The IRS and Microsemi Corp. have settled their transfer pricing cases on (1) the cost-sharing arrangement involving a platform contribution transaction; and (2) IRC Section 482 adjustments for tangible goods sales between the US company and an Irish subsidiary (Microsemi Corp. v. Commissioner, Nos. 36721-21 and 19571-23 (Jan. 20, 2026)).

Background

In 2021 and 2023, the IRS issued Notices of Deficiency that reflected income tax deficiencies and accuracy-related penalties under IRC Section 6662 for 2007–2012 and 2014–2015. Microsemi filed cases in the U.S. Tax Court disputing the IRS's Notices of Deficiency.

The accuracy-related penalties related to three determinations: (1) IRC Section 482 adjustments relating to the valuation of a platform contribution of intangible assets (including technology and intellectual property, allowing both cost-sharing participants to further develop those assets; (2) IRC Section 482 adjustments for intercompany sales of tangible goods from a US company to an Irish entity that conducted high reliability testing; and (3) adjustments treating a subset of product sales as foreign base company sales income, giving rise to Subpart F income.

Settlement stipulations

On January 20, 2026, the parties settled the principal issues regarding tax years 2007–2012 and 2014–2015. The stipulations included the following:

• The total arm's-length valuation of the platform-contribution is set at a net present value of $146 million, resulting in adjustments to the platform contribution installment payments, totaling $37.8 million.
• Microsemi's income is increased for each year to reflect arm's-length pricing for its tangible goods sold to its Irish subsidiary.
• Microsemi's Subpart F income is increased by agreed amounts for 2007 -2012, and Microsemi may claim additional foreign tax credits for Microsemi Ireland's taxes on foreign base company sales income treated as Subpart F income.
• IRC Section 482 income increases apply for 2007, 2008, 2009, 2011 and 2015, due to including stock-based compensation in cost-sharing payments.
• Microsemi is liable for penalties for substantial valuation misstatements only for IRC Section 482 adjustments to sales of tangible goods, and no penalties apply for any other adjustments (i.e., platform contribution, Subpart F, stock-based compensation).
• Microsemi may submit claims for domestic production activities deductions under former IRC Section 199.

The Tax Court ordered the parties to file proposed stipulated decisions reflecting these stipulations of settled issues.

Implications

While the settlement means there will be no judicial guidance on the substantive IRC Section 482 issues, it underscores the IRS's continued focus on (1) platform-contribution-transaction valuations, (2) the proper selection of the tested party, (3) the inclusion of stock-based compensation in cost-sharing payments, and (4) the best method analysis and functional analysis in taxpayers' transfer pricing documentation. The resolution also highlights the potential for differentiated penalty treatment across adjustment categories and reinforces the importance of robust, contemporaneous transfer pricing support for both pricing and valuation positions.