transfer pricing adjustments Archives

Tax Court: Prior Closing Agreement May Have Relevance in Coca-Cola’s Transfer Pricing Case

by Kristina Novak and Kevin Spencer | Oct 20, 2017 | Court Procedure Matters, IRS Guidance, Transfer Pricing Resource, Uncategorized

Coca-Cola is seeking a re-determination in Tax Court of certain Internal Revenue Service (IRS) transfer-pricing adjustments relating to its 2007–2009 tax years. In the case, the IRS moved for partial summary judgment seeking a ruling that a 1996 Internal Revenue Code Section 7121 “closing agreement” executed by the parties is not relevant to the case before the court.

Closing Agreement Background

Following an audit of the taxpayer’s transfer pricing of its tax years 1987–1989, the parties executed a closing agreement for Coca-Cola’s 1987–1995 tax years. In the closing agreement, the parties agreed to a transfer pricing methodology, in which the IRS agreed that it would not impose penalties on Coca-Cola for post-1995 tax years if Coca-Cola followed the methodology agreed upon. Despite following the agreed-to methodology for its post-1995 tax years, the IRS determined income tax deficiencies for Coca-Cola’s 2007–2009 tax years, arguing that pricing was not arm’s-length. (more…)

Tax Court Issues Five Discovery Orders Addressing Admissibility of Expert Reports

by Jeffrey M. Glassman and McDermott Will & Emery | Jul 20, 2016 | Court Procedure Matters, IRS Guidance, Transfer Pricing Resource, Trial Courts, Uncategorized

On July 13, 14, and 15, 2016, Judge Laro of the US Tax Court (Tax Court) ruled on five taxpayer-filed motions in limine to exclude expert reports in Guidant LLC f.k.a. Guidant Corporation, and Subsidiaries, et al. v. Commissioner. At issue in the case are a number of IRS transfer pricing adjustments to the taxpayer-corporation’s income under Section 482.

In support of its adjustments, the IRS offered numerous expert reports to the Tax Court, and the taxpayer sought to exclude these reports. The taxpayer raised the following major arguments:

Argument: The IRS expert reports failed to contain opinions.

The taxpayer argued that three of the reports should be excluded because they did not comply with Tax Court Rule 143(g)(1), which requires that expert witnesses generally prepare written reports, and requires that expert reports include “a complete statement of all opinions the witness expresses and the basis and reasons for them.” In federal district court practice (under somewhat different rules), this requirement generally means that an expert must separately state, and clearly delineate, his or her expert opinions in a written report—usually in a “conclusions” or “opinions” section. In Tax Court, the requirement for a clear and concise written expert report is even more significant than in federal district court practice because, under Rule 143(g)(1), expert reports are treated as direct testimony of the expert (although, in many cases, additional expert testimony and cross-examination may be helpful or necessary).

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Tax Court Rules Whether IRS’s Transfer Pricing Adjustments Are Arbitrary, Capricious Depends on Facts and Circumstances

by Roger J. Jones | Apr 13, 2016 | Court Procedure Matters, Transfer Pricing Resource, Trial Courts, Uncategorized

In Guidant LLC f.k.a. Guidant Corporation, and Subsidiaries, et al. v. Commissioner, 146 T.C. No. 5 (Feb. 29, 2016), the taxpayer filed a motion seeking partial summary judgment on the ground that the Internal Revenue Service’s (IRS’s) transfer pricing adjustments were “arbitrary, capricious and unreasonable” as a matter of law. Judge David Laro denied the motion, ruling that “whether the Commissioner abused his discretion … depends on the facts and circumstances of a given case.” The taxpayer’s motion thus presented “a question of fact that should be resolved on the basis of the trial record.”

The case involves transfer pricing adjustments under Section 482 that increased the income of Guidant Corporation and its U.S. subsidiaries by nearly $3.5 billion. Section 482 grants the IRS broad discretion to “distribute, apportion, or allocate gross income, deductions, credits, or allowances” between or among controlled enterprises if it determines that such a re-allocation is “necessary in order to prevent evasion of taxes or clearly to reflect the income” of any of the enterprises. A taxpayer that challenges a Section 482 adjustment has a “dual burden.” First, it must show that the IRS’s adjustments are “arbitrary, capricious, and unreasonable.” The taxpayer must then show that its intercompany transactions reflect arm’s-length dealing. (more…)