Transfer pricing Section 482 geeks have been breathlessly awaiting Judge Cary Douglas Pugh’s exegeses of Temp. Reg. § 1.482-7T(a)(2), (b)(1)(ii), (c)(1), Reg. § 1.482-1(e), and Reg. §§ 1.482-7T(g)(4) and (i)(6). Here  they are at last, Facebook, Inc. & Subsidiaries, 164 T.C. 9, filed 5/22/25.

Spoiler alert: IRS wins, except, as we say in the computer world, GIGO (garbage in equals garbage out).

IRS’ experts used wrong inputs in figuring income method valuations for present value of arms’-length Platform Contribution Transactions. Facebook (parent) divided the world between USA and Canada (parent kept it) and rest of the world (given to wholly-owned Irish subsidiary). Parent handed Irish all its IP and hardware. They made cost sharing and technology development agreements, but had to value the present worth of what they gave the Irish, so the Irish could pay parent back over time (IRS has no problem with the payback schedule). The payback, of course, is US-taxable to parent.

Parent claims the NPV of the stuff at transfer in 2009 was $6.3 billion; IRS claims $19.945 billion.

You can see why Judge Pugh needs 130 (count ’em, 130) pages to send the parties off for a Rule 155 beancount, and nine (count ’em, nine) pages to set forth the expert witnesses’ CVs at dates of their testimony.

There are 23 (count ’em, 23, and I have) attorneys appearing for Parent, and 17 (count ’em, 17) for IRS. The noise of all those meters ticking must have been deafening.

IRS used a $1.9 billion plug figure (“Other Revenue”) but that flunks the presently-existing test of the regs. And Judge Pugh finds IRS’ expert fudged Acquisition Costs. Another IRS failing is a miscalculated beta (volatility). “We find that Dr. N’s discount rate is not a reliable reflection of the market-correlated risks of participating in the actual CSA because he failed to provide empirical support for his selected percentage premia (2% for its pre-IPO stage and 1% for its early monetization stage).” 164 T. C. 9, at p. 92. (Name omitted).

Judge Pugh almost throws up her hands when reckoning the discount rate, but finally buys something that varies but .02 from Facebook’s. 164 T. C. 9, at p. 100.

Judge, I feel your pain.