Transfer Pricing Resource Archives

Transfer Pricing Resource

IRS Guidance Signals More Stringent Scrutiny on Transfer Pricing Documentation

By Alex Cheng-Yi Lee, Andrew R. Roberson and Kevin Spencer on Apr 17, 2020
Posted In IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

On April 14, 2020, the Internal Revenue Service (IRS) issued informal guidance in the form of frequently asked questions (the “FAQs”), urging taxpayers to strengthen their transfer pricing documentation required under Internal Revenue Code (IRC) section 6662(e) and Treasury Regulations § 1.6662-6. IRC section 6662 provides several types of accuracy-related penalties on underpayments of taxes. Pursuant to IRC section 6662(e)(1)(B)(ii), a net adjustment penalty could apply to an intercompany transaction when the net IRC section 482 transfer pricing adjustment exceeds the applicable threshold amount. Taxpayers, however, may avoid a net adjustment penalty by maintaining transfer pricing documentation in accordance with IRC section 6662(e)(3)(B) and Treasury Regulation § 1.6662-6. The IRS indicates that without robust documentation, intercompany transactions may be subject to extensive examination process. The FAQs provide guidelines for preparing high-quality...

Government Questions the Benefits of IRS Audit Campaigns

By Andrew R. Roberson and Kevin Spencer on Oct 25, 2019
Posted In IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

On September 28, 2019, the Treasury Inspector General for Tax Administration (TIGTA) issued a report titled Initial Compliance Results Warrant a More Data-Driven Approach to Campaign Issue Selection. As the name of the report describes, the TIGTA analyzed whether the Internal Revenue Service (IRS) audit campaigns were effective and efficiently administered. We have written at length regarding the IRS’s “campaign” methodology: More IRS “Campaigns?! IRS Announces Six More Examination Campaigns IRS Announces More LB&I Campaigns! The LB&I Campaigns Keep Coming! LB&I Announces Five New Campaigns LB&I Announces Six New Campaigns Are LB&I’s Campaigns Stuck in the Trenches? IRS Continues to Barrage Taxpayers with New Campaigns LB&I’s Final Campaigns Webinar: Section 48C Energy Credits and Completed Contract Method for Land Developers The View from Here: LB&I’s Cross-Border Activities Campaigns Webinar Understanding LB&I “Campaigns” Run...

The Internal Revenue Service Is Expanding the 2020 Compliance Assurance Process

By Kevin Spencer, Andrew R. Roberson and Macdonald Norman on Sep 17, 2019
Posted In IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

The Large Business and International Division of the Internal Revenue Service (IRS) developed the Compliance Assurance Process (CAP) program to improve large corporate taxpayer compliance with US federal tax obligations through the use of real-time issue resolution tools and techniques. On September 12, 2019, the IRS announced that it was accepting applications—for the first time since 2015—from new corporate taxpayers that meet the eligibility requirements for the CAP program. The application period for the 2020 CAP year begins on September 16, 2019, and ends on October 31, 2019. Generally, applicants must meet the following requirements in order to be eligible to apply for CAP: (1) applicants must have assets of $10 million or more; (2) applicants must be a US publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q, and 8-K; and (3) the applicant must not be under investigation by, or in litigation with, any...

IRS Resumes Examinations of Stock Based Compensation in Cost Sharing Agreements

By Andrew R. Roberson, McDermott Will & Emery and Kevin Spencer on Aug 8, 2019
Posted In IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

On July 31, 2019, the Internal Revenue Service (IRS) Large Business and International (LB&I) division formally withdrew its Directive (LB&I-04-0118-005) instructing examiners on transfer pricing selection related to stock based compensation (SBC) in Cost Sharing Arrangements (CSAS). See here for IRS Notice of Withdrawal. The Directive was issued January 12, 2018, after the Tax Court’s opinion in Altera which invalidated Treasury Regulation § 1.482-7A(d)(2). The IRS appealed Altera and issued Directive LB&I-04-0118-005, which we previously discussed here. The Directive instructed examiners to “[s]top opening issues related to stock-based compensation (SBC) included in cost-sharing arrangements (CSAS) intangible development costs (IDCs) until the Ninth Circuit issues an opinion in the Altera case on appeal.” At the time, the IRS indicated that it would issue further guidance once Altera was finally decided. On June 7, 2019, the Ninth Circuit...

More IRS “Campaigns?! IRS Announces Six More Examination Campaigns

By Andrew R. Roberson and Kevin Spencer on Jul 23, 2019
Posted In IRS Audits, IRS Guidance, Transfer Pricing Resource, Uncategorized

On July 19, 2019, the Internal Revenue Service (IRS) Large Business & International (LB&I) division announced the approval of six new campaigns. As in the past, the IRS stated that “LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.” This brings the total number of campaigns to 59! LB&I’s campaign announcements and approved campaigns are available on the IRS’s website. The six new LB&I campaigns are listed below, verbatim by title and description. S Corporations Built in Gains Tax C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion....

More Developments on IRS’s Real-Time Audit Program

By Andrew R. Roberson and Kevin Spencer on Oct 2, 2018
Posted In IRS Audits, IRS Guidance, Tax Reform, Transfer Pricing Resource, Uncategorized

We have previously discussed ongoing developments with the Internal Revenue Service’s (IRS) Compliance Assurance Process (CAP) program. In brief summary, CAP is a real-time audit program that seeks to resolve the tax treatment of all or most return issues before the tax return is filed. The CAP program began in 2005 on an invitation-only basis with 17 taxpayers, and was subsequently expanded to include pre-CAP, CAP and CAP Maintenance components. Taxpayers and IRS leadership generally praised the CAP program as one of the most successful corporate tax enforcement programs, with surveys showing that more than 90 percent of CAP taxpayers reported overall satisfaction with the program. The fate of CAP has been uncertain in recent years given the IRS’s shift in the examination process to identifying and focusing on specific areas of risk and the continued dwindling of IRS resources. In 2016, we discussed whether this change might result in the death of the CAP...

LB&I Announces Five New Campaigns

By Emily Mussio, Andrew R. Roberson and Kevin Spencer on Sep 17, 2018
Posted In IRS Guidance, Transfer Pricing Resource, Uncategorized

On September 10, 2018, the Internal Revenue Service (IRS) Large Business and International (LB&I) Division announced five new audit “campaigns.” These new campaigns follow: (1) the initial 13 campaigns announced on January 31, 2017; (2) followed by 11 campaigns announced on November 3, 2017; (3) five campaigns announced on March 13, 2018; six campaigns announced on May 21, 2018; and five campaigns announced on July 2, 2018. The following five new LB&I campaigns are listed by title and description: Section 199 – Claims Risk Review Public Law 115-97 repealed the Domestic Production Activity Deduction (DPAD) for taxable years beginning after December 31, 2017. This campaign addresses all business entities that may file a claim for additional DPAD under Internal Revenue Code (IRC) Section 199. The campaign objective is to ensure taxpayer compliance with the requirements of IRC Section 199 through a claim risk review assessment and issue-based examinations...

IRS Announces That CAP Will Continue

By Andrew R. Roberson and Kevin Spencer on Aug 28, 2018
Posted In Alternative Dispute Resolution, IRS Appeals, IRS Audits, IRS Guidance, Settlements, Tax Refunds, Transfer Pricing Resource, Uncategorized

On August 27, 2018, the Internal Revenue Service (IRS) announced that the Compliance Assurance Process (CAP) program will continue, with some modifications. As we previously discussed, the IRS began an assessment of the CAP program in August 2016 to determine if any recalibration was needed. CAP is an IRS program that seeks to identify and resolve tax issues through open, cooperative, and transparent interaction between the IRS and Large Business and International (LB&I) taxpayers prior to the filing of a return. The goal of CAP is greater certainty of the treatment of tax positions sooner and with less administrative burden than conventional post-file audits. The program began in 2005, and became permanent in 2011. Several notable taxpayers publically disclose their involvement in the CAP program. With shrinking IRS resources, taxpayers and practitioners alike were worried that the IRS would scrap the program, relegating CAP taxpayers to roll the...

Alta Wind: Federal Circuit Reverses Trial Court and Kicks Case Back to Answer Primary Issue

By Kevin Spencer and Philip Tingle on Aug 6, 2018
Posted In Appellate Courts, Court Procedure Matters, Transfer Pricing Resource, Trial Courts, Uncategorized

On July 27, 2018, the US Court of Appeals for the Federal Circuit in Alta Wind v. United States, reversed and remanded what had been a resounding victory for renewable energy. The US Court of Federal Claims had ruled that the plaintiff was entitled to claim a Section 1603 cash grant on the total amount paid for wind energy assets, including the value of certain power purchase agreements (PPAs). We have reported on the Alta Wind case several times in the past two years: Government Appeal of Alta Wind Supports Decision to File Suit Now Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility Act Now To Preserve Your Section 1603 Grant SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace In reversing the trial court, the appellate court failed to answer the substantive question...

Let’s Get Ready to Rumble – Coca Cola Concentrates on Trial Preparation

By Robin L. Greenhouse on Feb 20, 2018
Posted In Appellate Courts, Court Procedure Matters, IRS Appeals, Transfer Pricing Resource, Trial Courts, Uncategorized

The main attraction in the US Tax Court (Tax Court) is just a few weeks away. On March 5, 2018, The Coca-Cola Company (TCCC) and the Internal Revenue Service (IRS) square-off for a much anticipated six-week trial before Judge Lauber. The parties recently filed their Pretrial Memoranda in the case, although the IRS’s memorandum was filed under seal. TCCC’s Pretrial Memorandum gives us deep insight into the issues and how the trial will be conducted. The primary issue in the $3 billion transfer pricing case is the proper amount of the arm’s length royalties payable by six foreign licensees to TCCC for the licenses of TCCC’s trademarks and certain other intangible property for exploitation in international markets. In its Pretrial Memorandum, TCCC contends that the IRS’s application of an approximately 45 percent royalty rate using a bottler-based Comparable Profit Margin (CPM) that allocates to TCCC more than 100 percent of the aggregate operating (after...

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