US IRS memo addresses cost sharing agreements and inclusion of stock-based compensation costs

In a generic legal advice memorandum (GLAM) the Internal Revenue Service (IRS) Office of Chief Counsel (AM 2021-004) addressed its views on the treatment of stock-based compensation (SBC) costs in cost sharing agreements that include a "reverse claw-back" provision, but do not share SBC costs (non-SBC CS agreements).

The IRS asserted that it can make certain allocations to make the cost sharing transactions consistent with an arm's length result. The IRS discussed how to treat those allocations f…