IRS Issues Long-Awaited Temporary Regulations on Cost-Sharing Arrangements

The members of the Baker & McKenzie North American Transfer Pricing Group provide an overview of the long-awaited temporary cost-sharing regulations. This team includes Phil Carmichael (New York), Brian A. Cromwell (Palo Alto), Holly Glenn (Washington DC), Robert S. Kirschenbaum (Washington DC), Gregg D. Lemein (Chicago), Marc M. Levey (New York), Holly K. McClellan (Chicago), Margreet G. Nijhof (Amsterdam), John M. Peterson (Palo Alto), and Salim R. Rahim (Washington DC). On 31 December 2008, the United States Treasury issued temporary regulations under Internal Revenue Code section 482 related to cost-sharing arrangements (CSAs). These long-awaited regulations are immediately effective and substantially change the landscape for CSAs as a result of the valuation concepts and methods applicable to contributions of resources, capabilities, and rights to the CSAs. The temporary regulations do, however, provide important grandfather rules for existing CSAs that are less draconian than the transition rules of the 2005 proposed cost-sharing regulations. Under these grandfather rules, taxpayers with pre-existing CSAs must take certain compliance steps during 2009 to maintain the qualifi cation of their CSA.