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Sandra Brown Quoted in Article on Implications of Ninth Circuit Withdrawing Transfer Pricing Decision.

2018 TNT 153-1 Ninth Circuit Withdraws
Altera Opinion 
New Judge to Weigh In

Tax Notes Today


Copyright © 2018 Tax Analysts

Cite: 2018 TNT 153-1

Department: News, Commentary, and Analysis; News Stories

Byline: Tax Analysts; Parillo, Kristen A.

Published by Tax Analysts(R)

The Ninth Circuit’s just-withdrawn Altera v. Commissioner decision will get a fresh look from its newest judge, Susan P. Graber, whose views could change the outcome of the court’s July 24 opinion, practitioners said.

The U.S. Court of Appeals for the Ninth Circuit, which withdrew the opinion August 7, will give Graber de novo review in the case, according to two Ninth Circuit practitioners: Brian P. Goldman of Orrick, Herrington & Sutcliffe LLP and Sandra R. Brown of Hochman, Salkin, Rettig, Toscher & Perez PC. Graber replaced the late Judge Stephen Reinhardt, who died five months after the October 2017 oral arguments.

This introduces the real possibility that the 2-1 opinion on transfer pricing regulations could be reversed, Goldman told Tax Notes. “It’s hard to put odds on that happening, but to companies that were concerned about the Ninth Circuit opinion, this is a welcome development because it means the opinion is not currently in force.”

The court’s withdrawal of the opinion, which held that the transfer pricing regulations at issue didn’t violate the Administrative Procedure Act, is good news for corporate taxpayers, Goldman said, because the case reverts to the position it was in after the oral arguments but before the opinion was issued.

Corporate taxpayers filing their tax returns consistent with the Altera position can now go back to relying on the U.S. Tax Court decision, issued in July 2015 (Doc 2015-17467), which invalidated the final 2003 cost-sharing regulations, said Eric D. Ryan of DLA Piper. “They can file their 2017 federal income tax returns – which are due October 15 – without having any adverse action against them,” he added.

Brown said that given the importance of the Altera case, both for transfer pricing and the deference to be accorded to Treasury regulations, “it is not surprising nor unprecedented for the Ninth Circuit to exercise its authority to reconstitute the panel and to permit further consideration of the appeal.”

De Novo Review

Graber will need to view a recording of the oral arguments and review the briefings filed in the case, said Goldman. She can then share her opinion informally with the other panel members, Chief Judge Sidney R. Thomas, who wrote the majority opinion, and Judge Kathleen M. O’Malley, who wrote the dissent. Then the panel will issue a new decision, Goldman said.

However, the decision is unlikely to change, said A. Lavar Taylor of the Law Offices of A. Lavar Taylor LLP. The forcefulness of Thomas and O’Malley in their opinions means neither one is likely to change their mind, and Graber is expected to side with Thomas, he said.

“I don’t bet, but if I did, I would bet on Judge Graber upholding the regulations,” Taylor said.


The August 7 order withdrawing the opinion states only that the move was taken “to allow time for the reconstituted panel to confer on this appeal.”

Taylor said he thinks the court realized “it was not a good idea to let Judge Reinhardt vote from the grave, and now the court is ‘self-correcting’ this mistake.”

“The real mystery to me is why the opinion was ever released in the first place, in light of Judge Reinhardt’s passing,” Taylor added. “In my view, that was a mistake, so the withdrawal seems proper to me.”

Reconstituting a full three-judge panel to issue a final decision is a prudent move, said Ryan. “Otherwise, there might have been concern that Judge Reinhardt’s decision in favor of the IRS was not well documented or understood.”

Ryan pointed out that Reinhardt could have changed his mind up until the opinion was published. “For example, if he had found the initial dissenting minority opinion persuasive,” Ryan said. “In that situation, the decision would have come out differently.”

Goldman said the fact that the court immediately withdrew the opinion before a petition for rehearing could be filed suggests that another Ninth Circuit judge had indicated an interest in pursuing a call for a rehearing en banc. That may have prompted the court to decide to move forward on drawing a replacement judge for Reinhardt. “If Judge Graber said it might be better to step back and look at this fresh, that’s a request Chief Judge Thomas would have respected and deferred to,” said Goldman.

Several practitioners noted parallels with a Ninth Circuit decision in an earlier case involving cost-sharing regulations. A three-judge panel in Xilinx v. Commissioner issued a 2-1 decision in favor of the IRS. After a panel rehearing, however, the same panel withdrew its original decision and ultimately decided (Doc 2010-6163) 2 to 1 in favor of Xilinx.

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