IRS Issues Revised Cost Sharing Regulations

Excerpt from WorldTrade Executive's Practical US/International Tax Strategies by David G. Noren, Paul Dau, Roderick K. Donnelly and John G. Ryan (McDermott Will & Emery)

Taxpayers that have relied on cost sharing arrangements under the 1996 regulations must consider whether and how such reliance will be viable in the future under the new regulations.

On December 31, 2008, the U.S. Treasury Department and the Internal Revenue Service (IRS) issued temporary regulations making fundamental changes to the 1996 rules governing qualified cost sharing arrangements (CSAs). These changes are relevant not only to taxpayers that rely on CSAs, but also to taxpayers that have never implemented a CSA, as Treasury and the IRS have provided for application of the principles of the new regulations to intangible development arrangements in general.

The new regulations are based on regulations proposed in 2005, which have been the subject of considerable discussion and controversy. The new regulations are generally effective as of January 5, 2009, subject to limited transition relief for certain preexisting CSAs. The new regulations also were issued in proposed form and will be the subject of a public hearing scheduled for April 21, 2009.

Read More on How Buy-in Payments Will Be Affected