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Worldwide Tax Daily Quotes Neal Kochman: Amazon U.S. Tax Court Trial Gets Underway

November 3, 2014, Worldwide Tax Daily

Worldwide Tax Daily quoted Neal M. Kochman regarding the U.S. Tax Court trial between Amazon and the IRS, which offers the IRS a second chance to defend its use of the income method for valuing platform contribution since its defeat in Veritas Software Corp. v. Commissioner. For the complete article, please visit Worldwide Tax Daily's website.. For the complete article, please visit Worldwide Tax Daily's website.

Excerpt taken from the article "Amazon U.S. Tax Court Trial Gets Underway" by David D. Steward for Worldwide Tax Daily.

Neal Kochman of Caplin & Drysdale said that as a case under the pre-2009 cost-sharing regs, the reach of the Amazon decision will be limited. Kochman noted that after Veritas, many pre-2009 cost-sharing cases went to IRS Appeals, where they would likely have been resolved on terms favorable to the taxpayer.

"There are some things that came out of the Veritas case that the IRS is obviously not happy with, and it is very possible that the IRS sees this as a chance to essentially re-litigate that case," Kochman said. However, he noted that to the extent that the facts differ, the case may end in a different result even though the principle may be the same.

Kochman said the only potential benefit to the IRS from winning the Amazon case is it would likely bolster the government's position in the current cost-sharing regulations (reg. section 1.482-7) and the valuation of intangibles. He suggested that the court may offer a glimpse of its view of the perpetual value of intangibles that the IRS has proposed.

"If they go with the limited life, that does hurt the IRS's and Treasury's view that platform intangibles kind of have unlimited life for purposes of developing future intangibles," Kochman said.

Kochman suggested that other areas the court could address are the appropriateness of aggregation of the intangibles and the income method. He noted that while the income method is included in the 2009 cost-sharing regulations, it remains an "unspecified method" under reg. section 1.482-4 on transfers of intangibles.

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