Roger J. Jones & Andrew R. Roberson (both of Latham & Watkins, Chicago) have published To What Extent Can Treasury Abandon or Overrule INDOPCO?, 127 Tax Notes 547 (May 3, 2010). Here is the Conclusion:

Whether Brand X authorizes Treasury to overrule or disregard Supreme Court or other judicial precedent is the subject of significant dispute. Not surprisingly, the government is seeking a broad application of Brand X which would allow it to abandon or overrule such Supreme Court decisions as INDOPCO and Colony. This is clearly a controversial issue. Until the Supreme Court revisits the issue, there will continue to be much uncertainty.

The stakes are high — for example, termination fee provisions are found in most merger agreements, are generally calculated as a percentage of transaction value (historically 3%), and have exceeded $1 billion in some cases. There are many pending cases tied in part to the validity of the basis adjustment regulations. Taxpayers and their attorneys will need to explore all options when dealing with administrative guidance that may conflict with existing judicial precedent.

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