March 06, 1992
IRS & Apple to Arbitrate Tax Case
WASHINGTON - The Office of Chief Counsel for the Internal
Revenue Service announced today that it has reached its first
agreement to enter into binding arbitration to resolve an
intercompany pricing issue.
The agreement was reached with Apple Computer, Inc., with
respect to its 1984, 1985 and 1986 tax years. The case is currently
docketed for litigation before Judge Julian I. Jacobs in the United
States Tax Court. Binding arbitration of factual issues is an
alternative to traditional Tax Court litigation. This procedure is
provided for in the Tax Court Rules of Practice and Procedure.
Both Chief Judge Arthur L. Nims and IRS Chief Counsel Hap
Shashy have advocated the use of arbitration in intercompany pricing
cases. Shashy commented, "I'm convinced that the use of arbitration
can be an effective vehicle for the resolution of intercompany
In the Apple case, arbitration proceedings will be conducted
before a three member panel consisting of a retired federal judge,
an economist and an industry expert. Under the arbitration format
selected by the parties -- known as baseball arbitration -- each
party submits a dollar amount representing their computation of the
correct intercompany price. They then present the panel with data to
support the appropriateness of these amounts.
The panel evaluates the facts and ultimately selects one of the
two amounts presented. The panel is not allowed to substitute a
figure. The panel then submits their findings to the Tax Court for
Shashy praised Judges Nims and Jacobs for their efforts to
bring the parties to agreement. He also stated, "I commend Apple and
its representatives as well as the Chief Counsel attorneys for the
hard work and cooperation that led to the agreement to arbitrate."
Commenting on the format, Eric D. Ryan, Director of Taxes for
Apple said, "The baseball arbitration process should help us achieve
a lot of the benefits of arbitration. In litigation, both parties
spend inordinate amounts of time and effort attacking the position
of the other side. Much of the activity ahead of the trial is pure
lawyering -- motions, cross-motions, etc. -- which adds almost
nothing to determining what the right answer should be. And the Tax
Court is often left with little choice but to craft a third position
from boxcars of exhibits and testimony. We eliminate most all of
these problems with the baseball arbitration process."
The preliminary aspects of the arbitration will begin almost
immediately after the Tax Court approves the agreement. The
arbitration hearing is scheduled for July of 1993 with a decision
expected no later than December of 1993.
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