On May 2, 2025, McKesson Corporation filed a tax refund lawsuit related to a Transfer Pricing rule against the U.S. government (McKesson Corp. and Subsidiaries v. United States, No. 3:25-cv-01102, Northern District of Texas), seeking a refund of approximately US$10 million in taxes, plus applicable interest, resulting from the inclusion of stock-based compensation in the shared costs for the fiscal years ending in March 2007 and March 2012. The litigation revives a debate that many believed had been settled following the Altera case: whether stock-based compensation (SBC) must be included in the cost-sharing pool between related parties under a Cost Sharing Arrangement (CSA).
The origin of the dispute: a rule that McKesson considers invalid
The IRS required McKesson to include amounts related to stock-based compensation within the cost-sharing funds of its CSAs with foreign affiliates, based solely on a regulation issued under Section 482 of the Internal Revenue Code (the “SBC Rule,” contained in Treasury Reg. § 1.482-7). McKesson argues that this rule is invalid on two grounds: first, because it exceeds the authority delegated to the Treasury under Section 482; second, because its issuance failed to comply with the procedural requirements of the Administrative Procedure Act (APA). The company further contends that requiring the sharing of stock-based compensation between related parties is inconsistent with the arm’s-length principle, since independent parties would not share such costs in an actual transaction.
Why This Debate Has Already Been Fought Before: The Altera Case
The validity of the SBC Rule was already extensively litigated in Altera Corp. v. Commissioner, where the Tax Court initially ruled in favor of the taxpayer—a decision that the Ninth Circuit Court of Appeals reversed in 2019, upholding the Treasury’s authority to require that stock-based compensation be shared in CSAs. McKesson is now raising additional arguments—including procedural invalidity under the APA and the impact of the Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo (2024), which eliminated automatic judicial deference to federal agency regulations—in an attempt to secure an outcome different from that of Altera.
The government’s position and the current status of the litigation
On June 5, 2026, the U.S. government filed its brief in opposition, arguing that the regulation falls “well within the bounds” of the statute, and that Section 482 does not require the IRS to rely exclusively on comparable arm’s-length transactions to determine an arm’s-length result—the Treasury would have broad authority to define that result even when no actual comparables exist in the market, precisely because independent parties do not share equity compensation. In support of its position, the government cited both the Ninth Circuit’s ruling in Altera and a more recent decision by the Tax Court in Facebook, Inc. v. Commissioner (2025), and argued that Loper Bright does not undermine the regulation but rather reaffirms Congress’s ability to delegate discretionary authority to agencies. A relevant procedural note: the government withdrew its defense based on the six-year statute of limitations, allowing the case to proceed directly to the merits of the regulatory dispute.
Why This Case Matters Beyond McKesson
Any multinational group with research and development centers shared between the United States and its subsidiaries—a common model among U.S. parent companies with software or pharmaceutical development centers in Latin America—finds in this litigation a direct reference to how, in 2026, the obligation to share equity compensation within their cost-sharing agreements is being debated. While the Altera ruling remains the binding precedent, McKesson represents the most recent and best-articulated attempt to overturn it through a different avenue, drawing on the new post-Loper Bright landscape.
At TPC Group, we are monitoring the progress of this litigation and working with our clients—who have cost-sharing agreements between U.S. parent companies and subsidiaries in Latin America—to assess how to properly structure and document the treatment of equity-based compensation within their Transfer Pricing policies.
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