Many thanks to a partner in a Big Four accounting firm for the breaking news that 9 Cir. has overturned TC in Altera Corporation and Subsidiaries, No. 16-70496, filed 7/24/18.

Disarming the old arms’-length comparable uncontrolled transactions via sustaining the 2003 amendment to Section 482 (providing for matching income to expense), two out of three 9 Cir Judges (one of whom died before this decision was published) overturn TC (and incidentally give ex-Ch J L Paige (“Iron Fist”) Marvel another tough loss). 9 Cir has matching income to expense as what Congress wanted in 1986.

“The Commissioner’s allocation of employee stock compensation costs between related parties is necessary for Treasury to fulfill its obligation under § 482. Congress did not intend to interfere with qualified cost-sharing arrangements when those arrangements provided for the allocation of income consistent with the commensurate with income provision. H.R. Conf. Rep. No. 99-841, at II-638.” Opinion, at p. 43.

“As demonstrated by nearly a century of interpreting §482 and its precursor, the arm’s length standard is aspirational, not descriptive. It reflects neither how related parties behave nor how they are taxed.” Opinion, at p. 43. Guidelines…aspirational goals. The Pirates’ Code is alive and well.

Needless to say, there’s a dissent. The majority tramples on the APA, Chenery, Xilinx, and eviscerates the sacred arms’-length standard. Put the apostrophe where you will, arm’s-length is now the Venus de Milo of tax law.

Reversed. Without remand.

Pages 2 through 4 of the opinion list the attorneys on this case. Looks like there are more of them than were in my engineer company in Vietnam. I hope they all got paid.

Edited to add: When pore l’il ole Tax Court had this case, there were but sixteen (count ’em, sixteen) lawyers. See my blogpost “Sixteen Lawyers – Part Deux,” 7/27/15.