Xilinx Case – Recent Legal Decisions

By Ron Cohen, CPA, MST
Partner
Greenstein, Rogoff, Olsen & Co., LLP

UPDATE: 6/9/10

IRS Tells Xilinx That It Will Not Appeal Ninth Circuit Stock Options Decision

The Internal Revenue Service has told Xilinx Inc. that it will not file a petition for a writ of certiorari with the U.S. Supreme Court that would ask the court to review the Ninth Circuit decision that held that Xilinx need not share stock option costs under its joint venture with an Irish affiliate, a company official said June 8.

Dan Goff, vice-president, tax, Xilinx, said the company recently received an e-mail from the Department of Justice indicating that IRS does not intend to file for certiorari with the U.S. Supreme Court, so “hopefully the Xilinx case is closed.

However, Goff said the case (Xilinx Inc. v. Commissioner,9th Cir.,No. 06-74246,3/22/10) is still technically open until June 20 because IRS has 90 days after the Ninth Circuit decision in which to file for certiorari with the Supreme Court.

In Xilinx, the U.S. Court of Appeals for the Ninth Circuit March 22 withdrew its original, May 27, 2009, ruling, which had overturned the Tax Court decision and found that the company was required to share the cost of employee stock options with its Irish subsidiary, and reissued the decision to uphold the Tax Court's ruling (54 DTR K-1, 3/23/10).

The Tax Court in August 2005 looked to evidence of third-party transactions and determined that the company need not share stock option costs under its joint venture with an Irish affiliate (168 DTR K-4, 8/31/05).

Goff made his comments at the 2010 Organization for Economic Cooperation and Development International Tax Conference in Washington D.C.

UPDATE: 2/10/10

According to people involved in the case, Xilinx is now awaiting a new, revised decision from the Ninth Circuit to replace the prior decision that was withdrawn (see below).

Upon receiving that decision, either Xilinx or the IRS can appeal…however, appeals are rarely granted by the U.S. Supreme Court for tax cases…taxes are boring compared to national security and deciding if Mr. G.W. Bush was duly elected…but, that’s another story.

So, for the moment, everyone is stuck awaiting the revised decision.

UPDATE: 1/14/10

Ninth Circuit pulls Xilinx decision construing prior regs to require cost-sharing of stock options

In a one-sentence order, the Ninth Circuit has without comment withdrawn its May 27, 2009, Xilinx decision. In that withdrawn decision, involving asserted deficiencies and penalties over a 4-year period of more than $126 million, the Court of Appeals for the Ninth Circuit had reversed the Tax Court and accepted IRS's Code Sec. 482 treatment under prior regs of employee stock options under a taxpayer's cost-sharing arrangement with its subsidiary. The Tax Court had held in Xilinx Inc. and Subsidiaries, (2005) 125 TC No. 4 that the regs did not authorize IRS to require the taxpayers to share the spread or the grant date value relating to employee stock options under the agreement.

Current legal motions in the Xilinx case regarding the allocation of employee stock option expense.

Clearly, Xilinx does not want to have to appeal to the U.S. Supreme Court, as most appeals to the U.S. Supreme Court of “tax” cases are denied a hearing, and therefore, the Appeals Court decision will become final. So Xilinx is doing its best to get a rehearing of some sort (En Banc Review) at the Appeals Court level. The below are great reading of the technical arguments and the views of the corporate tax community on these issues.

Xilinx Rehearing Petition
Xilinx - FILED Motion for Leave to Reply
Xilinx - FILED Reply Supporting Petition
DOJ Opposition to Xilinx Motion for Reply

For the full story on the Xilinx case, please see our prior blog at:

http://community.groco.com/cs/blogs/international_tax_blog/archive/2009/06/04/32437.aspx

Please call Ron Cohen with any questions or comments at (510) 797-8661 x237.