-40-
parties’ expert testimony, unrelated parties would treat ESOs in
a manner consistent with the IVM, rather than the FVM.18
Accordingly, petitioners’ allocation relating to its ESOs
satisfies the arm’s-length standard in section 1.482-1(b), Income
Tax Regs.
IV. Section 6662(a) Penalty
Section 6662(a) imposes a 20-percent accuracy-related
penalty on the portion of an underpayment of tax which is
attributable to a taxpayer’s negligence or disregard of rules or
regulations. Sec. 6662(b)(1). Because we reject respondent’s
determinations, petitioners are not liable for section 6662(a)
penalties.
V. Conclusion
The express language in section 1.482-1(a)(1), Income Tax
Regs., establishes that the arm’s-length standard applies to
section 1.482-7, Income Tax Regs., for purposes of determining
appropriate cost allocations. Because unrelated parties would
not share the spread or the grant date value, respondent’s
imposition of such a requirement is inconsistent with section
17(...continued)
whether it could be reliably measured.
18 The parties stipulated that “Immediately after SFAS 123
became effective, the vast majority of public companies chose to
continue to follow the intrinsic value method of APB 25.” No
evidence, however, was presented concerning the companies who
used the FVM.
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011