Final cost-sharing regulations provide additional guidance on significant issues

December 2011


The IRS on December 16 issued final cost-sharing regulations (the Final Regulations) under section 482, providing guidance on the determination of and compensation for the economic contributions made by controlled participants in connection with a cost-sharing agreement (CSA) under the arm’s-length standard. The 202-page Final Regulations largely continue the guidance set forth in the temporary regulations issues December 31, 2008 (the 2008 Temporary Regulations). Subsequently, on December 19, the IRS issued additional cost-sharing rules in the form of temporary regulations (the 2011 Temporary Regulations), addressing the evaluation of discount rates in applying the income method. At the same time, the IRS also issued proposed regulations (the 2011 Proposed Regulations), which propose to include a new specified application of the income method based on the use of the "differential income stream."

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