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August 24, 2005
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TREASURY AND IRS ANNOUNCE PROPOSED REGULATIONS REGARDING COST SHARING ARRANGEMENTS UNDER SECTION 482
Today, the Treasury Department and IRS announced proposed regulations that provide guidance regarding methods under section 482 to determine taxable income in connection with a cost sharing arrangement.
Experience in the administration of the existing cost sharing rules has demonstrated the need for additional guidance to improve compliance with, and administration of, those rules. In amending section 482 in 1986, Congress indicated that while it did not intend to preclude the use of bona fide research and development cost sharing arrangements, it expected the results of those arrangements to be consistent with the commensurate with income standard. The proposed regulations provide additional guidance to ensure that Congressional intent is fulfilled by requiring that cost sharing arrangements between controlled taxpayers produce results consistent with the arm's length standard. In other words, cost sharing arrangements must produce results consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances.
The proposed regulations generally are proposed to be effective on the date of publication of the proposed regulations as final regulations in the Federal Register. Transition rules are provided which, if certain conditions are met, allow existing cost sharing arrangements to conform to the new rules with certain modifications, as well as rules for terminating such grandfather status. The Treasury Department and IRS request comments on the rules contained in the proposed regulations and any additional guidance that should be provided in the final regulations.
REPORTS