                FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


AMAZON.COM, INC. & SUBSIDIARIES,         No. 17-72922
              Petitioner-Appellee,
                                           Tax Ct. No.
                 v.                         31197-12

COMMISSIONER OF INTERNAL
REVENUE,                                   OPINION
            Respondent-Appellant.

             Appeal from a Decision of the
               United States Tax Court

          Argued and Submitted April 12, 2019
                  Seattle, Washington

                 Filed August 16, 2019

   Before: William A. Fletcher, Consuelo M. Callahan,
          and Morgan Christen, Circuit Judges.

               Opinion by Judge Callahan
2                      AMAZON.COM V. CIR

                           SUMMARY *


                                 Tax

    The panel affirmed the Tax Court’s decision on a petition
for redetermination of federal income tax deficiencies, in an
appeal involving the regulatory definition of intangible
assets and the method of their valuation in a cost-sharing
arrangement.

    In the course of restructuring its European businesses in
a way that would shift a substantial amount of income from
U.S.-based entities to the European subsidiaries, appellee
Amazon.com, Inc. entered into a cost sharing arrangement
in which a holding company for the European subsidiaries
made a “buy-in” payment for Amazon’s assets that met the
regulatory definition of an “intangible.” See 26 U.S.C.
§ 482. Tax regulations required that the buy-in payment
reflect the fair market value of Amazon’s pre-existing
intangibles. After the Commissioner of Internal Revenue
concluded that the buy-in payment had not been determined
at arm’s length in accordance with the transfer pricing
regulations, the Internal Revenue Service performed its own
calculation, and Amazon filed a petition in the Tax Court
challenging that valuation.

    At issue is the correct method for valuing the pre-
existing intangibles under the then-applicable transfer
pricing regulations. The Commissioner sought to include all
intangible assets of value, including “residual-business
assets” such as Amazon’s culture of innovcation, the value

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
                   AMAZON.COM V. CIR                       3

of workforce in place, going concern value, goodwill, and
growth options. The panel concluded that the definition of
“intangible” does not include residual-business assets, and
that the definition is limited to independently transferrable
assets.


                        COUNSEL

Judith A. Hagley (argued), Gilbert S. Rothenberg, and
Arthur T. Catterall, Attorneys, Tax Division; Richard E.
Zuckerman, Principal Deputy Assistant Attorney General;
Travis A. Greaves, Deputy Assistant Attorney General; Tax
Division, United States Department of Justice, Washington,
D.C.; for Respondent-Appellant.

Carter G. Phillips (argued), Joseph R. Guerra, and Matthew
D. Lerner, Sidley Austin LLP, Washington, D.C.; David R.
Carpenter, Sidley Austin LLP, Los Angeles, California; for
Petitioner-Appellee.

Christopher J. Walker, The Ohio State University Moritz
College of Law, Columbus, Ohio; Steven P. Lehotsky, U.S.
Chamber Litigation Center, Washington, D.C.; for Amicus
Curiae The Chamber of Commerce of the United States of
America.

Elizabeth J. Stevens, Caplin & Drysdale, Chartered,
Washington, D.C., for Amici Curiae H. David Rosenbloom
and John P. Steines, Jr.

Alice E. Loughran, Charles G. Cole, Michael C. Durst, and
Robert J. Kovacev, Steptoe & Johnson LLP, Washington
D.C., for Amici Curiae Semiconductor Industry Association,
Information Technology Industry Council, National Foreign
4                  AMAZON.COM V. CIR

Trade Council, Software Finance and Tax Executives
Council, and TechNet.

A. Duane Webber, George M. Clarke, and Phillip J. Taylor,
Baker & McKenzie LLP, Washington, D.C.; Mark A. Oates,
Susan E. Ryba, and Cameron C. Reilly, Baker & McKenzie
LLP, Chicago, Illinois; Scott H. Frewing, Baker &
McKenzie LLP, Palo Alto, California; for Amici Curiae
Silicon Valley Tax Directors Group, Agilent Technologies,
Inc., Cisco Systems, Inc., Dell Technologies Inc., Dolby
Laboratories, Inc., Expedia Group, Inc., FireEye, Inc.,
Genesys Int’l Corp. Ltd., Informatica, Inc., NetApp, Inc.,
Palo Alto Networks, Inc., Surveymonkey Inc., and
VMware, Inc.


                         OPINION

CALLAHAN, Circuit Judge:

    Appellee, Amazon.com, Inc., is a U.S.-based online
retailer with highly profitable intangible assets. In 2005 and
2006, Amazon restructured its European businesses in a way
that would shift a substantial amount of its income from
U.S.-based entities to newly created European subsidiaries.
Because the restructuring would allow the European entities
to generate income using Amazon’s pre-existing intangible
assets developed in the United States, the tax code and
corresponding regulations required that the European
entities compensate Amazon for the use of assets that meet
the regulatory definition of an “intangible.”

    The compensation was provided through a cost sharing
arrangement, whereby Amazon and a holding company for
the European subsidiaries would be treated as co-owners of
                   AMAZON.COM V. CIR                        5

the intangibles. Under the arrangement, the holding
company was required to make a “buy-in” payment for the
pre-existing intangibles Amazon contributed to the
arrangement and to make cost sharing payments going
forward for its share of future research and development
(R&D) efforts. The buy-in payment was taxable income to
Amazon, and the holding company’s cost sharing payments
would reduce Amazon’s U.S. tax deductions for R&D costs.

     To guard against manipulation by jointly controlled
entities, the regulations require that the buy-in payment
reflect the fair market value of the pre-existing intangibles
made available under a cost sharing arrangement. Amazon
initially reported a buy-in payment of about $255 million.
Appellant, the Commissioner of Internal Revenue,
concluded that the buy-in payment had not been determined
at arm’s length in accordance with the transfer pricing
regulations, so the IRS performed its own calculation,
valuing the buy-in at about $3.6 billion. Amazon filed a
petition in the United States Tax Court challenging the IRS’s
valuation.

     In the tax court proceedings, Amazon and the
Commissioner offered competing methods for valuing
Amazon’s pre-existing intangibles. There was a key
difference between the parties’ respective approaches.
Amazon’s methodology isolated and valued only the
specific intangible assets that it transferred to the European
holding company under the cost sharing arrangement,
including website technology, trademarks, and customer
lists. The Commissioner’s methodology essentially valued
the entire European business, minus pre-existing tangible
assets. That method necessarily swept into the calculation
all contributions of value, including those that are more
nebulous and inseparable from the business itself, like the
6                       AMAZON.COM V. CIR

value of employees’ experience, education, and training
(known as “workforce in place”), going concern value,
goodwill, and other unique business attributes and
expectancies (which the parties refer to as “growth
options”). The tax court sided primarily with Amazon, and
the Commissioner appealed.

    This case requires us to interpret the meaning of an
“intangible” in the applicable (but now outdated) transfer
pricing regulations. 1 The case turns on whether, as the
Commissioner argues, the regulatory definition is broad
enough to include all intangible assets of value, even the
more nebulous ones that the Commissioner refers to as
“residual-business assets” (i.e., Amazon’s culture of
innovation, the value of workforce in place, going concern
value, goodwill, and growth options). We conclude that the
definition does not include residual-business assets.
Although the language of the definition is ambiguous, the
drafting history of the regulations shows that “intangible”
was understood to be limited to independently transferrable
assets. We thus affirm.




    1
      This case is governed by regulations promulgated in 1994 and
1995. In 2009, more than three years after the tax years at issue here, the
Department of Treasury issued temporary regulations broadening the
scope of contributions for which compensation must be made as part of
the buy-in payment. See 74 Fed. Reg. 340 (Jan. 5, 2009). In 2017,
Congress amended the definition of “intangible property” in 26 U.S.C.
§ 936(h)(3)(B) (which is incorporated by reference in 26 U.S.C. § 482).
Tax Cuts and Jobs Act of 2017, Pub. L. 115-97, § 14221(a), 131 Stat.
2054, 2218 (2017). If this case were governed by the 2009 regulations
or by the 2017 statutory amendment, there is no doubt the
Commissioner’s position would be correct.
                      AMAZON.COM V. CIR                             7

                                  I.

    Before summarizing Amazon’s corporate restructuring
and the procedural history of this case, we first provide an
overview of the statutory and regulatory framework for
transfer pricing.

                                 A.

    When a taxpayer sells or licenses its property, including
intangible assets, to another entity, the purchase price or
license royalty is taxable income. Often, such transactions
occur between entities “owned or controlled directly or
indirectly by the same interests.” 26 U.S.C. § 482. 2 The
parties in a controlled transaction are in a position to
potentially manipulate the terms of the transaction to
minimize taxable income artificially. But section 482 gives
the Department of the Treasury the power to reallocate the
dollar figures of such controlled transactions if necessary “to
prevent evasion of taxes or clearly to reflect the income of”
a taxpayer. Id.; see also Comm’r v. First Sec. Bank of Utah,
N.A., 405 U.S. 394, 400 (1972) (“[Section] 482 is designed
to prevent ‘artificial shifting, milking, or distorting of the
true net incomes of commonly controlled enterprises.’”
(quoting B. Bittker & J. Eustice, Federal Income Taxation of
Corporations and Shareholders p. 15–21 (3d ed. 1971)).

    The implementing regulations state that “[t]he purpose
of section 482 is to ensure that taxpayers clearly reflect
income attributable to controlled transactions, and to prevent
the avoidance of taxes with respect to such transactions.”

    2
       Unless otherwise indicated, references to section 482 of the
Internal Revenue Code and the implementing regulations are to the
versions in effect during the tax years at issue here (2005 and 2006).
8                   AMAZON.COM V. CIR

Treas. Reg. § 1.482‑1(a)(1).          A reallocation under
section 482 and the implementing regulations is intended to
“place[] a controlled taxpayer on a tax parity with an
uncontrolled taxpayer by determining the true taxable
income of the controlled taxpayer.” Id. The true taxable
income is determined as if the parties to the controlled
transaction had conducted their affairs in the manner of
unrelated parties “dealing at arm’s length.” Treas. Reg.
§ 1.482‑1(b)(1). The “arm’s length” standard is met “if the
results of the transaction are consistent with the results that
would have been realized if uncontrolled taxpayers had
engaged in the same transaction under the same
circumstances.” Id.

    The key regulations were promulgated in 1994 and 1995.
The regulations divide property into two categories: tangible
property (Treas. Reg. § 1.482‑3) and intangible property
(Treas. Reg. § 1.482‑4). This case concerns intangible
property. The regulations provide:

       (b) Definition of intangible. For purposes of
       section 482, an intangible is an asset that
       comprises any of the following items and has
       substantial value independent of the services
       of any individual—

           (1) Patents, inventions, formulae,
           processes, designs, patterns, or know-
           how;

           (2) Copyrights and literary, musical, or
           artistic compositions;

           (3) Trademarks, trade names, or brand
           names;
                    AMAZON.COM V. CIR                        9

           (4) Franchises, licenses, or contracts;

           (5) Methods, programs, systems,
           procedures, campaigns, surveys, studies,
           forecasts, estimates, customer lists, or
           technical data; and

           (6) Other similar items. For purposes of
           section 482, an item is considered similar
           to those listed in paragraph (b)(1) through
           (5) of this section if it derives its value not
           from its physical attributes but from its
           intellectual content or other intangible
           properties.

Treas. Reg. § 1.482‑4(b).

    A controlled taxpayer may make its intangibles available
to a foreign affiliate by entering a licensing agreement, under
which the foreign affiliate’s royalty fee is taxable income to
the controlled taxpayer. See generally Treas. Reg. §§ 1.482-
1, 1.482-4. The royalty fee must, of course, reflect the
“arm’s length” value of the license. As new intangibles
continue to be developed, the value of the license changes
and becomes open to dispute for tax purposes on an ongoing
basis.

    As an alternative to licensing, the regulations authorize
jointly controlled entities to enter a cost sharing
arrangement, under which they become co-owners of
intangibles developed as a result of the entities’ joint R&D
10                    AMAZON.COM V. CIR

efforts. See generally Treas. Reg. § 1.482‑7A. 3 This
arrangement provides the taxpayer the benefit of certainty
because, assuming the arrangement satisfies the
requirements of the regulations, new intangibles need not be
valued as they are developed.

    Under the regulations, a subsidiary that enters a cost
sharing arrangement with its parent must make two distinct
payments. First, the subsidiary must make an arm’s length
“buy-in” payment reflecting the value of the pre-existing
intangibles the parent contributes to the arrangement:

         If a controlled participant makes pre-existing
         intangible property in which it owns an
         interest available to other controlled
         participants for purposes of research in the
         intangible development area under a
         qualified cost sharing arrangement, then each
         such other controlled participant must make
         a buy-in payment to the owner.

Treas. Reg. § 1.482‑7A(g)(2). The buy-in payment is
taxable income for the entity contributing the intangibles—
here, Amazon.

    Second, the subsidiary must pay a share of the intangible
development costs (or R&D) “equal to its share of
reasonably anticipated benefits attributable to such
development.” Treas. Reg. § 1.482‑7A(a)(2). If the
controlled taxpayer incurs the lion’s share of the intangible
development costs, the subsidiary is required to make cost

     3
      We follow the parties’ convention of referring to the regulations
on cost sharing arrangements by reference to the numbering as
redesignated in 2009 (i.e., Treas. Reg. § 1.482‑7A).
                   AMAZON.COM V. CIR                       11

sharing payments to reflect its share of the anticipated
benefits. The subsidiary’s cost sharing payments serve to
reduce the deductions the controlled taxpayer can take for
R&D costs (thereby increasing tax liability).

                             B.

    Amazon is an online retailer that began operating in the
United States in 1995. In the late 1990s and early 2000s,
Amazon expanded operations into France, Germany, and the
United Kingdom. Amazon’s business in Europe had a siloed
structure, with separate European subsidiaries independently
operating and managing the business, each subsidiary
having its own website, fulfillment centers, and customer
base. The European subsidiaries licensed the right to use
Amazon’s website technology, customer information, and
marketing intangibles (including trademarks and domain
names).

    To address operational inefficiencies in Europe, in the
early 2000s Amazon investigated options for creating a
centralized European headquarters. Amazon ultimately
located its new headquarters in Luxembourg, which offered
a central location, the lowest value-added tax rate in Europe,
and a relatively low corporate tax rate. Beginning in 2004,
Amazon undertook a series of transactions to implement its
plan for centralizing business operations in Europe.

    Amazon formed Amazon Europe Holding Technologies
SCS (“AEHT”) and transferred to AEHT the pre-existing
European subsidiaries, their operating assets, and their pre-
existing intangible rights (i.e., those developed in Europe).
Amazon and AEHT also entered a cost sharing
12                        AMAZON.COM V. CIR

arrangement—the transaction most pertinent to this appeal. 4
For the arrangement to be a “qualified cost sharing
arrangement” under the transfer pricing regulations outlined
above, AEHT needed to pay Amazon for the pre-existing
intangibles Amazon contributed to the arrangement. To
determine the amount of this “buy-in,” Amazon hired a tax
firm, which concluded the pre-existing intangibles were
worth $217 million. 5

    Under the cost sharing arrangement, AEHT also makes
cost sharing payments to Amazon for its share of ongoing
intangible development costs. Amazon reported cost
sharing payments from AEHT of about $116 million for
2005 and about $77 million for 2006.

    The IRS rejected Amazon’s calculation of AEHT’s buy-
in, concluding that Amazon grossly undervalued the
intangibles Amazon made available to AEHT. Applying a
discounted-cash-flow valuation methodology, the IRS
determined a buy-in payment of $3.6 billion.6 Amazon filed
a petition in the tax court challenging the IRS’s valuation.
Amazon argued that the cost sharing arrangement covered

     4
       The following transactions were also part of the restructuring:
(1) Amazon granted AEHT a license to use Amazon’s existing
technology-related intellectual property; (2) Amazon assigned to AEHT
customer data and certain marketing intangibles (including trademarks,
website content, and domain names) relating to the European business;
(3) Amazon transferred the stock of the European subsidiaries to AEHT;
(4) Amazon transferred other business assets (other than intellectual
property) to AEHT; and (5) the pre-existing European subsidiaries
licensed to AEHT intellectual property titled in their names.
     5
      The tax firm set the buy-in price at $254.5 million, to be paid over
a seven-year period (resulting in a present value of $217 million).

     6
         The IRS’s calculation was later reduced to $3.468 billion.
                    AMAZON.COM V. CIR                       13

three distinct groups of transferred assets—website
technology, marketing intangibles, and European-customer
information—that must be valued separately using a
methodology referred to in the transfer pricing regulations as
the comparable uncontrolled transaction method.

    After a six-week trial that included testimony and written
reports of thirty expert witnesses, the tax court concluded
that the Commissioner abused his discretion in determining
that the discounted cash flow methodology supplied the best
method for determining an arm’s length buy-in payment and
in determining that the required payment is $3.468 billion.
Amazon.Com, Inc. v. Comm’r, 148 T.C. 108, 150 (2017).
Relying on the rationale of its prior decision in Veritas
Software Corp. v. Commissioner, 133 T.C. 297 (2009),
nonacq., 2010-49 I.R.B (2010), action on dec., 2010-05
(Nov. 12, 2010), the tax court reasoned that the
Commissioner’s valuation methodology “is based in essence
on an ‘akin to a sale’ theory” and “necessarily sweeps into
[the] calculation assets that were not transferred under the
[cost sharing arrangement] and assets that were not
compensable ‘intangibles’ to begin with.” Amazon.Com,
148 T.C. at 156–57. The tax court concluded that “[a]n
enterprise valuation of a business,” like the one conducted
by the Commissioner’s primary expert, “includes many
items of value that are not ‘intangibles’” under the cost
sharing regulations. Id. at 157. Such items include
“workforce in place, going concern value, goodwill, and
what trial witnesses described as ‘growth options’ and
corporate ‘resources’ or ‘opportunities.’” Id. The tax court
reasoned that such items are “[u]nlike the ‘intangibles’ listed
14                    AMAZON.COM V. CIR

in the statutory and regulatory definitions” in that they
“cannot be bought and sold independently.” Id. 7

    The tax court adopted the comparable uncontrolled
transaction method as the best way to value the buy-in
payment because that method allows for the intangibles at
issue to be isolated and separately valued. Id. at 164.
Although the tax court agreed with Amazon’s general
valuation approach, it disagreed with certain aspects of
Amazon’s implementation of that method. Id. After making
adjustments, the tax court calculated the value of the buy-in
payment to be about $779 million. The Commissioner
timely appealed, challenging the tax court’s rejection of his
expert’s discounted cash flow methodology. 8

                                  II.

    The tax court had jurisdiction over this action under
26 U.S.C. § 6213(a). We have jurisdiction under 26 U.S.C.
§ 7482(a)(1), (b)(1).

   “[W]e review the tax court’s conclusions of law de novo
and its factual findings for clear error.” MK Hillside

     7
      The tax court made several other legal conclusions and factual
findings not relevant to the Commissioner’s appeal.
     8
       Although we affirm the tax court, nothing in our decision should
be construed as an outright rejection of any particular valuation
methodology. Here, the parties’ respective valuation methods did not
differ only in how they valued Amazon’s assets; they differed in what
assets they valued. The selection of the “best method” here, see Treas.
Reg. § 1.482-1(c), thus turns on an interpretation of the regulatory
definition of an “intangible.” Nothing in our opinion should be
construed as favoring one valuation method over another in
circumstances not present here.
                      AMAZON.COM V. CIR                            15

Partners v. Comm’r, 826 F.3d 1200, 1203 (9th Cir. 2016)
(quoting DHL Corp. & Subsidiaries v. Comm’r, 285 F.3d
1210, 1216 (9th Cir. 2002)).

                                 III.

    The dispositive issue in this case is whether, under the
1994/1995 regulations, the “buy-in” required for “pre-
existing intangible property” must include compensation for
residual-business assets. 9 To answer this legal question, we
consider the regulatory definition of an “intangible,” the
overall transfer pricing regulatory framework, the
rulemaking history of the regulations, and whether the
Commissioner’s position is entitled to deference under Auer
v. Robbins, 519 U.S. 452 (1997). We agree with the tax court
that the definition of an “intangible” in § 1.482-4(b) was not
intended to embrace residual-business assets.

                                 A.

    The Commissioner argues that Amazon’s valuable
residual-business assets meet “§ 1.482‑4(b)’s definition of
intangibles.” “Regulations are interpreted according to the
same rules as statutes, applying traditional rules of
construction.” Minnick v. Comm’r, 796 F.3d 1156, 1159
(9th Cir. 2015); see Kisor v. Wilkie, 139 S. Ct. 2400, 2415
(2019) (recognizing that “all the ‘traditional tools’ of
construction” are the same for both statutes and regulations

    9
      The Commissioner also challenges some of the tax court’s other
reasons for rejecting the valuation conducted by the Commissioner’s
expert. But in each of his other challenges, the Commissioner’s
argument assumes he is correct on his primary contention that the
definition of “intangible” in the 1994/1995 regulations embraces
residual-business assets. Because we reject the Commissioner’s view on
the primary issue, we need not address his other contentions.
16                 AMAZON.COM V. CIR

(quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,
Inc., 467 U.S. 837, 843 n.9 (1984))). Our “legal toolkit”
includes careful examination of “the text, structure, history,
and purpose of a regulation.” Kisor, 139 S. Ct. at 2415.

    We begin with the language of § 1.482-4(b). If the
regulation is unambiguous, its plain meaning governs. Safe
Air For Everyone v. EPA, 488 F.3d 1088, 1097 (9th Cir.
2007).

    The regulation defines an “intangible” as an asset that
both “has substantial value independent of the services of
any individual” and is one of the items listed in subsection
(b)(1)–(6). Treas. Reg. § 1.482‑4(b). Each of the 28 specific
items in subsection (b) is independently transferrable—none
is a residual-business asset. The Commissioner thus relies
on the catchall provision for “[o]ther similar items.” Treas.
Reg. § 1.482‑4(b)(6). “[A]n item is considered similar” to
the other items in the subsection “if it derives its value not
from its physical attributes but from its intellectual content
or other intangible properties.” Id.

     Reading the catchall provision together with the
introductory language of the definition, residual-business
assets are intangibles if they (1) have substantial value
independent of the services of any individual and (2) derive
their value from intellectual content or other intangible
properties. The Commissioner argues both elements are
satisfied. First, he argues that Amazon’s growth options
“derive their value from intangible, rather than physical,
attributes.” He then cites testimony from Amazon’s expert
(Dr. Bradford Cornell) that Amazon’s growth options are
primarily attributable to its culture of innovation. Second,
he argues that the value of Amazon’s growth options is
independent of the services of any individual because they
                    AMAZON.COM V. CIR                       17

are “part of the culture of Amazon to be able to have creative
ideas bubble up in their organization and actually use them.”

    Amazon argues that the Commissioner’s interpretation
of the catchall provision is too sweeping for several reasons.
Amazon’s central argument is that to qualify as an
“intangible” under the regulation, an item must be capable
of being bought and sold independently of the business—
and residual-business assets are inseparable from the
business. The tax court agreed. See Amazon.Com, 148 T.C.
at 157 (concluding that, unlike the specific intangibles listed
in the regulation, “workforce in place, going concern value,
goodwill, and what trial witnesses described as ‘growth
options’ and corporate ‘resources’ or ‘opportunities’ . . .
cannot be bought and sold independently”).

    Amazon offers several arguments in support of its
position that assets that are inseparable from the business do
not meet the regulatory definition of an “intangible.”
Quoting Arcadia v. Ohio Power Co., 498 U.S. 73, 78 (1990),
Amazon argues that the Commissioner’s interpretation
renders the “enumeration of specific subjects entirely
superfluous—in effect adding to that detailed list ‘or
anything else.’” Amazon invokes the canon ejusdem
generis—of the same kind or class—and asserts that “[t]he
common attribute of all 28 specified items is that they can be
sold independently.” Amazon argues this canon should be
applied to prevent the catchall clause from swallowing the
preceding language of the regulation.

    Amazon’s focus on the commonality of the 28 specified
items has some force. After all, if all 28 listed items share a
common attribute, why would anyone understand a catchall
for “similar items” to include a non-listed item that doesn’t
share that attribute? Amazon’s commonality argument
falters, however, because the catchall provision did not
18                  AMAZON.COM V. CIR

simply say “[o]ther similar items.” Instead, the catchall
elaborated by explaining how an item is determined to be
“similar” to the other items: “if it derives its value not from
its physical attributes but from its intellectual content or
other intangible properties.” Treas. Reg. § 1.482-4(b)(6).
This explanation of what is “similar” leaves open the
possibility of a non-listed item being included in the
definition even if it doesn’t share the attribute of being
separately transferrable.

    Amazon also argues that the regulation’s requirement
that an intangible have “substantial value independent of the
services of any individual,” Treas. Reg. § 1.482‑4(b),
supports its position. The tax court in Veritas agreed. In that
case, the tax court rejected the Commissioner’s argument
that a foreign subsidiary’s buy-in under a cost sharing
arrangement must include the value of the subsidiary’s
access to the U.S. corporate parent’s R&D and marketing
teams—i.e., workforce in place. Veritas, 133 T.C. at 323.
Although the court found insufficient evidence that the cost
sharing arrangement made such a transfer, it also stated that
“[e]ven if such evidence existed, these items would not be
taken into account in calculating the requisite buy-in
payment because they do not have ‘substantial value
independent of the services of any individual’ and thus do
not meet the” definition of “intangible.” Id. at 323 n.31
(quoting Treas. Reg. § 1.482‑4(b)). The court reasoned that
the value of access to the parent’s “R&D and marketing
teams is based primarily on the services of individuals (i.e.,
the work, knowledge, and skills of team members).” Id. The
Commissioner clearly disagrees with Veritas on this point,
but he doesn’t explain why the tax court’s analysis is wrong.

    Analysis of the regulatory text alone does not
definitively resolve the question here. The definition of an
                       AMAZON.COM V. CIR                              19

“intangible” is susceptible to, but does not compel, an
interpretation that embraces residual-business assets. The
problem is that residual-business assets, such as “growth
options” and a “culture of innovation,” are amorphous, and
it’s not self-evident whether such assets have “substantial
value independent of the services of any individual.” See
Treas. Reg. § 1.482‑4(b).       Amazon raises legitimate
concerns about the regulation’s catchall being stretched too
far, and those concerns likely bear on which party has the
more reasonable view of the regulatory definition. It
nonetheless remains that the definition of “intangible” could
be construed as covering residual-business assets if the
language of § 1.482‑4(b) is viewed in isolation. 10

                                   B.

    But we are required to look at the regulatory scheme “as
a whole,” viewing the regulatory “definition in the context
of the entire [transfer pricing] regulations.” Alaska Trojan
P’ship v. Gutierrez, 425 F.3d 620, 628 (9th Cir. 2005). The
Commissioner argues that other regulations governing
transfer pricing support his view that the regulatory
definition of an “intangible” embraces residual-business

    10
        The Commissioner also argues that the definition of an
“intangible” includes residual-business assets because an uncontrolled
party would pay for access to those assets in an arm’s length transaction.
He cites the testimony of Amazon’s expert that parties dealing at arm’s
length “[d]efinitely” pay for “growth options” because “[n]o company is
going to give away something of value without compensation.” The
Commissioner’s argument misses the mark. Under the regulations, the
arm’s length standard governs the valuation of intangibles; it doesn’t
answer whether an item is an intangible. The definition of an
“intangible” is provided in § 1.482‑4(b). The Commissioner points to no
language in the statute or regulations suggesting that the definition of
what constitutes an intangible is determined by asking whether an
uncontrolled party would pay for it.
20                     AMAZON.COM V. CIR

assets. He cites two sections in the regulations, §§ 1.482‑7A
and 1.482‑1.

     Section 1.482‑7A specifies the requirements of a
qualified cost sharing arrangement and the methods for
determining the taxable income resulting from such an
arrangement. The Commissioner cites the subsection that
imposes the “buy-in” requirement where “[a] controlled
participant . . . makes intangible property available to a
qualified cost sharing arrangement.”             Treas. Reg.
§ 1.482‑7A(g)(1). The Commissioner argues that this
provision mandates that residual-business assets be paid for
“if they are made ‘available’ to the cost-sharing participants”
even though such assets generally cannot be transferred
independently from the business.

    The     Commissioner’s       argument       based      on
§ 1.482‑7A(g)(1) presupposes the very point he attempts to
prove—that residual-business assets are “intangible
property” within the meaning of the regulations. The
provision requiring a “buy-in” does not expand but instead
incorporates the meaning of an “intangible” given in
§ 1.482-4(b). See Treas. Reg. § 1.482‑7A(g)(2) (“The buy-
in payment by each such other controlled participant is the
arm’s length charge for the use of the intangible . . . .”
(emphasis added)). The “makes . . . available” language thus
provides no meaningful insight into the regulatory definition
of an “intangible.” 11


     11
        Considered in context of the regulatory framework, it appears that
the purpose of the “makes . . . available” phrasing in § 1.482‑7A(g) is to
account for taxpayers who might seek to avoid the requirements of the
transfer pricing regulations by not formally transferring their intangible
assets to a related party and instead informally making available the
                       AMAZON.COM V. CIR                             21

     The Commissioner also finds support for his position in
the regulations’ preamble stating that “[t]he purpose of
section 482 is to ensure that taxpayers clearly reflect income
attributable to controlled transactions and to prevent the
avoidance of taxes with respect to such transactions.” Treas.
Reg. § 1.482‑1(a)(1).        Relying on Xilinx, Inc. v.
Commissioner, 598 F.3d 1191 (9th Cir. 2010), the
Commissioner argues that “anything of value that is made
available between related parties must be paid for” in the
buy-in, regardless of whether it is defined as an intangible.

      In Xilinx, we considered whether the parties to a cost
sharing arrangement “must include the value of certain stock
option compensation one participant gives to its employees
in the pool of costs to be shared.” Id. at 1192. We found
two provisions of the regulations in conflict. We first cited
§ 1.482‑1(b)(1)’s statement that “the standard to be applied
in every case is that of a taxpayer dealing at arm’s length
with an uncontrolled taxpayer.” Id. at 1195 (quoting Treas.
Reg. § 1.482‑1(b)(1)). It was undisputed on appeal that
unrelated parties would not have shared the employee stock
option costs. Id. at 1194. Another provision, however,
required that “controlled parties in a cost sharing agreement
. . . share all ‘costs . . . related to the intangible development
area,’” which by definition would include the employee
stock options. Id. at 1196. In resolving this conflict, the
Xilinx majority affirmed the tax court’s conclusion that the
stock options need not be paid for as part of the buy-in. Id.




assets. The regulations thus treat such taxpayers “as having transferred
interests in such [intangible] property.” Treas. Reg. § 1.482‑7A(g)(1).
22                      AMAZON.COM V. CIR

at 1196–97. The primary opinion reasoned that “[p]urpose
is paramount.” Id. at 1196. 12

    Relying on the logic of the primary opinion in Xilinx, the
Commissioner asserts that “it is undisputed that a company
entering into the same transaction under the same
circumstances with an unrelated party would have required
compensation.” To evaluate this claim, it’s important to be
clear about what exactly is meant by the phrase “the same
transaction under the same circumstances.”                The
Commissioner relies on deposition testimony from one of
Amazon’s experts that parties dealing at arm’s length would
pay for growth options. But the expert explained at trial the
difference between an investor or purchaser of the entire
business (who would pay for the full value of the business)
and a partner (who would not). The question becomes
whether a cost sharing arrangement is akin to the sale of a
business or like a partnership in certain assets or aspects of
the business. The Commissioner assumes, but does not
explain why, the transfer of intangible assets under



     12
        Caution should be taken before relying on the rationale of the
primary opinion in Xilinx. One panel member concurred—thus
providing a majority vote for the disposition—but wrote separately “to
explain [his] particular reasons for rejecting the Commissioner’s
position.” Id. at 1197 (Fisher, J., concurring). Although the reasoning
of the concurring opinion overlaps somewhat with the reasoning of the
primary opinion, the concurrence does not seem to adopt the “[p]urpose
is paramount” logic. Instead, based on the language of the regulations,
the legislative and regulatory history, international tax treaties, and the
understanding of the business community and tax professionals (i.e.,
amici curiae), the concurrence concluded that the taxpayer’s
“understanding of the regulations is the more reasonable even if the
Commissioner’s current interpretation may be theoretically plausible.”
Id. at 1198.
                    AMAZON.COM V. CIR                       23

Amazon’s cost sharing arrangement with AEHT should be
treated the same as the sale of the business.

    The Commissioner’s reliance on Xilinx thus suffers the
same defect as his “made available” argument based on
§ 1.482-7A(g)—he assumes the very conclusion he’s aiming
to prove.      Although the regulatory provisions the
Commissioner cites are consistent with his position, they do
not provide independent support and they are likewise
consistent with Amazon’s view.

    If the cost sharing regulations as a whole tip the scale
either direction, they tend to favor Amazon on the issue
presented here. The regulations describe a cost sharing
arrangement as an agreement “to share the costs of
development of one or more intangibles.” Treas. Reg.
§ 1.482‑7A(a)(1). The written document memorializing the
arrangement must, among other things, describe both “the
scope of the research and development to be undertaken,
including the intangible or class of intangibles intended to be
developed.” Treas. Reg. § 1.482‑7A(b)(4)(iii). The writing
must also describe “each participant’s interest in any covered
intangibles,” which is “any intangible property that is
developed as a result of the research and development
undertaken under the cost sharing arrangement.” Treas.
Reg. § 1.482‑7A(b)(4)(iv). By identifying intangibles as
being the product of R&D efforts, the regulations seem to
contemplate a meaning of “intangible” that excludes items
like goodwill and going concern value, which “are generated
by earning income, not by incurring deductions.” Staff of J.
Comm. on Taxation, 98th Cong., General Explanation of the
Revenue Provisions of the Deficit Reduction Act of 1984,
428 (Comm. Print 1984).
24                 AMAZON.COM V. CIR

    The overall regulatory scheme doesn’t definitively
resolve the issue, but it favors Amazon more than the
Commissioner.

                             C.

    We next turn to the drafting history of the regulatory
definition. Both parties claim support for their respective
positions in the historical development of the regulations.

    Treasury first defined intangible property for purposes of
section 482 in regulations adopted in 1968:

       [I]ntangible property shall consist of the
       items described in subdivision (ii) of this
       subparagraph, provided that such items have
       substantial value independent of the services
       of individual persons.

       (ii) The items referred to in subdivision (i) of
       this subparagraph are as follows:

           (a) Patents, inventions, formulas,
           processes, designs, patterns, and other
           similar items;

           (b) Copyrights, literary, musical, or
           artistic compositions, and other similar
           items;

           (c) Trademarks, trade names, brand
           names, and other similar items;

           (d) Franchises, licenses, contracts, and
           other similar items;
                       AMAZON.COM V. CIR                              25

             (e) Methods, programs, systems,
             procedures, campaigns, surveys, studies,
             forecasts, estimates, customer lists,
             technical data, and other similar items.

33 Fed. Reg. 5848, 5854 (Apr. 16, 1968).

    Fourteen years later, Congress enacted the Tax Equity
and Fiscal Responsibility Act of 1982, adopting a definition
of intangible property in section 936 of the Internal Revenue
Code that was nearly identical to the one in the regulations
implementing section 482. 13 The Commissioner plucks a
phrase from a Senate Report for the 1982 Act suggesting that
the statute “defines intangible assets broadly.” With more
context, the quoted sentence from the Senate Report states
that “[t]he bill defines intangible assets broadly to include”
the 28 specifically-listed items “and other items similar to
any of those listed, so long as the item has substantial value
independent of the services of individual persons.” S. Rep.
97-494, at 161 (1982), as reprinted in 1982 U.S.C.C.A.N.
781, 924 (emphasis added). 14


     13
        The new statutory definition differed from the regulatory one in
four, relatively minor respects: (1) making all enumerated items singular;
(2) adding “know-how” to the first category; (3) inserting “any similar
item” as a stand-alone category in lieu of “other similar items” in each
category; and (4) requiring that an item have “substantial value
independent of the services of any individual” rather than “of individual
persons.” Tax Equity & Fiscal Responsibility Act of 1982, Pub. L. 97-
248, § 213, 96 Stat. 324 (Sept. 3, 1982).

     14
        Another part of the quoted Senate Report states that the
Committee viewed the bill as combatting the practice of transferring
intangibles “created, developed or acquired in the United States” to
foreign entities to generate income tax-free. S. Rep. 97-494, at 158–59
(1982), as reprinted in 1982 U.S.C.C.A.N. 781, 921–22. It seems from
26                     AMAZON.COM V. CIR

    The Tax Reform Act of 1986 amended section 482 to
incorporate the “intangible property” definition from section
936: “In the case of any transfer (or license) of intangible
property (within the meaning of section 936(h)(3)(B)), the
income with respect to such transfer or license shall be
commensurate with the income attributable to the
intangible.” Pub. L. 99–514, § 1231, 100 Stat. 2085 (Oct.
22, 1986).

    When it amended section 482, Congress requested that
the IRS conduct “a comprehensive study of intercompany
pricing rules” and report on whether the existing regulations
“could be modified in any respect.” H.R. Rep. No. 99-841,
at II-637 (1986). The resulting IRS report, known as the
“White Paper,” laid the groundwork for what would
ultimately become the 1994/1995 regulations. A Study of
Intercompany Pricing Under Section 482 of the Code, I.R.S.
Notice 88-123, 1988-2 C.B. 458.

    The White Paper discussed, among other things, cost
sharing arrangements. According to the White Paper, the
purpose of the buy-in requirement is for “a party to a cost
sharing arrangement that has contributed funds or incurred
risks for development of intangibles at an earlier stage” to be
“compensated by the other participants.” Id. at 497. “[I]f
there are intangibles that are not fully developed that relate
to the research to be conducted under the cost sharing
arrangement, it is necessary to value them in order to
determine an appropriate buy-in payment.” Id.




this language, the Committee didn’t contemplate intangibles that are not
independently transferrable.
                   AMAZON.COM V. CIR                       27

    The White Paper proposed “three basic types of
intangibles” that would be subject to the buy-in requirement:

   •   “preexisting intangibles at various stages of
       development that will become subject to the
       arrangement”;

   •   “basic research not associated with any product”; and

   •   “a going concern value associated with a
       participant’s research facilities and capabilities that
       will be utilized.”

Id. Although the White Paper proposed including going
concern value of a research facility in the buy-in, after
receiving opposition in public comments, Treasury proposed
new regulations that essentially retained the definition of
“intangible” from before without referencing going concern
value or any other residual-business asset. See 57 Fed. Reg.
3571, 3579 (Jan. 30, 1992).

    In 1993, Treasury issued revised temporary and
proposed regulations that defined an “intangible” as “any
commercially transferable interest” in the intangibles listed
in § 936(h)(3)(B) that had “substantial value independent of
the services of any individual.” 58 Fed. Reg. 5263, 5287
(Jan. 21, 1993). Treasury also requested comment on
“whether the definition of intangible property . . . should be
expanded to include items not normally considered to be
items of intellectual property, such as work force in place,
goodwill or going concern value.” 58 Fed. Reg. 5310, 5312
(Jan. 21, 1993). Amazon cites opposition comments
submitted in response to Treasury’s request for comment.

   In 1994, Treasury issued final regulations (the ones
applicable here), which reflected a minor reworking of the
28                  AMAZON.COM V. CIR

definition. 59 Fed. Reg. 34971, 35016 (Jul. 8, 1994).
Treasury explained that the revised definition omitted the
“commercially transferrable” language that appeared in the
temporary regulations “because it was superfluous: if the
property was not commercially transferrable, then it could
not have been transferred in a controlled transaction.” Id.
at 34983.     Treasury also explained that the revision
“clarified” that the phrase “other similar items” in the
definition “refer[s] to items that derive their value from
intellectual content or other intangible properties rather than
physical attributes.” Id. In 1995, Treasury issued final
regulations governing cost sharing arrangements, including
§ 1.482‑7A(g)’s “buy-in” requirement.

    The drafting history of the transfer pricing regulations
does not support the Commissioner’s argument that the
definition of an “intangible” covered residual-business
assets. The only references in the drafting history to any
residual-business assets suggest that such items were
excluded from the definition of intangible assets. The IRS’s
1988 White Paper proposed including “going concern value”
of a research facility in the buy-in, but Treasury’s 1994/1995
regulations kept essentially the same definition as before
without referring to “going concern value” or any other
residual-business asset. See 57 Fed. Reg. at 3579.

    Two key statements by Treasury in the drafting history
render the Commissioner’s current position untenable. First,
in 1993, Treasury confirmed that the then-existing definition
of “intangible” did not include residual-business assets when
it asked for comments on whether the definition of
intangibles “should be expanded to include items not
normally considered to be items of intellectual property,
such as work force in place, goodwill or going concern
value.” 58 Fed. Reg. at 5312 (emphasis added). Second, a
                       AMAZON.COM V. CIR                              29

year later after opting against such an expansion, and instead
retaining the same essential definition from before
(including the same list of 28 items), Treasury explained that
the final (1994) rule merely “clarified” when an item would
be deemed similar to the 28 items listed in the definition.
59 Fed. Reg. at 34983.

    The Commissioner is thus forced to argue that what
Treasury explicitly confirmed would not be considered an
“intangible” without a substantive “expan[sion]” of the
definition was implicitly added to the definition through a
non-specific “clarifi[cation].”      The Commissioner’s
argument stretches “clarification” beyond its commonly
understood meaning of merely clearing up what was
previously ambiguous or otherwise restating a standard
consistent with what was previously intended. Cf. Motorola,
Inc. v. Fed. Exp. Corp., 308 F.3d 995, 1007 (9th Cir. 2002)
(distinguishing between a “clarifying amendment” and “one
that work[s] a substantive change” (emphasis omitted)). 15

     Another statement from the drafting history of § 1.482‑4
lends further support for Amazon’s position that
“intangible” has always been understood to be limited to
assets that are independently transferrable. Treasury’s
temporary regulations in 1993 defined an “intangible” as
“any commercially transferable interest” in the intangibles
listed in section 936(h)(3)(B) that had “substantial value
independent of the services of any individual.” 58 Fed. Reg.
at 5287. When Treasury left out the “commercially
    15
       Amazon and amici curiae also argue that if the Commissioner is
correct that the non-specific “clarifi[cation]” of § 1.482-4(b)’s catchall
substantively expanded the definition of an “intangible,” then
Treasury/IRS violated the Administrative Procedures Act. We need not
address this argument because we reject the Commissioner’s post hoc
interpretation of the changes to the regulatory definition.
30                 AMAZON.COM V. CIR

transferrable” language from the final regulations issued a
year later, it explained that the omitted language was
“superfluous” because “if the property was not
commercially transferrable, then it could not have been
transferred in a controlled transaction.” 59 Fed. Reg. at
34983. This is consistent with the basic premise of the
transfer pricing regulations, which contemplate a situation in
which particular assets are transferred from one entity to
another.

     The Commissioner now contends that the 1994
definition was intended to embrace residual-business assets
even though such assets “cannot be transferred
independently.” Yet the Commissioner fails to identify any
contemporaneous statement by the agency that would
“display awareness” that it was changing its position on
whether residual-business assets are included within the
definition of intangibles. See FCC v. Fox Television
Stations, Inc., 556 U.S. 502, 515 (2009) (“[T]he requirement
that an agency provide reasoned explanation for its action
would ordinarily demand that it display awareness that
it is changing position. An agency may not, for example,
depart from a prior policy sub silentio or simply disregard
rules that are still on the books.”).

    The Commissioner argues his position is supported by a
different regulatory scheme governing penalties for
taxpayers who substantially misstate the value of property
on their tax returns. See 26 U.S.C. § 6662(e). In 1993,
Treasury proposed regulations “designed to encourage
taxpayers to document their transfer pricing transactions and
to provide that documentation to the [IRS] upon request.”
58 Fed. Reg. 5304, 5304 (Jan. 21, 1993). To that end, the
proposed regulations provided rules for determining whether
a taxpayer has substantially misstated the value of property.
                   AMAZON.COM V. CIR                     31

Those rules defined “property” to include “intangible
property,” which in turn was defined to include “property
such as goodwill, covenants not to compete, leaseholds,
patents, contract rights, debts, and choices in action.” Id.
at 5306.

    The Commissioner’s attempt to bootstrap § 1.6662-5’s
reference to “goodwill” ignores that the proposed regulation
concerning substantial valuation misstatements was issued
on the same day Treasury separately confirmed that the
definition of “intangible” for purposes of the regulations
implementing section 482 did not include goodwill or other
residual-business assets. 58 Fed. Reg. at 5312. Considering
the context, Treasury’s use of “goodwill” in § 1.6662-5 but
not in § 1.482‑4(b) most likely evinces an intent not to
include goodwill or other residual-business assets within
§ 1.482‑4(b)’s definition of “intangible.”

    Amazon points to other Treasury regulations that define
certain covered property by incorporating the definition of
intangible property under section 936(h)(3)(B) and then
adding goodwill and going concern value. Treas. Reg.
§§ 1.954-2(e)(3)(iv), 1.861-9T(h)(1)(ii). These provisions
add little to the discussion, but the express inclusion of
goodwill and going concern value in these regulations is
consistent with Amazon’s position that the definition of
“intangible” in section 936(h)(3)(B) and § 1.482‑4(b) was
understood to exclude goodwill and going concern value.
These regulations also show that Treasury “clearly knew
how to write its regulations” to include goodwill and other
residual-business assets. Karczewski v. DCH Mission Valley
LLC, 862 F.3d 1006, 1015–16 (9th Cir. 2017).
32                      AMAZON.COM V. CIR

    The drafting history of § 1.482‑4(b) strongly supports
Amazon’s position that Treasury limited the definition of
“intangible” to independently transferrable assets. 16

                                    D.

    The Commissioner next argues that the tax court should
have deferred to the IRS’s interpretation of its own
regulations. Under certain circumstances, an agency’s
interpretation of its own regulations “must be given
‘controlling weight’” if it is not “‘plainly erroneous or
inconsistent with the regulation.’” Stinson v. United States,
508 U.S. 36, 45 (1993) (quoting Bowles v. Seminole Rock &
Sand Co., 325 U.S. 410, 414 (1945)); see also Auer v.
Robbins, 519 U.S. 452, 461–62 (1997). This is frequently
referred to as Auer deference.

    The Supreme Court “has cabined Auer’s scope in varied
and critical ways.” Kisor, 139 S. Ct. at 2418. “First and
foremost, a court should not afford Auer deference unless the
       16
          In 2017, Congress amended the definition of “intangible property”
in section 936(h)(3)(B). That amendment added “goodwill, going
concern value, or workforce in place” to the list of specific items
included in the definition of “intangible property.” Tax Cuts & Jobs Act
of 2017, Pub. L. 115-97, § 14221(a), 131 Stat. 2054, 2218 (2017).
Characterizing the change as merely a “clarification,” the Commissioner
argues that the 2017 amendment supports his proffered interpretation of
the 1994/1995 regulations. But the Commissioner’s post-hoc label of
Congress’s amendment is not controlling, see Beaver v. Tarsadia Hotels,
816 F.3d 1170, 1186 (9th Cir. 2016) (“Post-hoc labeling as a
‘clarification’ by bill supporters of what otherwise appears to be a change
. . . is not controlling . . . .”), and it’s also not supported by Congress’s
own words. Congress stated that the amendment should not be
“construed to create any inference” as to the definition of intangibles for
taxable years occurring before the amendment’s effective date. 131 Stat.
at 2219. Congress said nothing to indicate that the amendment was
meant only as a clarification.
                    AMAZON.COM V. CIR                        33

regulation is genuinely ambiguous.” Id. at 2415. Genuine
ambiguity is not determined by examination of the
regulatory text alone. Instead, “before concluding that a rule
is genuinely ambiguous, a court must exhaust all the
‘traditional    tools’    of     construction,”     “‘carefully
consider[ing]’ the text, structure, history, and purpose of a
regulation, in all the ways it would if it had no agency to fall
back on.” Id. (first quoting Chevron, 467 U.S. at 843 n.9;
then quoting Pauley v. BethEnergy Mines, Inc., 501 U.S.
680, 707 (1991) (Scalia, J., dissenting))).

    The text of the regulatory definition of “intangible,” the
definition’s place within the transfer pricing regulations
generally, and the rulemaking history leave little room for
the Commissioner’s proffered meaning. But even if there
were genuine ambiguity, there is a separate reason Auer
deference is not warranted here.

    “[N]ot every reasonable agency reading of a genuinely
ambiguous rule should receive Auer deference.” Kisor,
139 S. Ct. at 2416. Instead, “a court must make an
independent inquiry into whether the character and context
of the agency interpretation entitles it to controlling weight.”
Id. (citing Christopher v. SmithKline Beecham Corp.,
567 U.S. 142, 155 (2012)). For example, courts will not
defer to an agency’s interpretation when doing so “would
seriously undermine the principle that agencies should
provide regulated parties fair warning of the conduct [a
regulation] prohibits or requires.” Barboza v. Cal. Ass’n of
Prof’l Firefighters, 799 F.3d 1257, 1267 (9th Cir. 2015)
(alteration in original) (quoting Christopher, 567 U.S.
at 156). This exception accounts for the “risk that agencies
will promulgate vague and open-ended regulations that they
can later interpret as they see fit, thereby ‘frustrat[ing] the
notice and predictability purposes of rulemaking.’”
34                  AMAZON.COM V. CIR

Christopher, 567 U.S. at 158 (quoting Talk Am., Inc. v.
Michigan Bell Tel. Co., 564 U.S. 50, 68 (2011) (alteration in
original) (Scalia, J., concurring)).

     Christopher and Barboza thus teach that the timing of an
agency’s first announcement of its interpretation may be
dispositive on whether the agency’s view will be given Auer
deference. Here, the Commissioner does not identify a
specific document (e.g., policy manual or court brief)
definitively expressing the agency’s view of its regulations.
It thus appears that the Commissioner’s court briefs in this
case present Treasury’s “first announce[ment of] its view,”
see Christopher, 567 U.S. at 153, that the definition of
intangible in § 1.482-4(b) embraces residual-business assets.
The exception to Auer deference from Christopher and
Barboza therefore applies. “Where an agency announces its
interpretation for the first time in an enforcement
proceeding, and has not previously taken any action to
enforce that interpretation, ‘the potential for unfair surprise
is acute.’” Barboza, 799 F.3d at 1267 (quoting Christopher,
567 U.S. at 158). Even if first arising before the current
litigation, a new interpretation is owed no deference if it
would “create[] ‘unfair surprise’ to regulated parties.”
Kisor, 139 S. Ct. at 2417–18 (quoting Long Island Care at
Home, Ltd. v. Coke, 551 U.S. 158, 170 (2007)). No
statement from Treasury in the drafting history of the
1994/1995 regulations expresses the position the
Commissioner advances now. Indeed, as discussed above,
Treasury’s contemporaneous explanations of the regulations
are to the contrary. Amazon and other taxpayers were thus
not given fair warning of the Commissioner’s current
interpretation of the regulatory definition of an “intangible.”
That interpretation is not entitled to deference.
                   AMAZON.COM V. CIR                      35

                             IV.

    The Commissioner’s calculation of AEHT’s buy-in
under the cost sharing arrangement included residual-
business assets as part of Amazon’s pre-existing intangibles.
The language of the (now-superseded) regulatory definition
of an “intangible” is ambiguous and could be construed as
including residual-business assets. But the drafting history
of the regulations and other indicators of Treasury’s
contemporaneous intent strongly favor Amazon’s proffered
meaning—that intangibles were limited to independently
transferrable assets. Treasury appears to have changed its
position on the meaning of the regulation after Amazon and
AEHT entered into their cost sharing arrangement. We share
the sentiment reflected in the concurring opinion in Xilinx:

       Indeed, I am troubled by the complex,
       theoretical nature of many of the
       Commissioner’s arguments trying to
       reconcile the two regulations. Not only does
       this make it difficult for the court to navigate
       the regulatory framework, it shows that
       taxpayers have not been given clear, fair
       notice of how the regulations will affect
       them.

Xilinx, 598 F.3d at 1198 (Fisher, J., concurring). We
therefore agree with the tax court that the former regulatory
definition of an “intangible” does not include residual-
business assets.

   AFFIRMED.
