The US Court of Appeals for the Ninth Circuit [official website] ruled [opinion, PDF] for the Internal Revenue Service (IRS) Tuesday in a lawsuit filed by Intel’s subsidiary Altera Corporation, reversing a decision by the US Tax Court [official websites].
The court considered whether the IRS exceeded the authority given to them by the Administrative Procedure Act [text, PDF] by compelling Altera and related entities to share the costs of employee stock compensation to qualify as a “qualified cost-sharing arrangement.” Since Altera did previously not share the cost of employee stock compensation with the IRS, Intel avoided a “tax associated with over $80 million in income.”
In a 2-1 decision, Judge Sidney Thomas held that employee stock compensation is a cost and that the IRS regulations being challenged [text] are not “arbitrary and capricious.” Thomas’ opinion was joined by the late Judge Stephen Reinhardt. Judge Kathleen O’Malley dissented.
The court noted in its opinion that the reason why the regulations were put in place had to do with addressing “the risk of multinational corporation tax avoidance.” The Wall Street Journal reported [WSJ report] in 2016 that Google’s parent company, Alphabet, could have saved at least $3.5 billion in taxes if Intel had prevailed.