2019
read the debate on ThinkAdvisor here: The Supreme Court will decide if taxing out-of-state trusts is overkill or a way to keep the wealthy from dodging taxes.
The US Supreme Court in April agreed to resolve a conflict stemming from a case involving whether a state can constitutionally tax a trust when a trust beneficiary resided within the state, but did not receive any income from the trust. In the case of North Carolina Department of Revenue v. Kimberly Rice Kaestner, the North Carolina Supreme Court ruled for the beneficiary in that case, finding that the North Carolina state-level tax on the New York-based trust was unconstitutional because it violated the due process clause of the U.S. constitution.
Currently, 11 states tax trusts based on the residency of trust beneficiaries—although nearly all states tax trust income once the beneficiary actually receives that income. Courts in various states have disagreed over whether the residency-based tax is constitutional.
We asked Professors Robert Bloink and William Byrnes, who write for ALM’s Tax Facts and hold opposing political views, to share their opinions as to whether the US Supreme Court should affirm the state court decision, and the potential implications of the Court’s final decision.
Saturday, June 15, 2019
The heads of a five-nation group that's cracking down on transnational tax crimes said Wednesday that their first year of collaboration has sparked new cases and sped development of existing ones but hasn't yet led to a prosecution.
However, group members - from the U.S., Canada, the United Kingdom, the Netherlands and Australia - said they have been involved in over 50 investigations involving "sophisticated international enablers of tax evasion, including a global financial institution and its intermediaries who facilitate taxpayers to hide their income and assets."
read the full story on Lexis' Law360 Tax Authority: 2019 Law360 156-166
Friday, June 14, 2019
Read ThinkAdvisor's full analysis The final rules contain some twists that may surprise clients who are currently calculating their 2018 tax liability.
While the final regulations largely follow the proposed regulations, they do contain some twists that may come as a surprise to clients who are currently in the midst of calculating their 2018 tax liability. Importantly, small business clients have the surprise option of relying on either the proposed regulations or the final regulations in finishing their 2018 taxes—although the final regulations become mandatory beginning in 2019. Despite this, clients must take an all-or-nothing approach to choosing which set of regulations to follow for 2018, making it important that they understand the important aspects of both the proposed and the final regulations now. The analysis is here
Thursday, June 13, 2019
read the full analysis on ThinkAdvisor: A Section 1035 tax-free exchange can provide a tax-preferred way to obtain a life insurance policy or annuity.
The 2017 tax reform law doubled the estate tax exemption, to $11.4 million per person ($22.8 million per married couple) in 2019, meaning that, for all but the fortunate few clients, the estate tax itself may seem irrelevant. For some clients, dismantling existing life insurance trusts may be the smartest move—but not without considering both the repercussions of that approach and carefully planning for any continuing life insurance needs, where a tax-free replacement strategy may be key to safeguarding future financial protection.
Wednesday, June 12, 2019
Significant Quality Issues Are Being Identified on Employee Plans Examinations, but Feedback Is Not Always Provided to Examiners
According to the Department of Labor, there were more than 693,000 employer-sponsored retirement plans with reported assets of more than $8 trillion in Plan Year 2015. During FYs 2015 and 2016, the Tax Exempt and Government Entities (TE/GE) Division reported that its Employee Plans (EP) function completed nearly 17,000 examinations of employer-sponsored retirement plans. It is important that quality examinations are performed to increase assurances that millions of plan participants will receive their promised retirement benefits.
This audit was initiated to assess how the TE/GE Division selects EP function examination cases for quality review, documents results, and provides feedback to employees performing examinations. During FYs 2015 and 2016, the TE/GE Division met its statistical sampling goals by selecting and quality reviewing more than 700 EP function examinations. Detailed results for more than 30 of the questions relating to the five quality standards were documented. As a result, the TE/GE Division was able to compute an overall examination quality rate of approximately 80 percent for each fiscal year and to provide continual feedback to IRS executives on the quality of EP function examinations. The
TE/GE Division also provided indirect feedback to examiners through quarterly newsletters, lunch and learn sessions, and other methods.
However, the TE/GE Division generally did not provide direct feedback to responsible individual examiners and group managers on the results of quality reviews. We believe that additional feedback was needed because some quality issues were more prevalent for particular examiners and groups. In addition, serious quality issues were identified that were not detected during managerial reviews, suggesting that the TE/GE Division is not providing effective and timely feedback, which is key to improving employee performance.
TE/GE Division personnel stated that they were not providing this type of feedback because quality review processes were primarily designed to compile aggregate results on the quality of examinations and to ensure that the examination program is meeting performance goals. As a result, individual examiners were unaware of quality issues identified on the examinations that they conducted, and such feedback may not improve examination qualityTIGTA recommended that the IRS develop mechanisms for sharing detailed results of quality reviews with the individual examiners and group managers who were responsible for performing the examinations.
In its response, IRS management stated that it is already providing statistical and narrative feedback to area managers, managers, employees, and national level management, and that efforts would be made to share the feedback on a regular basis. We continue to believe that the IRS is missing a valuable opportunity to share detailed results of quality reviews with group managers and examiners who are responsible for performing EP function examinations. Sharing detailed review results would assist in efforts to improve employee performance.
Taxpayers Generally Comply With Annual Contribution Limits for 401(k) Plans; However, Additional Efforts Could Further Improve Compliance
IRS records show that in TY 2014 an estimated 53 million taxpayers contributed almost $255 billion to tax-qualified deferred compensation plans. A popular form of deferred compensation plan, known as the 401(k) plan, permits employees to save for retirement on a tax-favored basis. However, there are rules that limit the amount individuals can contribute to a 401(k) plan each tax year. Individual noncompliance with these rules results in revenue loss to the Federal Government. This audit examined whether IRS processes sufficiently identified and addressed excess contributions to 401(k) plans.
Our analysis of IRS records showed that the vast majority of taxpayers were complying with tax laws designed to limit the annual amount of compensation that can be contributed to 401(k) retirement plans. Nonetheless, we identified two areas in which compliance could be improved: 1) some 401(k) plans did not prevent taxpayers from exceeding the annual limit on contributions, and 2) some taxpayers exceed annual limits when contributing to multiple 401(k) plans.
Sunday, June 9, 2019
“an arm’s length result is not simply any result that maximizes one’s tax obligations”
In a double take two-to-one decision because of a withdrawn decision due to the death of a judge, a Ninth Circuit panel in Altera reversed a unanimous en banc decision of the Tax Court that the qualified cost sharing arrangements (QCSA) regulations were invalid under the Administrative Procedure Act. The renown Professor Calvin Johnson (Texas) and I shared comments on this case. Professor Johnson’s pragmatism is worth noting (see his latest Altera article here) in the context of Altera: “$100 million of stock options is a $100 million cost, as a matter of law.” Because it is a cost for public accounting, Calvin states it is incredulous hat Altera would enter into a arm’s length negotiation in which the counterparty invests $200 cash, and Altera invests $200 cash plus $100 million stock options, but then Altera agrees to ignore its additional $100 million cost and agrees to split equally. Altera wants to deduct its $100 million of stock cost domestically but pass on the associated income to the foreign-controlled group member. This is bad policy.
I agree with Professor Johnson that it is bad policy. But I think that Treasury is taking shortcuts to generate the result that it wants instead of going through the steps necessary to effect a change in policy. Most of my academic colleagues support the majority’s opinion of the proposition that Congress bestowed such latitude to Treasury in IRC § 482. I agree that the latitude is within the Code Section, but that Treasury to date has regulated a policy dependent on the arm’s length and comparables, as the dissent enunciates and the Ninth Circuit panel majority supported in Xilinx II. Treasury may change its policy approach, but that requires a formal procedural process laid out by the APA, I argue in favor of the dissent’s approach. Even with the new language added to IRC § 482 by the TCJA of 2017, Treasury, I propose, must still formally open a public process that it is changing tact from arm’s length and comparables to something else like apportionment of profits and loss by formulae.
The last word has not been heard in Altera. I expect that Altera will request an en banc hearing. However, Altera II may be the case that the two newest members, in particular, Justices Kavanaugh and Gorsuch, of the Supreme Court have been waiting for to weigh in on Chevron and State Farm. Expect Altera III.
Altera I and Altera II (withdrawn)
The Ninth Circuit’s issuance, withdrawal, and re-issuance of a CSA decision is also a double take of Xilinx. However unlike Altera, after the withdrawal of its initial Xilinx decision favoring the IRS position, the Ninth Circuit rejected the IRS’ position that the (pre-2003) QCSA Regulations required treating deductions for stock-based compensation as costs that must be shared by the foreign related party in cost-sharing arrangements. The former QCSA regulations, and current ones still, require that related entities share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements. Treasury has consistently stated that the previous and current versions of the QCSA regulations are consistent with the arm’s length standard whereas the Tax Court has consistently disagreed with the IRS position.
At the Tax Court level for Altera, the Court held that the current QCSA regulations are a legislative rule because the regulations have the force of law, as opposed to an interpretive rule, and thus the State Farm standard applied. The Tax Court concluded that Treasury did not undertake “reasoned decision making” required by State Farm in issuing the cost-sharing regulations because Treasury failed to support with any evidence in the administrative record its opinion that unrelated parties acting at arm’s length would share stock-based compensation (SBC) costs. The Tax Court held that Treasury’s decision-making process relied on speculation rather than on hard data and expert opinions and that Treasury ignored public comments evidencing that unrelated party cost-sharing arrangements did not share stock compensation costs.
The Ninth Circuit’s first panel’s opinion, now withdrawn, held that Treasury did not exceed its authority delegated by Congress under IRC § 482. That panel explained that IRC § 482 does not speak directly to whether Treasury may require parties to a QCSA to share employee stock compensation costs in order to receive the tax benefits associated with entering into a QCSA. The first panel held that the Treasury reasonably interpreted IRC § 482 as an authorization to require internal allocation methods in the QCSA context, provided that the costs and income allocated are proportionate to the economic activity of the related parties and concluded that the regulations are a reasonable method for achieving the results required by the statute. Thus, the first panel granted Chevron deference to the QCSA regulations.
The primary issue of Altera I and II, and the cases that precede it that have found in favor of the taxpayers is whether the arm’s length standard requires the comparability standard be met through a method seeking evidence of empirical data or known transactions? Alternatively, is Treasury afforded deference to disregard a comparability method to instead seek an arm’s length result of tax parity that relies on an internal method of allocation to allocate the costs of the U.S. employee stock options between the U.S. and foreign related parties in proportion to the income enjoyed by each, determined post facto (after the fact) of the cost-sharing agreement?
Altera II’s majority, relying on Frank, states that the arm’s length standard need not be based solely on comparable transactions for reallocating costs and income, though recognizing that Frank is limited to situations wherein it is difficult to hypothesize an arm’s length transaction. The dissenting Judge provided a descriptive history that Treasury has repeatedly asserted that a comparability analysis is the only way to determine the arm’s length standard. Regarding Frank, the dissent stated, “The majority’s attempt to breathe life back into Frank is, simply, unpersuasive.” The Judge emphasized that the Ninth Circuit had declared Frank an outlier because (a) the parties in Frank had stipulated to applying a standard other than the arm’s length, (b) “there was no evidence that arms-length bargaining upon the specific commodities sold had produced a higher return,” and (c) that the complexity of the circumstances surrounding the services rendered by the subsidiary made it “difficult for the court to hypothesize an arm’s length transaction.”
The regulatory rules for cost-sharing arrangements (“CSAs”) at issue in Altera I and II, issued in temporary form January 5, 2009 and in subsequent final form effective December 16, 2011, are different from the previously issued CSAs. The rules for earlier CSAs are subject to grandfather provisions. For periods before January 5, 2009, the status of an arrangement as a CSA and the operative rules for complying arrangements, including rules for buy-in transactions, were determined under the qualified cost sharing arrangement regulations issued in 1995 and substantively amended in 1996 and 2003 (the “2003 QCSA Regulations”).
The Ninth Circuit, in Xilinx, rejected the position of the Service that the pre-2003 QCSA Regulations in effect in 1997–99 required treating deductions for stock-based compensation as costs that must be shared in cost-sharing arrangements.
The purpose of the regulations is parity between taxpayers in uncontrolled transactions and taxpayers in controlled transactions. The regulations are not to be construed to stultify that purpose. If the standard of arm’s length is trumped by 7(d)(1), the purpose of the statute is frustrated. If Xilinx cannot deduct all its stock option costs, Xilinx does not have tax parity with an independent taxpayer. Xilinx, Inc. v. Comm’r, 598 F.3d 1191, 1196, 2010 U.S. App. LEXIS 5795, *14 (9th Cir 2010)
The Xilinx concurring opinion summarizes the positions at odds between Xilinx and the IRS:
The parties provide dueling interpretations of the “arm’s length standard” as applied to the ESO costs that Xilinx and XI did not share. Xilinx contends that the undisputed fact that there are no comparable transactions in which unrelated parties share ESO costs is dispositive because, under the arm’s length standard, controlled parties need share only those costs uncontrolled parties share. By implication, Xilinx argues, costs that uncontrolled parties would not share need not be shared.
On the other hand, the Commissioner argues that the comparable transactions analysis is not always dispositive. The Commissioner reads the arm’s length standard as focused on what unrelated parties would do under the same circumstances, and contends that analyzing comparable transactions is unhelpful in situations where related and unrelated parties always occupy materially different circumstances. As applied to sharing ESO costs, the Commissioner argues (consistent with the tax court’s findings) that the reason unrelated parties do not, and would not, share ESO costs is that they are unwilling to expose themselves to an obligation that will vary with an unrelated company’s stock price. Related companies are less prone to this concern precisely because they are related — i.e., because XI is wholly owned by Xilinx, it is already exposed to variations in Xilinx’s overall stock price, at least in some respects. In situations like these, the Commissioner reasons, the arm’s length result must be determined by some method other than analyzing what unrelated companies do in their joint development transactions. Xilinx, Inc. v. Comm’r, 598 F.3d 1191, 1197, 2010 U.S. App. LEXIS 5795, *16-17 (9th Cir 2010)
The concurring Judge concludes: “These regulations are hopelessly ambiguous and the ambiguity should be resolved in favor of what appears to have been the commonly held understanding of the meaning and purpose of the arm’s length standard prior to this litigation.”
The Treasury amended the QCSA in 2003 to explicitly provide that the intangible development costs that must be shared include the costs related to stock-based compensation. From January 5, 2009, the 2009/2011 QCSA Regulations apply (the “2009 QCSA Regulations”). For periods starting with January 5, 2009, a pre-January 5, 2009 arrangement that qualified as a CSA under the 2003 QCSA Regulations is subject in part to the 2003 QCSA Regulations and in part to the 2009 QCSA Regulations. Arrangements that qualified as CSAs under the 2003 QCSA Regulations, whether or not materially expanded in scope on or after January 5, 2009, are known as “grandfathered CSAs.” The IRS contends that grandfathered CSAs are subject, with significant exceptions, to the 2009 QCSA regulations provisions for cost sharing transactions (“CSTs”) and platform contribution transactions (PCTs). The significant exceptions for the grandfathered CSAs include that, unless the CSA is later expanded by the related parties, the original pre-2009 CSA is not subject to the 2009 QCSA regulations ‘Divisional Interest’ and Periodic Adjustment rules.
However, the IRS attempted to adjust the application of the 2003 QCSA Regulations by issuing a Coordinated Issue Paper on Section 482 CSA Buy-In Adjustments on September 27, 2007 (the “2007 CSA-CIP”). The CSA-CIP was de-coordinated effective June 26, 2012, after the rejection of its concepts in the 2009 Tax Court decision in the VERITAS case.  The CSA-CIP provided that the Income Method and the Acquisition Price Method, similar to the specified transfer pricing methods set forth in the 2009 QCSA Regulations, are to be considered ‘best methods’ under the 2003 QCSA Regulations even though they only could be applied as ‘unspecified methods’. The Tax Court in VERITAS, addressing assessments for the tax years 2000 and 2001, neither cited nor followed the IRS methods of its 2007 CSA-CIP. Note that VERITAS survives Altera II because the 2009 QCSA Regulations years were not yet promulgated for the years of concern. From the IRS’ perspective, though it does not acquiesce in the decision, it cured VERITAS by including the Income Method and the Acquisition Price Method as specified methods for determining “buy-in” payments for the 2009 QCSA regulations buy-ins. Thus, the IRS continues to aggressively litigate in favor of these methods, exemplified by the appeal from Altera and Amazon in 2017.
Although the IRS withdrew the CSA-CIP in 2012, it continues to pursue cases under the pre-2009 Treasury Regulations as is the CSA-CIP remained in place. Amazon filed a Tax Court petition in December of 2012 challenging a $2 billion transfer pricing adjustment related to a qualified cost sharing arrangement between Amazon.com Inc. and its European subsidiary pre-2009. Amazon claimed that the IRS erred in relying on a discounted cash flow method which the tax court clearly rejected in VERITAS. In the 207-page Amazon opinion, the Tax Court ruled that the IRS’s adjustment with respect to a buy-in payment for the intragroup CSA was arbitrary, capricious, and unreasonable.
Moreover, the IRS has an ongoing CSA controversy against Microsoft for the 2004-06 tax years for which President George Bush’s former Treasury Secretary John Snow promised at a February 7, 2006 hearing to then Chairman of the Committee Senator Charles E. Grassley that the IRS would bring a substantial CSA adjustment. Microsoft reported an effective tax rate for fiscal years 2016, 2017, and 2018 of 15 percent, eight percent, and 19 percent respectively. Microsoft reported that this unresolved transfer pricing issue is the primary cause for it to increase its tax contingency from $11.8 billion to $13.5 billion to $15.4 billion. The IRS has not issued a deficiency because the controversy remains in the IDR stage of the audit currently due to litigation over the issues of legal privilege and the issue of the IRS’ contract with a third party law firm to assist in the audit.
The IRS announced in 2016 and 2018 a CSA adjustment against Facebook for the tax years 2010 and subsequent of at least $5 billion, and of 2011 – 2013 of approximately $680 million.Facebook reported an effective tax rate of 13 percent for the second quarter of 2017 and 2018. The controversy remains in the procedural phase on the docket of the Tax Court. The Microsoft and Facebook controversies appear to be further second take of Amazon and Altera.
Based on Treasury’s litigation stances and the 2015 temporary CSA regulations proposals, Treasury updated several International Practice Service Transaction Units’ audit guidelines relevant for CSAs, including (1) Pricing of Platform Contribution Transaction (PCT) in Cost Sharing Arrangements (CSA)—Initial Transaction, (2) Change in Participation in a Cost Sharing Arrangement (CSA)—Controlled Transfer of Interests and Capability Variation, (3) Pricing of Platform Contribution Transaction (PCT) in Cost Sharing Arrangements (CSA) Acquisition of Subsequent IP, (4) Comparison of the Arm’s Length Standard with Other Valuation Approaches—Inbound, and (5) IRC 367(d) Transactions in Conjunction with Cost Sharing Arrangements (CSA).
Altera’s Double Take Analysis Of Majority and Dissenting Opinions (Read the Altera II Decision here)
The Ninth Circuit Court majority evaluated the validity of Treasury’s regulations under both Chevron and State Farm, which the Court stated: “provide for related but distinct standards for reviewing rules promulgated by administrative agencies.” The majority distinguished State Farm from Chevron in that State Farm “is used to evaluate whether a rule is procedurally defective as a result of flaws in the agency’s decision-making process,” whereas Chevron “is generally used to evaluate whether the conclusion reached as a result of that process—an agency’s interpretation of a statutory provision it administers—is reasonable.” The majority first turned to the Chevron analysis that:
“When Congress has ‘explicitly left a gap for an agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation,’ and any ensuing regulation is binding in the courts unless procedurally defective, arbitrary or capricious in substance, or manifestly contrary to the statute.”
The Ninth Circuit Court panel’s majority resolved that IRC § 482 is ambiguous because it does not address share employee stock compensation costs. The majority stated that it is not persuaded by Altera’s argument that stock-based compensation is not “transferred” between parties because only intangibles in existence can be transferred. Altera argues that QCSAs to “develop” intangibles does not constitute a “transfer” of intangibles. The majority instead concludes that the transfer of intangibles may include the transfer of future distribution rights to intangibles which stock-based compensation are albeit yet to be developed. The majority relies upon the expansive meaning of the statutory word “any” for IRC § 482 (“any” transfer . . . of intangible property). But the dissent counters that “any” does not modify “intangible property.” Rather, “any” precedes and thus, applies only to “transfer.”
The majority accepts Treasury’s new explanation that the taxpayer’s agreement to “divide beneficial ownership of any Developed Technology” constitutes a transfer of intangibles. The dissenting Judge points out that Treasury never made, much less supported, a finding that QCSAs constitute transfers of intangible property. The dissent states that:
“No rights are transferred when parties enter into an agreement to develop intangibles; this is because the rights to later-developed intangible property would spring ab initio to the parties who shared the development costs without any need to transfer the property. And, there is no guarantee when the cost-sharing arrangements are entered into that any intangible will, in fact, be developed.”
The majority next turned to the reasonableness of Treasury ignoring the comparables presented by the Taxpayer and during the regulatory comment period. The majority quotes from an aspect of the legislative history:
“There are extreme difficulties in determining whether the arm’s length transfers between unrelated parties are comparable. . . . [I]t is appropriate to require that the payment made on a transfer of intangibles to a related foreign corporation be commensurate with the income attributable to the intangible.”
The majority concludes that Congress granted Treasury the authority to develop methods that did not rely on the analysis of ‘problematic’ comparable transactions and that Treasury promulgated the QCSA based on this authority because Treasury stated, “The uncontrolled transactions cited by commentators do not share enough characteristics of QCSAs involving the development of high-profit intangibles…”.
The dissenting Judge pointed out that Treasury merely cited to the general legislative history IRC § 482 1986 amendment but that Treasury “did not explain what portions of the legislative history it found pertinent or how any of that history factored into its thinking.” The dissenting Judge holds out that the majority accepts the “ever-evolving post-hoc rationalizations” of Treasury and then “goes even further to justify what Treasury did here”. Commentators of the 2009 QCSA regulations submitted comparable transactions demonstrating that unrelated companies do not share the cost of stock-based compensation. Treasury distinguished these uncontrolled transactions as not sharing enough characteristics of QCSAs involving the development of high-profit intangibles. The dissent agreed with the Tax Court which held that Treasury’s explanation for its regulation was insufficient under State Farm because Treasury “failed to provide a reasoned basis” for its “belief that unrelated parties entering into QCSAs would generally share stock-based compensation costs.”
The dissenting Judge explained that the legislative history and plain reading of the second sentence of IRC § 482 did not offer Treasury the flexibility to depart from a comparability analysis required by the first sentence but for a limited context of “any transfer (or license) of intangible property”. The Judge then pointed out that Treasury’s 1988 White Paper also stated: “intangible income must be allocated on the basis of comparable transactions if comparables exist.” Thus, the Tax Court’s found for Xilinx because the IRS had not provided evidence that unrelated parties transacting at arm’s length share expenses related to stock-based compensation. The Ninth Circuit majority upheld the finding in favor of Xilinx because the arm’s length standard required that stock-based compensation expenses would not be shared in the absence of evidence that unrelated parties would share these costs.
The majority next concludes that Treasury complied with the procedural requirements of the Administrative Procedures Act (“APA”) so that the 2009 QCSA survives a State Farm analysis.The State Farm analysis second step requires that the Treasury “must consider and respond to significant comments received during the period for public comment.” The majority summarizes Altera’s four arguments that Treasury did not meet this requirement: (1) Treasury improperly rejected comments submitted in opposition to the proposed rule, (2) Treasury’s current litigation position is inconsistent with statements made during the rulemaking process, (3) Treasury did not adequately support its position that employee stock compensation is a cost, and (4) a more searching review is required under Fox, because the agency altered its position. Boiled down, Altera argues that Treasury stated its intent to coordinate the new regulations with the arm’s length standard and then dismissed submissions addressing arm’s length comparables.
The majority was not persuaded by Altera’s argument that an arm’s length analysis requires actual transactional analysis. Altera submitted that “unrelated parties do not share stock compensation costs because it is difficult to value stock-based compensation, and there can be a great deal of expense and risk involved.” Treasury responded in the 2009 QCSA that “the uncontrolled transactions cited by commentators do not share enough characteristics of QCSAs involving the development of high-profit intangibles to establish that parties at arm’s length would not take stock options into account in the context of an arrangement similar to a QCSA.” The majority sided with Treasury’s justification that the lack of similar transactions led it to “employ a methodology that did not depend on non-existent comparables to satisfy the commensurate with income test and achieve tax parity.” The majority also concluded that Treasury’s use of an internal method of reallocation is consistent with the arm’s length standard because the internal method attempts to bring parity to the tax treatment of controlled and uncontrolled taxpayers as does a comparison of comparable transactions when they exist.
Finally, the majority distinguished the previous, contrary, 2010 holding of the majority in Xilinx that stock-based compensation is not required to be included for a CSA. This majority stated that administrative authority was not at issue in Xilinx and that the previous panel was not called upon to consider the “commensurate with income. The Xilinx panel had to reconcile a conflict between two rules: the specific methods of the 1994 arm’s length rule and the pre-2003 QCSA Regulations.
The dissenting panel member instead concluded that the two-member majority justified Treasury’s about-face by (a) providing “a reasoned basis for the agency’s action that the agency itself has not given”, (b) encouraging “executive agencies’ penchant for changing their views about the law’s meaning almost as often as they change administrations”, and (c) endorsing a practice of requiring interested parties to engage in a scavenger hunt to understand an agency’s rulemaking proposals. The dissenting Judge was troubled that Treasury stated “for the first time and with no explanation that it may, instead, employ the “commensurate with income” standard to reach the required arm’s length result.”
Based on the Tax Court decision in Xilinx and in Altera that the taxpayer had presented sufficient evidence of comparable transactions, the dissent agreed with the Tax Court’s finding that Treasury was required at least to attempt to gather empirical evidence before declaring that no such evidence was available, in the face of such evidence being available. In light of this evidence, Treasury concedes the comparables issue in its appellate brief and instead pivots its justification for the 2009 QCSA that Treasury is not required to undertake an analysis of what unrelated entities do under comparable circumstances. Treasury’s argument is that it was statutorily authorized to dispense with a comparability analysis in this narrow context and thus Treasury does not need to investigate whether the uncontrolled transactions were comparable. The dissenting Judge would hold that the APA requires Treasury to state that it was taking this new position in a stark departure from its previous regulations.
In my opinion, Treasury had to concede the comparables point. The issues remain the same as explained by the Xilinx concurring Judge above. Treasury’s argument, regarding CSAs, is that related parties should be treated differently because as a group the parties have more information and more control over the other party as regards the share options. Given the group relationship, the U.S. and the foreign party will split the costs of the U.S. employees’ share options. But the application of the arm’s length standard has been understood to treat the related parties and unrelated. If unrelated, then the assumption of information is unfounded. Moreover, why would the foreign party bear the costs of the share options of the U.S. employees without negotiating on behalf of its employees to also receive such options? What is the quid pro quo for the foreign subsidiary? Yet, I also consider that potentially such lopsidedness in favor of the U.S. party can be brought to bear by the economic dominance of the U.S. party. which can potentially occur in an outsourcing relationship. However, Altera and amicus industry groups provided agreements evidencing the contrary and the IRS chose not to seek rebuttal evidence (or it could not locate any).
The issues of comparables and comparability, at least in my perspective, are distinguishable. The first step is to identify transaction comparables, which Altera clearly has, and the second is to then to adjust for the commonly accepted (market, economic) variances between the comparables. By example, size of parties in relation to each other, size of market and competition within, term, etc the factors of the Treasury Regs and other arm's length differences that would require adjustments. I disagree with the underlying premise of the "three percent". Stated another way, 97 percent of transactions are therefore incomparable. That's a lot of "unicorns". But business is not like our fingerprints and rarely generates unicorns. More often, competitors develop distinguishing approaches that can be adjusted for. Said another way, I disagree with the lack of comparables, and base my disagreement on the managerial sciences like supply and value chain. The economy does produce unicorns and we call these unicorns first movers. Sometimes we grant patent protection to maintain unicorn status for a period of time. And sometimes first movers develop a new formation of the supply and full value chain that we call a business method. But for the issue of a monopoly or concentrated oligopoly, such first movers eventually experience competitors and comparables begin to emerge. Thus, the argument for a lack of comparable transactions within an industry or industry segment necessarily requires believing that unicorns are common.
Also, the "three percent" must be viewed in historical context. Firstly, that report was written at a time when there was a lack of available information via the Internet and electronic (pay for) databases that captured such information, cleaned it, and tagged it. Secondly, the domestic economy itself was less mature and robust, with much less competition and thus much less transactions to be compared. Thirdly, the world was not a globalized competitive economy as it is today. The OECD and Treasury still state a lack of comparable transactions today with regard to "hard to value intangibles". My academic sense thinks that it is just hard, laborious work to find them. (And arguably for simplicity maybe as a policy we should move away from the arm's length).
The dissenting Judge finds that in 1986 Congress could not have legislated against the backdrop of stock-based compensation and cost-sharing arrangement because these activities did not develop until the 1990s. Thus, the dissenting Judge concludes that while “Congress may choose to address this practice now, it cannot be deemed to have done so then.” In his conclusion, the Judge states “… an arm’s length result is not simply any result that maximizes one’s tax obligations.” In my opinion, the ball is in Treasury's court, not Congress'.
Treas. Reg. § 1.482-7A(d)(2).
 Altera Corp. v Commr, __ F.3d. __ (9th Cir., June 7, 2019) (case no. 16-70496) [hereafter “Altera II”] reversing Altera Corp. v. Commr, 145 TC No 3 (July 27, 2015) [hereafter “Altera I”].
 Xilinx, Inc v Commr, 125 TC 37 (2005), affd, 598 F 3d 1191 (9th Cir 2010). It is noted that in 2009 the Ninth Circuit issued an opinion accepting the position of the Service, but withdrew that opinion on Jan. 13, 2010.
 See Am. Mining Cong. v. Mine Safety & Health Admin., 995 F.2d 1106, 1109 (D.C. Cir. 1993). Interpretive rules are excluded from the general notice requirement for proposed rulemaking by 5 U.S.C. sec. 553(b)(3)(A). See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) that the Tax Court held incorporates the State Farm standard.
 Motor Vehicle Mfrs. Ass’n of the U.S. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29 (1983).
 The Ninth Circuit’s majority stated that the summary of the first panel’s withdrawn opinion constitutes no part of the opinion of the second panel.
 Altera II at 6, citing Comm’r v. First Sec. Bank of Utah, 405 U.S. 394, 400 (1972) (quoting 26 C.F.R. §1.482-1(b)(1) (1971)).
 Frank v. Int’l Canadian Corp., 308 F.2d 520, 528–29 (9th Cir. 1962).
 Oil Base, Inc. v. Comm’r, 362 F.2d 212, 214 n.5 (9th Cir. 1966).
 Altera II dissent at 54.
 74 Fed Reg 340 (Jan 5, 2009) (the “Temporary Regulations”).
 76 Fed Reg 80,082 (Dec 22, 2011) (the “Final Regulations”).
 Treas. Reg. § 1.482-7A. The “A” was added to the QSCA Regulations effective on January 5, 2009, when the Temporary Regulations were published.
 Xilinx, Inc v Commr, 125 TC 37 (2005), affd, 598 F 3d 1191 (9th Cir 2010).
 Coordinated Issue Paper on Section 482 CSA Buy-In Adjustments, LMSB-04-0907-62 [hereinafter CSA-CIP].
 VERITAS Software Corp v Commr, 133 TC 297 (2009), nonacq, 2010-49 IRB (Dec 6, 2010) (detailed explanation of the IRS’ reasoning available at http://www.irs.gov/pub/irs-aod/aod201005.pdf, assessed June 7, 2019).
 Altera I.
 Amazon.Com, Inc. v Commr, 148 TC No 8 (March 23, 2017).
 Unofficial Transcript of Finance Hearing on Fiscal 2007 Budget is Available, 2006 TNT 31-15 (Feb 15, 2006).
 Fiscal year end of June 30 for 2016 and 2017, last three months ending December 31, 2018. Microsoft 10-K (2017) at 38; Microsoft 10-K (2018); Microsoft 10-K (2Q 2019) at Note 11-Income Taxes.
 Microsoft 10-K (2017) at 39; Microsoft 10-K (2Q 2019) at Note 11-Income Taxes.
 United States v Microsoft Corp, No 2:15-cv-00102 (WD Wash May 5, 2017).
 See U.S. v Facebook Inc ND Cal, No 3:16-cv-03777 (pet filed July 6, 2016).
 Facebook 10-Q (2Q 2017) at 20; Facebook 10-K (2018) at 35, 48.
 Catskill Mountains Chapter of Trout Unlimited, Inc. v. EPA, 846 F.3d 492, 521 (2d Cir. 2017).
 Chevron, 467 U.S. at 843–44.
 Altera II at 25.
 The Court cites United States v. Gonzales, 520 U.S. 1, 5 (1997) (“Read naturally, the word ‘any’ has an expansive meaning . . . .”) and Republic of Iraq v. Beaty, 556 U.S. 848, 856 (2009) (“Of course the word ‘any’ (in the phrase ‘any other provision of law’) has an ‘expansive meaning, giving us no warrant to limit the class of provisions of law [encompassed by the statutory provision].”
 Altera II dissent at 79.
 Altera II dissent at 67.
 Altera II dissent at 73.
 Altera II dissent at 73.
 See H.R. Rep. No. 99-426, at 425.
 Citing Compensatory Stock Options Under Section 482, 68 Fed. Reg. 51,171-02, 51,173 (Aug. 26, 2003).
 Altera II dissent at 63.
 Altera II dissent at 67.
 Altera II dissent at 65.
 Study of Intercompany Pricing under Section 482 of the Code (“White Paper”), I.R.S. Notice 88-123, 1988-1 C.B. 458, 474;
 Xilinx v. Commissioner (“Xilinx I”), 125 T.C. 37, 53 (2005).
 Altera II dissent at 58.
 Altera II at 33.
 5 U.S.C. § 553(c); Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1203 (2015).
 FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009).
 Altera II at 36.
 Compensatory Stock Options under Section 482 (Preamble to Final Rule), 68 Fed. Reg. 51,171-02, 51,172–73 Aug. 26, 2003).
 Altera II at 39.
 Altera II at 41.
 Treas. Reg. § 1.482-1(b)(1) (1994).
 Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (citing SEC v. Chenery Corp. (“Chenery II”), 332 U.S. 194, 196 (1947))
 BNSF Ry. Co. v. Loos, 586 U.S. ___, No. 17-1042, slip op. at 9 (2019) (Gorsuch, J., dissenting)
 Altera II dissent at 51.
 in its preamble to § 1.482-7A(d)(2),
 Altera II dissent at 66 citing Appellant’s Br. 64.
 Altera II dissent at 68 citing FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009) (“[T]he requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position.”).
 Altera II dissent at 80.
 Altera II dissent at 81.
The Internal Revenue Service announced today that the Spring 2019 Statistics of Income (SOI) Bulletin is now available on IRS.gov. The SOI Division produces the online Bulletin quarterly, providing the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue includes articles on the following topics:
- Sole Proprietorship Returns, Tax Year 2016--For Tax Year 2016, taxpayers reported nonfarm sole proprietorship activity on approximately 25.5 million individual income tax returns, a 1.2-percent increase from 2015. Profits fell to $328.2 billion in 2016, a 1.1-percent decrease from the previous year. In constant dollars, total nonfarm sole proprietorship profits decreased 2.4 percent in 2016. Total profits as a percentage of business receipts were 23.1 percent for 2016, the second highest level in this data series which begins in 1988. The largest percentage increase in profits was reported by the arts, entertainment and recreation sector which increased 19.6 percent or $1.9 billion.
- Partnership Returns, Tax Year 2016--The number of partnerships in the United States continued to increase for Tax Year 2016. Partnerships filed more than 3.7 million returns for the year, representing more than 28 million partners. The real estate and leasing sector contained almost half of all partnerships (49.9 percent) and over a quarter of all partners (29.7 percent).
The 2018 IRS Research Bulletin (Publication 1500) is now available on IRS's Tax Stats Website. This publication features selected papers from the latest IRS-Tax Policy Center Research Conference held at the Urban Institute in Washington, DC, on June 20, 2018. They highlight research on factors that contribute to voluntary compliance, behavioral responses to IRS interventions, global tax administration, and future directions in tax administration. The current volume will enable IRS executives, managers, employees, stakeholders, and tax administrators elsewhere to stay abreast of the latest trends and research findings affecting tax administration.
Fifteen new State and county tables presenting selected financial information on sole proprietorships and partnerships are now available on SOI's Tax Stats Web page. Sole proprietorships reported their information on Form 1040, Schedule C, Profit or Loss From Business, while partnerships filed Form 1065, U.S. Return of Partnership Income. The information is drawn from unedited IRS administrative records for Tax Years 2012–2016.
Saturday, June 8, 2019
Today the Internal Revenue Service issued a draft of the 2020 Form W-4, Employee's Withholding Allowance Certificate (PDF), that will make accurate withholding easier for employees starting next year.
The revised form implements changes made following the 2017 Tax Cuts and Jobs Act, which made major revisions affecting taxpayer withholding. The redesigned Form W-4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption. Due to changes in the law, personal exemptions are currently not a central feature of the tax code.
“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
The IRS and Treasury collected extensive feedback over the past year while working closely with the payroll and tax community to develop a redesign that best serves taxpayers.
The IRS expects to release a near-final draft of the 2020 Form W-4 in mid-to-late July to give employers and payroll processors the tools they need to update systems before the final version of the form is released in November. To make additional improvements to this initial draft for 2020, the IRS is now accepting comments for 30 days. To facilitate review of this form, IRS is also releasing FAQs about the new design.
The IRS anticipates the related instructions for employers will be released in the next few weeks for comment as well.
The IRS reminds taxpayers that this draft Form W-4 is not for current use, but is a draft of the form to be used starting in 2020. Employees who have submitted a Form W-4 in any year before 2020 will not be required to submit a new form merely because of the redesign. Employers can continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.
For 2019, taxpayers should continue using the current Form W-4 (PDF). The IRS also continues to encourage people to do a Paycheck Checkup as soon as possible to see if they are withholding the right amount of tax from their paychecks, particularly if they had too much or too little tax withheld when they filed their 2018 taxes earlier this year. People with major life changes, such as a marriage or a new child, should also check their withholding.
The IRS cannot respond individually to those who submit comments, but the agency does appreciate the feedback and will consider all comments received.
Friday, June 7, 2019
2019's Tax Facts Offers a Complete Web, App-Based, and Print Experience
Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone. Questions? Contact customer service: TaxFactsHelp@alm.com| 800-543-0874
LL.M. or M.Jur. Curriculum in Wealth Management at Texas A&M Law
Our Wealth Management program gives you the knowledge and skills you need to advise wealthy clients and help manage their assets. Because wealth management involves professionals with various backgrounds, we’ve designed the program with both lawyers and non-lawyers in mind. This program is offered completely online, which gives professionals the flexibility they need to learn and to meet the increasing need of being versed in the legal aspects of financial transactions and in the legal aspects of financial investment and portfolio management. Contact us to learn more