In Altera Corp. v. Commissioner, the United States Tax Court invalidated a 2003 Treasury Regulation for failing to meet State Farm’s reasoned decisionmaking standard under the Administrative Procedure Act (APA). Invalidating this specific regulation eliminates one of the federal government’s latest attempts to limit income tax avoidance by some of the world’s largest and wealthiest corporations in the murky world of transfer pricing. This Note demonstrates that the Tax Court’s ruling must be limited to its specific APA holding and argues that Treasury may enact a similar regulation under the existing statutory and regulatory framework of the arm’s length standard. Under the APA, Treasury must respond to all significant comments and provide a reasonable statement of basis and purpose for a new regulation. This Note offers viable responses to the public comments Treasury (apparently) inadequately addressed and proposes a framework for a statement of basis and purpose that would satisfy State Farm’s reasoned decisionmaking standard under the APA. These responses demonstrate that sharing employee compensation expenses indexed to a corporation’s stock price is not comparable between related and unrelated parties because they have inherently different risks. Therefore, while Treasury failed to respond to comments that provided evidence that unrelated parties do not share stock-based compensation, a finding that determined the outcome in Altera, it does not follow that requiring unrelated parties to share stock-based compensation violates the overarching arm’s length standard. Finally, this Note proposes that if Treasury can provide evidence that related companies share a smaller percentage of total employee compensation relative to unrelated companies in similar arrangements, such a regulation is consistent with the arm’s length standard. This regulation would be consistent with the standard because it creates transaction results that are “consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction,” and achieves the purpose of Internal Revenue Code § 482.