Tax Court In Brief | Bats Global Markets Holdings, Inc. v. Commissioner | Deductibility Of Domestic Production Gross Receipts

• Published date: 05 April 2022
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

The Tax Court in Brief - March 28th - April 1st, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation: The Week of March 28, 2022, through April 1, 2022

• Addis v. Comm'r, T.C. Memo. 2022-24 | March 28, 2022 |Urda, J. | Dkt. No. 12140-20L
• Golditch v. Comm'r, T.C. Memo. 2022-26 | March 29, 2022 |Lauber, J. | Dkt. No. 7726-20L
• Villanueva v. Comm'r, T.C. Memo 2022-27 | March 31, 2022 |Goeke, J. | Dkt. No 19781-18
• Porter v. Comm'r, T.C. Memo. 2022-25 | March 28, 2022 |Greaves, J. | Dkt. No 3544-21

Bats Global Markets Holdings, Inc. v. Comm'r, 158 T.C. No. 5 | March 31, 2022 |Kerrigan, J. | Dkt. No. 1068-17

Short Summary: Bats Global, a registered securities exchange, developed a trading platform software that operated electronic markets for trading equity securities. Bats Global was subject to the Securities Exchange Act of 1934 and the Regulation National Market System rules promulgated by the SEC. Bats Global's customers were organizations that were members of applicable trading exchanges. The customers were required to accept terms of agreement and to agree to abide by the applicable exchange rules, both of which included authority or terms for the prescription of dues, fees, and charges. Bats Global's software was paired with other open-source software that Bats Global did not develop. Customers used their own hardware to connect with Bats Global's hardware in its data center. Bats Global charged a monthly, logical port fees for physical wire connections as well as routing fees for routing orders and transaction fees for when securities orders were executed (collectively, Fees). For each of tax years 2011, 2012, and 2013, Bats Global sought to deduct approximately $1,000,000 in Fees. The IRS denied the request and issued deficiencies for the amounts sought as deductions.

Issue: Whether Bats Global's gross receipts from the Fees are domestic production gross receipts (DPGR)-and are therefore deductible-pursuant to 26 U.S.C. ' 199 and related Treasury Regulations (26 C.F.R. ' 1.199-1, et. seq.).

Note: 26 U.S.C. ' 199 was enacted in 2004 to provide a tax deduction for certain domestic production activities, but the statute and its related regulations were repealed for tax years beginning after December 31, 2017.

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