What’s at Stake in Battle of Intel vs. IRS?

Your Guide to State, Local, Federal, Estate + International Taxation

You may or may not have read the news lately, but there has been a battle between Intel and the IRS which could lead other companies to have big tax “windfalls”. The discrepancy comes from recording and reporting stock-based compensation of U.S. employees.

The IRS argues that foreign subsidiaries of U.S. firms are required to pay their parent company for costs relevant to the foreign part of the business. This is including wages from a U.S. employee that produces a product sold abroad, specifically targeting stock-based compensation.

Intel is clearly taking the opposite side. They argue that all the costs associated with the wages are U.S. costs and therefore, can be deducted against the U.S. high tax bills compared to the smaller tax bills that are abroad.

This small difference isn’t that small on the grand scheme of things. Other technology companies stand to benefit from Intel’s battle if they succeed. Alphabet, Google’s parent company, is one such company. They stand to have a $3.5 billion gain if Intel comes out on top. Microsoft and smaller technology companies have also disclosed an interest in the outcome.

So far, the U.S. Tax Court ruled 15-0 in July agreeing with Intel. The IRS has appealed the case so the wait continues as other technology companies cannot realize any gains until the rule is changed and the outcome presented.

By Christopher Morrison, CPA