125 T.C. No. 4
UNITED STATES TAX COURT
XILINX INC. AND SUBSIDIARIES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
XILINX INC. AND CONSOLIDATED SUBSIDIARIES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 4142-01, 702-03. Filed August 30, 2005.
P entered into a cost-sharing agreement to develop
intangibles with S, its foreign subsidiary. Each party
was required to pay a percentage of the total research
and development costs based on its respective
anticipated benefits from the intangibles. P issued
stock options to its employees performing research and
development. In determining the allocation of costs
pursuant to the agreement, P did not include in
research and development costs any amount related to
the issuance of stock options to, or exercise of stock
options by, its employees. R, in his notices of
deficiency, determined that for cost-sharing purposes,
pursuant to sec. 1.482-7(d), Income Tax Regs., the
spread (i.e., the stock’s market price on the exercise
date over the exercise price) or, in the alternative,
the grant date value, relating to compensatory stock
options, should have been included as a research and
development cost.
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