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On 10 February 2020, Altera Corporation (Altera) filed a petition for a writ of certiorari asking the Supreme Court to review the Ninth Circuit Court of Appeals' decision¹ upholding a 2003 regulation. The regulation required participants in a cost-sharing arrangement to treat stock-based compensation (SBC) costs as compensable under IRC Section 482. See Tax Alert 2019-1100.

Following the issuance of the Ninth Circuit opinion on June 7, 2019, Altera sought, but was denied, a rehearing "en banc" by the Ninth Circuit on November 12, 2019.

In its petition to the Supreme Court, Altera contends that the government employed an indefensible "bait-and-switch," attempting to justify the 2003 regulation using arguments that it advanced for the first time in the Ninth Circuit after the Tax Court held the regulation invalid. Altera argues that, by accepting the government's new rationale, and giving it "Chevron² Deference,"³ the Ninth Circuit failed to follow settled rules of administrative law established by the Supreme Court. Specifically, Altera notes that those rules require agencies to give notice and opportunity to comment on proposed rules and to acknowledge and explain in rulemaking any changes to long-standing positions.

The Altera petition asserts that the Ninth Circuit opinion would allow the government to impose billions of dollars in taxes based on a position not advanced prior to litigation. Moreover, Altera states that the significant departure from a long-standing approach to cost sharing would upend "many companies' research-and-development agreements." In addition, Altera argues that the Ninth Circuit's broad interpretation of Chevron would enable agencies to evade meaningful judicial review.

A brief in opposition to a petition to a writ of certiorari may be filed by the respondent within 30 days after the case is placed on the docket unless the time is extended. A reply brief by the petitioner may then be filed 14 days following. Four of the nine Justices must vote to grant the writ in order for the case to be heard by the Supreme Court.

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ENDNOTES

¹ Altera Corporation & Subsidiaries v. Commissioner, 926 F.3d. 1061 (2019)

² Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

³ "Chevron Deference" is a term coined after a landmark case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), referring to the doctrine of judicial deference given to administrative actions. In Chevron, the Supreme Court set forth a legal test as to when the court should defer to the agency's answer or interpretation, holding that such judicial deference is appropriate where the agency's answer was not unreasonable, so long as the Congress had not spoken directly to the precise issue at question. As Justice Stevens wrote in Chevron, when the statute is silent or ambiguous with respect to an issue, the question for the court is whether the agency's action was based on a permissible construction of the statute.