The US Ninth Circuit Court of Appeals has withdrawn its opinion in Altera v. Commissioner¹ that was issued on 24 July 2018, in which it reversed the Tax Court's ruling and held that stock-based compensation was a compensable cost under Internal Revenue Code² Section 482. In Altera, the Tax Court had ruled that a 2003 IRS regulation that required participants in a cost sharing arrangement to treat stock-based compensation costs (SBC costs) as compensable was invalid.

One of the three judges on the panel that had heard the appeal, Judge Stephen Reinhardt, died prior to the issuance of the opinion but after oral arguments and after formally concurring in the majority opinion. On 2 August 2018, the clerk of the court issued an order naming Judge Susan Graber to replace Judge Reinhardt on the panel hearing the case. On 7 August, the Ninth Circuit published an order withdrawing the opinion "to allow time for the reconstituted panel to confer on this appeal."

The US Tax Court this week ruled in YA Global Investments v. Commissioner that a Cayman Islands-based partnership's Section 1446 withholding tax liability is a partnership item and, therefore, within the court's authority under Section 6226(f). The court reasoned that because Section 1446 makes the partnership liable for any tax required to be withheld under Section 1446, any tax required to be withheld under Section 1446 is a partnership liability. And the regulations are clear, the court concluded, that partnership liabilities are partnership items.

YA Global, a partnership for US purposes with both US and foreign partners, had argued that withholding tax under Section 1446 is not a partnership item and, therefore, adjustments in the notices of final partnership administrative adjustment relating to withholding tax liability under Section 1446 should be dismissed for lack of subject matter jurisdiction. The IRS argued that withholding tax liability under Section 1446 is a partnership item and that YA Global is a party to the proceeding. The motion to dismiss was denied.

In two separate letters, a group of Republican Senators and members of Congress recently wrote President Trump urging him to appoint an ambassador to the Organisation for Co-operation and Development (OECD) to vigorously defend US interests in regard to European digital taxation proposals, as well certain international provisions in the Tax Cuts and Jobs Act (TCJA) that are under review by the OECD Forum on Harmful Tax Practices. The OECD Forum is reviewing the TCJA international measures at the request of the European Commission. The post of US Ambassador to the OECD reportedly has been vacant since the election of President Trump.

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ENDNOTES

¹ See EY Global Tax Alert, US Ninth Circuit panel reverses Tax Court opinion in Altera, holding stock-based compensation to be a compensable cost under Section 482, dated 1 August 2018.

² All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, International Tax Services, Washington, DC

• Arlene Fitzpatrick
  arlene.fitzpatrick@ey.com
• Joshua Ruland
  joshua.ruland@ey.com

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