On March 18, 2025, the NAM filed an amicus brief urging the 11th Circuit to reverse the Tax Court’s decision allowing the IRS to impose billions of dollars in tax penalties on Coca Cola after capriciously changing position regarding how to calculate the company’s taxable income. This tax dispute concerns the royalties that Coca-Cola’s supply points (i.e. the entities that manufacture beverage concentrates and sell and distribute concentrate to bottlers) pay the U.S. parent to license intellectual property and the resulting allocation of profits between Coca-Cola and the supply points. The Tax Court endorsed the IRS’s view that it could increase the company’s taxable income from its intellectual property to reflect a hypothetical arms-length transaction even though the IRS had previously agreed to the company’s method of calculating income and foreign law precluded the company from receiving the arms-length price in the transaction.
We argue that the IRS acted arbitrarily and capriciously by failing to reasonably explain its change in position regarding the company’s method of calculating income. Further, in determining that foreign law did not preclude the company from receiving the arms-length price in the transaction, the IRS relied on a rule promulgating without adherence to the Administrative Procedure Act. All manufacturers have an interest in the fair and predictable application of tax law.