The IRS announced that it will not acquiesce in the result or the reasoning of the Tax Court's decision in Veritas Software Corp. v. Commissioner, a case that addressed important issues regarding the valuation of cost-sharing buy-ins. The IRS's issuance of the Action on Decision (AOD) announcing its nonacquiescence in the result of the case means the IRS may continue to assert the same arguments it raised in Veritas in buy-in disputes with other taxpayers.
The Tax Court's decision in Veritas represented a significant loss for the IRS in its attempt to value buy-in payments for taxable years governed by pre-2009 regulations based on an application of the "income method," which is one of the methods prescribed in new regulations issued on December 31, 2008. The IRS's theory in Veritas was that a buy-in transaction was "akin" to a sale, and should be valued based on the net present value of a perpetual income stream. The Tax Court rejected that premise. For an in-depth discussion of the Tax Court's decision in Veritas, please refer to our prior PKN, "Significant IRS loss in cost-sharing buy-in Tax Court decision," dated December 14, 2009.