Monday, March 22, 2010

Xilinx v. CIR (9th Cir. - March 22, 2010)

Uh oh. It's an opinion by Judge Noonan. A concurrence by Judge Fisher. And a dissent by Judge Reinhardt. Look out! Here comes the battle of the century. High stakes. Critical principles. Vital constitutional liberties involving core ideological disputes. It's all about . . .

"[W]hether, under the tax regulations in effect during tax years 1997, 1998 and 1999, related companies engaged in a joint venture to develop intangible property must include the value of certain stock option compensation one participant gives to its employees in the pool of costs to be shared under a cost sharing agreement, even when companies operating at arm’s length would not do so."

Oh. Never mind.

Nonetheless, though the principles involved may not be critical to the ordinary person, this is actually an interesting opinion to read, if only because it's one of those incredibly rare cases in which a petition for rehearing actually matters and changes the result.

The original opinion, back in 2009, reversed the opinion of the tax court, in an opinion by Judge Fisher joined by Judge Reinhardt. But the petition for rehearing clearly changed Judge Fisher's mind, since a couple of months ago, he withdrew his opinion, and today, Judge Noonan -- who was the author of the original dissent -- writes the majority opinion, which affirms the tax court. With Judge Reinhardt holding fast to his original opinion.

So clearly petitions for rehearing aren't always a total waste of time. Just most of the time.

Plus, just because a PFR might change a judge's mind in a tax case once in a blue moon is not much reason to believe that it'll do so in your run-of-the-mill cases. Tax cases are different. Trust me.

I'll end by quoting the last footnote of Judge Reinhardt's dissent: "I, like Judge Fisher, am less than enthusiastic about the Commissioner’s explanation of how he believes we should resolve this case. His preference is that we find somehow that the arm’s length standard is met by way of the all costs requirement. I must confess that I have difficulty following his reasoning and, like Judge Fisher, am not persuaded by that argument. However, the Commissioner then says that if we still believe that the two provisions are in conflict, we must apply the rule on which Judge Fisher originally relied and on which I continue to rely. I guess I am just not as sensitive as Judge Fisher. Simply because the Commissioner advanced an argument that we reject, but then argued that if we reject it, we should apply the rule that we held applicable in our opinion is hardly a reason for abandoning the rule that we believed to be correct. We can’t expect anyone, let alone the Commissioner of Internal Revenue, to agree completely with everything we say. Rejecting the Commissioner’s first argument leaves us exactly where we were before he advanced it: The two regulations are in conflict, and (as Judge Fisher and I once agreed) that conflict must be resolved by applying the specific regulation rather than the general one."

Too funny. A reminder that judges -- even appellate judges -- are people too.