Publish Date

Oct 18, 2018

So the IRS is Auditing your Transfer Pricing…

A&M Tax Advisor Weekly

Don’t panic, the IRS has laid out a process for examining transfer pricing in its Transfer Pricing Examination Process (TPEP), Publication 5300.

The TPEP lays out three phases to a transfer pricing audit. (1) The planning phase determines the scope of the audit. (2) The execution phase is when the IRS develops issues and understanding of the various tax implications of the issues. (3) During the resolution phase, agreement is reached, if possible. Transfer pricing audits can take months, or even years, to resolve. You can prepare for transfer pricing audits by ensuring your transfer pricing documentation and intercompany agreements are current and work with the IRS to hopefully resolve your issues sooner rather than later.

In the planning stage, a transfer pricing audit is much like the planning stage of a financial audit, as the scope of the examination is determined. The IRS and the taxpayer typically work together to establish a plan that identifies the issues, documents audit steps, timelines and communication agreements (i.e., how and when items will be requested and submitted).

If an issue team is assigned to audit your transfer pricing, the issue team is typically made up of the following members:

  • • Senior Revenue Agent,
  • • Revenue Agent,
  • • Economist, and
  • • Tax Law Specialist.

These members are responsible for coordinating and collaborating with the rest of the IRS exam team. In collecting necessary information, the issue team should coordinate its Information Document Requests (IDRs) with the entire case team to avoid duplications. The issue team may ask for accounting records, organizational charts, financial statements, and other items that it deems necessary.