934 F.3d 976
9th Cir.2019Background
- Amazon reorganized its European operations (2005–2006), creating a Luxembourg holding company (AEHT) and entering a cost‑sharing arrangement with Amazon (U.S.) that required AEHT to make an arm’s‑length "buy‑in" for preexisting intangibles and share future R&D costs.
- Under Treas. Reg. §1.482‑4(b) (1994/1995 regs), an "intangible" is an asset from a specified list (patents, trademarks, customer lists, etc.) or "other similar items" that derive value from intellectual content and have substantial value independent of any individual’s services.
- Amazon valued the buy‑in at roughly $255M (present value $217M); the IRS revalued it using a DCF enterprise approach to about $3.468B, effectively including residual‑business assets (workforce in place, goodwill, going‑concern value, growth options).
- The Tax Court excluded residual‑business assets as outside §1.482‑4(b)’s scope, adopted the comparable uncontrolled transaction method, and fixed the buy‑in at ≈$779M; the IRS appealed.
- The Ninth Circuit reviewed whether the 1994/1995 regulatory definition of "intangible" encompassed residual‑business assets and whether the IRS’s contrary interpretation merited Auer deference.
Issues
| Issue | Plaintiff's Argument (Commissioner) | Defendant's Argument (Amazon) | Held |
|---|---|---|---|
| Whether the 1994/1995 regulatory definition of “intangible” (§1.482‑4(b)) includes residual‑business assets (workforce in place, goodwill, going‑concern value, growth options). | The catchall (§1.482‑4(b)(6)) and the arm’s‑length/buy‑in framework show such residual assets are compensable; an uncontrolled party would pay for these economic values. | The regulation and its list reflect assets that are independently transferable; residual‑business assets are inseparable from the enterprise and were excluded by Treasury’s drafting history. | Court held the 1994/1995 regulatory definition did NOT include residual‑business assets; affirmed Tax Court. |
| Whether the IRS’s contrary interpretation is entitled to Auer (agency) deference. | The IRS urges deference to its reading that residual‑business assets are intangibles under the regs. | Amazon contends Treasury never adopted that interpretation contemporaneously; treating the interpretation as novel enforcement position defeats fair notice. | Court declined Auer deference: regulation not genuinely ambiguous in light of text, structure, and history; even if ambiguous, IRS’s interpretation was a later enforcement position that would unfairly surprise taxpayers. |
Key Cases Cited
- Comm’r v. First Sec. Bank of Utah, N.A., 405 U.S. 394 (discussing §482’s purpose to prevent income distortion)
- Auer v. Robbins, 519 U.S. 452 (agency deference to interpretations of its own regulations)
- Kisor v. Wilkie, 139 S. Ct. 2400 (limits and prerequisites for Auer deference)
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (framework for judicial review of agency interpretations)
- Xilinx, Inc. v. Commissioner, 598 F.3d 1191 (9th Cir.) (cost‑sharing buy‑in/what to include; discussion of regulatory purpose and limits)
- Veritas Software Corp. v. Commissioner, 133 T.C. 297 (Tax Ct.) (prior Tax Court decision excluding workforce in place from buy‑in under §1.482‑4(b))