The Internal Revenue Service won a court case closely watched by technology companies, as an appeals court upheld a regulation governing how corporations divide expenses between their domestic and foreign operations.
Tuesday’s ruling by a panel of the Ninth Circuit Court of Appeals in San Francisco represents a loss for Intel Corp. INTC, -0.25% , whose Altera subsidiary challenged the regulation when it was a separate company. Tech companies had billions of dollars at stake in the case because the rules at issue determine where they report some deductions.
The U.S. Tax Court, which handles disputes between taxpayers and the IRS, ruled in favor of Intel. The IRS appealed the decision. “We conclude that the regulations withstand scrutiny under general administrative law principles, and we therefore reverse the decision of the Tax Court,” wrote Chief Judge Sidney Thomas.
The case involved what’s known as share-based compensation and where it should be deducted as a business expense. The IRS wrote a regulation that required companies to deduct more of it abroad as opposed to deducting it in the U.S.
An expanded version of this report appears on WSJ.com.
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