In Uncategorized on 07/28/2014 at 17:15

No, it’s not a parody of the classic New York doo-wop 1959 gold record “Sixteen Candles” (by the Crests, notable for being one of the rare integrated groups of the time, three black members (one of whom was female), one Puerto Rican, and one Italian-American: real New York).

But it could be, if someone is inclined to write it.

No, it’s the number of attorneys, Inc., and subsidiaries puts on a partial summary judgment motion that Judge Lauber blows off in ten pages (double-spaced).

Read all about it in 2014 T. C. Memo. 149, filed 7/28/14.

You’ll remember my earlier blogpost “Win Your Case at Discovery”, 7/3/14. Well, this is a follow-up, since The Big A made this motion while IRS was seeking more discovery concerning the allocations of expenses attributable to the components of this deal between Jeff Bezos’ still-in-the-USA retailing octopus and the Luxembourg subsidiary with which it was allegedly creating all this IP.

“Petitioner has yet to demonstrate that the T&C category contains nontrivial costs that are properly characterized as something other than IDCs. Respondent has sought discovery on this issue and was seeking additional discovery at the time this motion was filed. At the moment, therefore, it is a disputed question of material fact whether the T&C category contains ‘mixed’ costs. Until petitioner establishes that the T&C category contains a nontrivial amount of ‘mixed’ costs, we cannot rule as to whether respondent abused his discretion in determining that 100% of T&C category costs constitute IDCs.

“Petitioner contends that it is not required by the regulations to show that its T&C costs are ‘mixed’ before applying an allocation formula. In petitioner’s view, it need only prove that the allocation formula it developed and applied is ‘reasonable.’ If that formula is ‘reasonable,’ petitioner contends, the formula necessarily allocates costs correctly as between the intangible development activity and other business activities.

“Petitioner’s argument puts the cart before the horse. The regulations permit costs to be allocated only ‘[i]f a particular cost contributes to the intangible development area and other areas or other business activities.’ Sec. 1.482-7(d)(1), Income Tax Regs. The status of costs as ‘mixed,’ in other words, is a precondition to the application of an allocation formula. Petitioner must show that this condition has been satisfied before it can proceed to the next step, which is to show that its allocation formula reasonably allocates mixed costs. At this stage of the litigation, we cannot rule as to whether respondent abused his discretion in declining to permit the use of an allocation formula with respect to T&C category costs.” 2014 T. C. Memo. 149, at pp. 8-9. seems to think establishing the mixing would be tedious and time-consuming, but Judge Lauber says they can use sampling methods or a review of critical cost centers to do the sorting out.

“One way or another, petitioner must establish that it has T&C category costs requiring allocation before the Court will permit petitioner to allocate such costs.” 2014 T. C. Memo. 149, at p. 10.

No summary judgment.

IRS has only five lawyers; and Subsidiaries has sixteen (count ‘em, sixteen), all  white-shoe, I’ll wager, with the meters running. No wonder Amazon Prime went from $80 to $99 per year.


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