United States

IRS issues procedural change to transfer pricing exams

Transfer pricing information document requests are no longer mandatory

TAX ALERT  | 

The Large Business and International (LB&I) Division of the IRS recently issued a memorandum titled “Interim Instructions on Issuance of Mandatory Transfer Pricing Information Document Requests (IDR) in LB&I Examinations” (LB&I-04-0118-001).

Back in 2003, the IRS updated its procedures for the issuance of IDRs for transfer pricing. The Mandatory Transfer Pricing IDR was issued during all taxpayer examinations if the taxpayer filed either Form 5471 or 5472, or when the taxpayer was engaged in cross-border transactions. As a result, transfer pricing issues now make up a substantial portion of LB&I inventory. In an effort to more efficiently and effectively manage its resources, LB&I updated its examination procedures, which will be incorporated into the Internal Revenue Manual.

Going forward, the Mandatory Transfer Pricing IDR will be issued in two scenarios:

  • For examinations arising under approved LB&I campaigns, examination team members will follow the specific guidance for the Mandatory Transfer Pricing IDR provided for within the campaign. If no such guidance is provided, the procedures under item 2, below, will apply.
  • For examinations with initial indications of transfer pricing compliance risk, Transfer Pricing Practice (TPP) and/or Cross Border Activities (CBA) Practice Area employees will issue the Mandatory Transfer Pricing IDR if assigned to the case.

If either scenario does not occur, then the Mandatory Transfer Pricing IDR will not be issued.

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