Supreme Court declines to hear tech company’s challenge to tax rules

The Supreme Court on Monday declined to take up a technology company’s challenge to IRS regulations issued in 2003, letting stand a lower court’s ruling that will require companies to pay billions of dollars more in taxes.

The high court denied a petition from Altera Corporation, now a business unit of Intel.

The IRS in 2003 issued regulations that require related parties, such as a U.S. parent company and a foreign subsidiary, that enter into cost-sharing agreements to share stock-based compensation, such as stock options.

The regulations were criticized by a number of companies, who argued that unrelated parties entering similar agreements don’t share stock-based compensation. Altera filed a lawsuit after the IRS applied the 2003 rules to the company and issued it deficiency notices for 2004-2007.

The U.S. Tax Court sided with Altera, finding that the regulation was invalid under the Administrative Procedures Act because it was arbitrary and capricious. But the U.S. Court of Appeals for the 9th Circuit reversed the Tax Court’s decision, determining that the regulations were not arbitrary and capricious.

Altera said in its petition to the Supreme Court that the 9th Circuit’s ruling violated key administrative law principles. The company also argued that the case is particularly important because it affects a number of companies across several industries — such as technology, pharmaceuticals and apparel — and “the amount of money at stake is enormous.” 

A number of tech companies, trade associations and major accounting firms urged the Supreme Court to hear the case.

The IRS said in its filing that the Supreme Court should not take up the case because the Ninth Circuit correctly ruled that the regulations are not arbitrary and capricious, and because that ruling doesn’t conflict with any Supreme Court rulings or rulings by other appeals courts.