Opinion
28040-14
11-22-2023
EATON CORPORATION AND SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Kathleen Kerrigan, Chief Judge.
This case is not currently calendared for trial. The notice of the deficiency in this case is for tax years 2007-10 (tax years in issue).
Unless otherwise indicated, all section references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times and all Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent filed a Second Amendment to Answer on February 2, 2023. The Second Amendment to Answer addresses penalties for 2007 and 2008. The Second Amendment to Answer states that the Petitioner is collaterally estopped from arguing that its claimed adjustments in the 2007 and 2008, Forms 1120-X, Amended U.S. Corporation Income Tax Return are not section 482 adjustments because the United States Court of Appeal for the Sixth Circuit in Eaton Corp. and Subs. v. Commissioner, 47 F.4th 434 (6th Cir. 2022) aff'g in part, rev'g in part T.C. Memo. 2017-147., previously ruled that self-corrections are section 482 adjustments. For purposes of this case, we agree that self-corrections are section 482 adjustments because of the Sixth Circuit's holding that self-corrections are section 482 adjustments.
The Court granted respondent's Motion for Leave to File Second Amendment to Answer on May 22, 2023.
On May 22, 2023 a conference call was held with the parties to discuss the status of the case. Petitioner raised that its royalty rate charged in connection with an intangible property licensing agreement should be decided by the Court. The parties agree that the royalty rate refers to the price paid or accrued during the tax years in issue for licenses of certain intangibles by Cutler-Hammer Electrical Company (CHEC), a Cayman Island subsidiary of petitioner, from Eaton Electrical Inc. (EEI), petitioner's U.S. subsidiary. The parties agree that the second advanced pricing agreement (APA) effective for tax years 2006-10 does not cover the arm's length royalty amount. The Court ordered seriatim briefs that have been filed to address this issue. On November 15, 2023, a status conference was held in Washington, D.C. The parties appeared and were heard.
The Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. See § 7442; Naftel v. Commissioner, 85 T.C. 527, 529 (1985). Pursuant to section 6213(a) Tax Court jurisdiction is dependent upon the timely filing of a petition for redetermination of a deficient and is limited to the deficiency that is subject of such petition. See Rule 37.
Addressing the royalty rate issue would be providing an advisory opinion because the issue is not in controversy. In the notice of determination, respondent made no determination regarding the standalone royalty income that petitioner should have included in the computations of its taxable income for 2007 through 2010. Since the Court concluded previously that respondents section 482 adjustments are precluded by a valid and binding APA this issue is not before the Court . See Eaton Corp. v. Commissioner, T.C. Memo. 2017-147 (Eaton II) aff'd in part, rev'd in part at 47 F.4th 434 (6th Cir. 2022).
Petitioner conceded the amount of the section 482 primary adjustments that respondent alleged in the Second Amendment to Answer and that are reflected on Forms 1120X for tax years 2007 and 2008. Respondent agrees and will to take into account the amounts of the setoff petitioner claimed on its Forms 1120X for 2007 and 2008 tax years. Consequently, the amount of the setoff is resolved and there is no need to determine the arm's length royalty rate. Upon due consideration and for cause more fully appearing in the transcript of the proceeding, it is
ORDERED that any proposed stipulated decision or motion for entry of decision filed in this case shall be consistent with the above in that the royalty rate does not need to be decided and the setoff amounts have been conceded. It is further
ORDERED that the parties shall, on or before March 29, 2024, file a joint report detailing the then-present status of this case.