The Treasury Department and Internal Revenue Service (IRS) released two new sets of cost sharing regulations in December 2011. The first, issued on December 16, 2011, were final regulations governing cost sharing arrangements between related parties. These final regulations closely follow the temporary regulations issued in December 2008 (effective January 5, 2009) with changes and additional examples to clarify a number of technical issues in an application of the income method. The final regulations also address the use of contingent payments to prevent the IRS from proposing adjustments under the commensurate with income rules. Subsequently, temporary and proposed cost sharing rules were issued on December 19, to address the selection of discount rates for the income method and to introduce a new specified method for determining an arm’s length buy-in payment. This new method is referred to as the differential income method, and is a variation of the existing income method.

Related Links:
(a) PwC Washington National Tax Service
(b) BNA Essential (Username & password required)
(c) Skadden Publications