Altera and the Arm’s Length Standard

4 Pages Posted: 9 Aug 2018 Last revised: 22 Aug 2018

Date Written: July 25, 2018


On July 24, 2018, the Ninth Circuit reversed the Tax Court decision in Altera Corp. v. Commissioner, 145 T.C. 91 (July 27, 2015), which had invalidated Treas. Reg. § 1.482- 7A(d)(2). The regulation requires taxpayer to include the cost of employee stock options in the pool of costs that must be shared under a qualified cost sharing arrangement (QCSA). The Ninth Circuit held that this regulation was not arbitrary or capricious, and therefore that the Commissioner did not exceed the authority delegated to him under IRC § 482, that the Commissioner’s rule-making authority complied with the Administrative Procedure Act (APA), and that therefore the regulation is entitled to deference under Chevron. In reaching this conclusion, the majority held that the regulation was not incompatible with the arm’s length standard (ALS) as modified by the commensurate with income rule adopted by Congress in 1986.

Keywords: Altera, Arm’s Length Standard, Transfer Pricing

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., Altera and the Arm’s Length Standard (July 25, 2018). U of Michigan Public Law Research Paper No. 616, Available at SSRN:

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

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

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