Ninth Circuit Amicus Brief of 19 Tax Law and Administrative Law Professors, Altera v. Commissioner, Nos. 16-70496, 16-70497

41 Pages Posted: 7 Jul 2016 Last revised: 5 Aug 2016

Anne Alstott

Yale University - Law School

Reuven S. Avi-Yonah

University of Michigan Law School

Lily L. Batchelder

New York University School of Law

Joshua D. Blank

New York University School of Law

Noel B. Cunningham

New York University Law School

Victor Fleischer

University of San Diego School of Law

Ari D. Glogower

Ohio State University (OSU) - Michael E. Moritz College of Law

David Kamin

New York University School of Law

Mitchell Kane

New York University (NYU)

Sally Katzen

New York University School of Law

Edward D. Kleinbard

USC Gould School of Law

Michael S. Knoll

University of Pennsylvania Law School; University of Pennsylvania - Real Estate Department

Rebecca M. Kysar

Brooklyn Law School; Fordham University School of Law

Zachary D. Liscow

Yale University - Law School

Daniel Shaviro

New York University School of Law

John P. Steines

New York University School of Law

David Super

Georgetown University Law Center

Clint Wallace

New York University School of Law

George K. Yin

University of Virginia School of Law

Date Written: August 4, 2016

Abstract

Amici file this brief to provide the Ninth Circuit with relevant background information on the basics of transfer pricing and cost-sharing agreements, and to advance four key points.

First, the 2003 cost-sharing regulation at issue in this case is substantively reasonable under the commensurate-with-income standard. Although we agree with the government that this standard can be harmonized with the standard that generally governs Treasury’s rulemaking authority under section 482 (known as the arm’s-length standard), the focus of our brief is the commensurate-with-income authority. Properly understood, that authority provides a sufficient independent basis for the regulation. Indeed, the legislative history practically mandates that stock-based compensation be accounted for in cost-sharing agreements.

Second, by requiring that Treasury rely exclusively on its commensurate-with-income authority in order to avail itself of that authority, the Tax Court misunderstood a basic principle of administrative law. To be sure, a court “must judge the propriety of [an agency’s action] solely by the grounds invoked by the agency.” S.E.C. v. Chenery Corp., 332 U.S. 194, 196 (1947). But a court must “uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.” Motor Vehicle Mfrs. Ass’n of the U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). And here, the cost-sharing regulation may be reasonably understood as an exercise of Treasury’s commensurate-with-income authority, and both the notice of proposed rulemaking and the preamble to the final cost-sharing regulation cited this authority.

Third, even if this Court finds that Treasury’s explanation of the cost-sharing regulation is inadequate, the taxpayer bears the burden of establishing that any error affected the procedure used or the substance of the decision reached. But it cannot carry this burden, because Treasury considered the comments submitted and responded accordingly. And Treasury reached a substantively reasonable conclusion that addresses the concerns that led Congress to create the commensurate-with-income standard in the first place. Therefore, at a minimum, this Court should remand the regulation to Treasury without vacating it, so that Treasury has an opportunity to clarify its explanation.

Finally, invalidating the regulation would have significant policy consequences, resulting in billions of dollars of lost tax revenue due to this regulation alone. It would upset the past decade of cost-sharing agreements and adversely impact tax administration in a manner that reaches far beyond the regulation at issue here, at significant cost to the public fisc.

Suggested Citation

Alstott, Anne and Avi-Yonah, Reuven S. and Batchelder, Lily L. and Blank, Joshua D. and Cunningham, Noel B. and Fleischer, Victor and Glogower, Ari D. and Kamin, David and Kane, Mitchell and Katzen, Sally and Kleinbard, Edward D. and Knoll, Michael S. and Kysar, Rebecca M. and Liscow, Zachary D. and Shaviro, Daniel and Steines, John P. and Super, David and Wallace, Clint and Yin, George K., Ninth Circuit Amicus Brief of 19 Tax Law and Administrative Law Professors, Altera v. Commissioner, Nos. 16-70496, 16-70497 (August 4, 2016). USC Law Legal Studies Paper No. 16-5; USC CLASS Research Paper No. CLASS16-23. Available at SSRN: https://ssrn.com/abstract=2805432 or http://dx.doi.org/10.2139/ssrn.2805432

Anne L. Alstott

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

HOME PAGE: http://www.law.yale.edu/faculty/AAlstott.htm

Reuven S. Avi-Yonah

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

Lily L. Batchelder

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-992-8156 (Phone)

Joshua D. Blank

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012
United States
(212) 998-6479 (Phone)

HOME PAGE: http://its.law.nyu.edu/facultyprofiles/profile.cfm?personID=23511

Noel B. Cunningham

New York University Law School ( email )

40 Washington Square South
New York, NY 10012-1099
United States
(212) 998-6159 (Phone)

Victor Fleischer

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Ari D. Glogower

Ohio State University (OSU) - Michael E. Moritz College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States

David Kamin

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Mitchell Kane

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Sally Katzen

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Edward D. Kleinbard

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

Michael S. Knoll

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)

Rebecca M. Kysar

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

Fordham University School of Law ( email )

113 West 60th Street
New York, NY 10023
United States

Zachary D. Liscow

Yale University - Law School ( email )

127 Wall St.
New Haven, CT 06511
United States

Daniel Shaviro

New York University School of Law ( email )

40 Washington Square South
Room 314-B
New York, NY 10012-1099
United States
212-998-6187 (Phone)
212-995-4341 (Fax)

John P. Steines

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

David Super

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Clint Wallace (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

George K. Yin

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-7025 (Phone)
434-924-7536 (Fax)

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