USA: Potential increase in IRS transfer pricing audits

published on 7 october 2022 | reading time approx. 1 minute

Inflation Reduction Act (IRA): Increase in IRS Funding for Enforcement

The (U.S.) Inflation Reduction Act (IRA), enacted on August 16, 2022, allocates nearly 80 billion US-dollar in funding to the Internal Revenue Service (IRS). Over 50 per cent of the budgeted allocation is earmarked for enforcement activities focused around corporate and high-net-worth individual taxpayers.

Given the IRS's focus on transfer pricing in its examination activities in recent years, the estimated additional 87,000 employees to be added to the IRS's headcount are likely to further increase the scrutiny on the transfer pricing topic in future examinations. U.S. taxpayers engaging in material transactions with foreign related parties should conduct a thorough review of their intercompany pricing policies and take a proactive stance by preparing formal transfer pricing documentation that is in compliance with the U.S. transfer pricing rules to defend their intercompany pricing policies.

Preparing comprehensive transfer pricing documentation substantially mitigates the exposure to significant penalties that can be assessed for non-compliance and assists foreign multinational enterprises in complying with the transfer pricing documentation requirements outlined in the Organisation for Economic Co-operation and Development's (OECD) final report on Action 13, Transfer Pricing Documentation and Country-by-Country Reporting.