U.S. taxpayers that reported Cost Sharing Arrangements (CSAs) on tax returns which contain stock-based compensation under IRC Section 482 should consider filing amended tax returns for prior tax years. This recommendation is based upon a July 27, 2015 Tax Court case, Altera Corp. v. Commissioner, where the court held that the tax regulations requiring stock-based compensation to be included in CSAs are invalid.
The inclusion of stock-based compensation in CSAs has led to additional U.S. taxes plus the use of net operating losses and tax credits for entities.
U.S. entities that followed the 2003 tax requirements about CSAs may be eligible for major tax refunds. This is the case if amended returns are filed for prior tax years within 3 years of the date of filing the tax return or 2 years from the date of tax payment. Whichever is later. The 3 year period may be longer under certain circumstances if the statute of limitation for prior years was extended.
The Altera case can also provide a favorable result for tax provision purposes. Especially if tax reserves were established as a percentage of CSAs reported on the original tax return. You should consider the advice of a trained tax professional to enjoy the benefit from this recent Tax Court decision.