Section 482; Methods To Determine Taxable Income in Connection With a Cost Sharing Arrangement; Correction, 3606 [2012-895]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 77, Number 16 (Wednesday, January 25, 2012)]
[Rules and Regulations]
[Page 3606]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-895]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9568]
RIN 1545-BI47


Section 482; Methods To Determine Taxable Income in Connection 
With a Cost Sharing Arrangement; Correction

AGENCY: Internal Revenue Service (IRS).

ACTION: Correcting amendment.

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SUMMARY: This document contains corrections to final regulations (TD 
9568), which were published in the Federal Register on Thursday, 
December 22, 2011 (76 FR 80082), Relating to section 482 and methods to 
determine taxable income in connection with a cost sharing arrangement.

DATES: Effective January 25, 2012, and applicable beginning December 
22, 2011.

FOR FURTHER INFORMATION CONTACT: Joseph L. Tobin at (202) 435-5265 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations that are the subject of these corrections are 
under section 482 of the Internal Revenue Code.

Need for Correction

    As published, final regulations (TD 9568), contains errors which 
may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

    Accordingly, 26 CFR Parts 1 and 301 are corrected by making the 
following correcting amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *

PART 1--[CORRECTED]

0
Par. 2. Section 1.482-1 is amended by revising the first and second 
sentences of paragraph (b)(2)(i) to read as follows:


Sec.  1.482-1  Allocation of income and deductions among taxpayers.

* * * * *
    (b) * * *
    (2) * * *
    (i) Methods. Sections 1.482-2 through 1.482-7 and 1.482-9 provide 
specific methods to be used to evaluate whether transactions between or 
among members of the controlled group satisfy the arm's length 
standard, and if they do not, to determine the arm's length result. 
This section provides general principles applicable in determining 
arm's length results of such controlled transactions, but do not 
provide methods, for which reference must be made to those other 
sections in accordance with paragraphs (b)(2)(ii) and (iii) of this 
section. * * *
* * * * *
    Par. 3. Section 1.482-7 is amended by:

0
1. Revising the fourth sentence of paragraph (c)(3).
0
2. Revising the fifth sentence of paragraph (g)(2)(v)(C), Example, 
paragraph (i).
0
3. Revising the first sentence of paragraph (g)(2)(v)(C), Example, 
paragraph (ii).
0
4. Revising paragraph (k)(2)(ii)(3).
    The revisions read as follows:


Sec.  1.482-7  Methods to determine taxable income in connection with a 
cost sharing arrangement.

* * * * *
    (c) * * *
    (3) * * * If the conduct is consistent with different, economically 
equivalent types of transactions then the controlled participants may 
designate the PCT as being any of such types of transactions. * * *
* * * * *
    (g) * * *
    (2) * * *
    (v) * * *
    (C) * * *

    Example.  (i) * * * Specifically, the Commissioner compares P's 
anticipated post-tax discounted present value of the financial 
projections under the CSA (taking into account S's PCT payment of 5% 
of its sale of product Y) with P's anticipated post-tax discounted 
present value of the financial projections under a reasonably 
available licensing alternative that consists of developing 
intangible X on its own and then licensing X to S or to an 
uncontrolled party similar to S.

* * * * *
    (ii) The Commissioner determines that, as between the two 
scenarios, all of the components of P's anticipated financial flows are 
identical, except for the CST and PCT Payments under the CSA, compared 
to the licensing payments under the licensing alternative. * * *
* * * * *
    (3) * * *
    (viii) * * *

    Example 3.  * * * FS determines that the discount rate that 
would be applied to determine the present value of income and costs 
attributable to its participation in the licensing alternative would 
be 12.5% as compared to the 15% discount rate that would be 
applicable in determining the present value of the net income 
attributable to its participation in the CSA (reflecting the 
increased risk borne by FS in bearing a share of the R & D costs in 
the cost sharing alternative). * * *

* * * * *
    (k) * * *
    (2) * * *
    (ii) * * *
    (3) Any further development of intangibles already developed under 
the CSA or of specified applications of such intangible which has been 
removed from the IDA (see paragraphs (d)(1)(ii) and (j)(1)(i) of this 
section for the definitions of reasonably anticipated cost shared 
intangible and cost shared intangible) and the steps (including any 
accounting classifications and allocations) taken to implement such 
removal;
* * * * *

Guy R. Traynor,
Federal Register Liaison, Legal Processing Division, Publication & 
Regulation Branch (Procedure and Administration).
[FR Doc. 2012-895 Filed 1-24-12; 8:45 am]
BILLING CODE 4830-01-P