Xilinx Inc. and Subsidiaries - Page 2


                    1.  Held:  R’s allocation is contrary to the                      
               arm’s-length standard mandated by sec. 1.482-1(b),                     
               Income Tax Regs., because uncontrolled parties would                   
               not allocate the spread or the grant date value                        
               relating to employee stock options.                                    
                    2.  Held, further,  P’s allocation satisfies the arm’s-           
               length standard mandated by sec. 1.482-1, Income Tax Regs.             
               Kenneth B. Clark, Ronald B. Schrotenboer, William F. Colgin,           
          Tyler A. Baker, Jaclyn J. Pampel, Anthony D. Cipriano, and Allen            
          Madison, for petitioners.                                                   
               David P. Fuller, Jeffrey A. Hatfield, Bryce A. Kranzthor,              
          Lloyd T. Silberzweig, Kendall Williams, David N. Bowen, John E.             
          Hinding, and Paul K. Webb, for respondent.                                  
               FOLEY, Judge:  Respondent determined deficiencies in the               
          amounts of $24,653,660, $25,930,531, $27,857,516, and $27,243,975           
          and section 6662(a) accuracy-related penalties in the amounts of            
          $4,935,813, $5,189,389, $5,573,412, and $5,448,795 relating to              
          petitioners’ 1996,1 1997, 1998, and 1999 Federal income taxes,              
          respectively.  The issues for decision are whether:  (1)                    
          Petitioner and its foreign subsidiary must share the cost, if               
          any, of stock options petitioner issued to research and                     
          development employees, (2) respondent’s allocations meet the                
          arm’s-length requirement set forth in section 1.482-1(b), Income            
          Tax Regs., and (3) petitioners are liable for section 6662(a)               
          accuracy-related penalties.                                                 

               1 Pursuant to the parties’ Apr. 4, 2002, stipulation of                
          settled issues, the 1996 taxable year is no longer in issue.                

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