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February 13, 2017

Transfer Pricing Targeted for Examination and Compliance Efforts (article)

The Internal Revenue Service (IRS) announced its Large Business and International (LB&I) division has selected two transfer pricing campaigns as part of 13 targeted compliance campaigns. Announced Jan. 31, 2017, the targeted compliance campaigns represent a shift to issue-based LB&I audit initiatives. The compliance campaigns are similar in concept to the tiered management process that was used by the LB&I division until Aug. 17, 2012, when the “Tier I, II, and III” issues first established in 2006 were eliminated. The LB&I division is assigned to C corporations, S corporations and partnerships with assets greater than $10 million. Therefore, these taxpayers will be subject to the new compliance campaigns.

The IRS identified and selected these campaigns to be included in its initial rollout based on data analysis and feedback from the tax community. The two selected transfer pricing campaigns, the Related Party Transactions Campaign and the Inbound Distributors Campaign, will utilize the LB&I division’s resources to examine companies with certain intercompany transactions (an area the IRS associates with potential compliance risks). Further descriptions of the transfer pricing campaigns are below.

  • Related Party Transactions Campaign - The Related Party Transactions campaign focuses on transactions between commonly controlled entities in the mid-market segment. The IRS will take an issue-based examination approach to identify the level of compliance for companies that transfer funds from corporations to related pass-through entities or shareholders.
  • Inbound Distributor Campaign - The Inbound Distributor Campaign focuses on U.S. distributors of goods sourced from foreign-related parties. The IRS noted that in many cases, these U.S. distributors incur losses or small profits on U.S. returns that do not align with the risks assumed. As part of this campaign, the LB&I has created a comprehensive training strategy to help IRS agents examine U.S. distributors under Code Section 482.

Several other compliance campaigns will affect pass-through entities and other cross-border activities. For more information on the IRS compliance effort, please see IRS Announces Initial Rollout of Campaign. To learn more about how the campaigns could affect your transfer pricing, please contact us.

Copyright © 2017, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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