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Author: Courts of the US

US vs Altera Corp, June 7, 2019, US Court of Appeal, Nos 16-70496 and 16-70497

In this case, the US Court of Appeal had reversed a decision from the Tax Court that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was invalid under the Administrative Procedure Act. The Court of Appeal ruled that the Commissioner of Internal Revenue had not gone beyond the […]

US vs Pacific management Group, August 2018, US Tax Court Case, Memo 2018-131

This case concerned a tax scheme where taxable income was eliminated using factoring and management fees to shift profits. The Tax Court held that the scheme was in essence an attempt to eliminate the taxes. Factoring and management fees were not deductible expenses but rather disguised distributions of corporate profits and generally currently taxable to the individual shareholders as constructive dividends or as income improperly assigned to the corporations. In the TC Memo interesting views on the arm’s […]

US vs Medtronic, August 2018, U.S. Court of Appeals, Case No: 17-1866

In this case the IRS was of the opinion, that Medtronic erred in allocating the profit earned from its devises and leads between its businesses located in the United States and its device manufacturer in Puerto Rico. To determine the arm’s length price for Medtronic’s intercompany licensing agreements the comparable profits method was therefor applied by the IRS, rather than the comparable uncontrolled transaction (CUT) used by Medtronic. Medtronic brought the case to the Tax […]

US vs Altera Corp, July 2018, US Court of Appeal, Nos 16-704996

In this case, the US Court of Appeal reversed a decision from the Tax Court that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was invalid under the Administrative Procedure Act. The Court of Appeal ruled that the Commissioner of Internal Revenue had not gone beyond the authority […]

US SOUTH DAKOTA v. WAYFAIR, INC., June 2018, US Supreme Court, Case No. 17-494

Concerned about the erosion of its sales tax base and corresponding loss of critical funding for state and local services, the South Dakota Legislature in 2016 enacted a law requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State.” The Act covers sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more […]

US vs Reserve Mechanical Corp, June 2018, US Tax Court, Case No. T.C. Memo 2018-86

In the case of US vs Reserve Mechanical Corp the issues were whether transactions executed by the company constituted insurance contracts for Federal income tax purposes and therefore, whether Reserve Mechanical Corp was exempt from tax as an “insurance company”. For that purpose the relevant factors for a captive insurance to exist was described by the court. According to the court in determining whether an entity is a bona fide insurance company a number of […]

US vs Coca Cola, Dec. 2017, US Tax Court, 149 T.C. No. 21

Coca Cola collects royalties from foreign branches and subsidiaries for use of formulas, brand and other intellectual property. Years ago an agreement was entered by Coca Cola and the IRS on these royalty payments to settle an audit of years 1987 to 1995. According to the agreement Coca-Cola licensees in other countries would pay the US parent company royalties using a 10-50-50 formula where 10% of the gross sales revenue is treated as a normal […]

US vs. Hewlett Packard, November 2017, Court of Appeals, Case No 14-73047

This issue in this case is qualification of an investment as debt or equity. HP bought preferred stock in Foppingadreef Investments, a Dutch company. Foppingadreef Investments bought contingent interest notes, from which FOP’s preferred stock received dividends that HP claimed as foreign tax credits. HP claimed millions in foreign tax credits between 1997 and 2003, then exercised its option to sell its preferred shares for a capital loss of more than $16 million. The IRS characterized […]

US vs Microsoft, May 2017, US District Court

In an ongoing transfer pricing battle between Microsoft and the IRS related to Microsofts’ use of a IP subsidiary in Puerto Rico to shift income and reduce taxes, the District Court of Washington has now ordered Microsoft to provide a number of documents as requested by the IRS. In a prior decision from November 2015 the District Court ruled, that the IRS’ use of an external representative was not in conflict with US regulations. Microsoft […]

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