USA: IRS releases guidance on transfer pricing examinations

Published on October 19, 2018

In June 2018, the IRS released Publication 5300, "Transfer Pricing Examination Process", providing a guide to the best practices and processes to assist with the planning, execution and resolution of transfer pricing examinations. The Transfer Pricing Examination Process (TPEP) replaces the Transfer Pricing Roadmap issued in 2014 and provides guidance for new U.S. transfer pricing audit focuses, including Form 8975, Country-by-Country (CbC) Report.

For taxpayers, the TPEP provides a framework and guide for what they can expect during transfer pricing examinations. The TPEP divides the audit into three main phases: planning, execution, and resolution. In the planning phase, the IRS determines scope of audit, makes the initial transfer pricing risk assessment, and issue an IDR. The IRS will have an opening conference with the taxpayer to give an overview of the audit process and expectations for information requested, meetings required, and a timeline for the audit. The TPEP includes a sample timeline for two-year and three-year audit schedules.

During the execution phase, the IRS will review transfer pricing documentation and intercompany agreements and may request meetings with the taxpayer to understand the taxpayer's transfer pricing structure. An additional IDR may be issued for any items not previously provided during the planning phase.

As the audit nears conclusion in the resolution phase, the IRS will meet with the taxpayer to discuss the results of the audit. If the IRS and the taxpayer are in agreement, the audit is concluded. If the taxpayer contests the results of the audit, a Revenue Agent Report (RAR) is issued and the appeals process begins.

Other useful resources in the TPEP include an exhibits section with a listing of the current practice units used by the IRS. These practice units provide useful guidance on the transfer pricing topics the IRS is currently prioritizing and how IRS examiners will approach these topics in an audit situation.

Rödl & Partner's U.S. transfer pricing experts possess substantial experience in dealing with the IRS throughout tax return examinations. They are available to assist clients in proactively determining their compliance with U.S. transfer pricing documentation requirements and/or the arm's length standard prescribed under the U.S. transfer pricing rules as well guiding them through the IRS examination process.

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