Amazon.com v. Commissioner of Internal Revenue

Amazon.com (Amazon) (plaintiff) restructured its business to have some income from entities based in the United States go instead to entities based in Europe. Tax law required the European entities to pay Amazon for the use of its intangible assets. Amazon reported receiving a payment of $255 million for its intangible assets. Amazon calculated the amount by factoring in specific intangible assets that it transferred to the European entities, such as trademarks and website technology. The Commissioner of Internal Revenue (the Commissioner) (defendant) rejected Amazon’s accounting and performed his own valuation of the intangible assets, determining that the intangible assets were worth $3.6 billion. In his calculation, the Commissioner factored in all intangible assets that Amazon could not separate from its business, including the value of employee education and experience, the company’s goodwill, and other business attributes. The Commissioner’s decision to include these intangible assets was based on Treasury Regulation § 1.482-4(b) (the treasury regulation), which defined intangible assets and included a catchall provision for items similar to those listed in the treasury regulation that derive their value from intangible properties. Amazon petitioned the United States Tax Court for a redetermination, and the tax court ruled in favor of Amazon. The Commissioner appealed.