IRS Releases “Roadmap” to Transfer Pricing Examinations

On February 14, 2014, the Internal Revenue Service (“IRS”) released an outline of the transfer pricing audit stages (“IRS Roadmap”).  

This document provides advice and links to reference material organized around the typical audit timeline (i.e., planning, execution, and resolution). In addition, the IRS Roadmap provides examiners with a toolkit (e.g., guidance on key milestones, risk assessments, fact finding, etc.) to assist with each stage of the examination. While the IRS Roadmap is intended to be used by the examination team as guidance during audit, it also provides insight to taxpayers and practitioners concerning the audit process, specifically with regards to the planning and resolution of transfer pricing examinations.

While the IRS notes that the IRS Roadmap is not intended to be a template for transfer pricing audits, the IRS recognizes the following key themes for an examination team to keep in mind when examining a transfer pricing case:

  • As with any complex project, up-front planning is essential-Transfer pricing specialists must be involved in assessing potential transfer pricing issues at the earliest possible stage.

  • Transfer pricing cases are usually won and lost on the facts-The key in transfer pricing cases is to put together a compelling story of what drives the taxpayer’s financial success, based on a thorough analysis of functions, assets, and risks, and an accurate understanding of the relevant financial information.

  • The objective in a transfer pricing audit is to determine a reasonable result under the facts and circumstances of any given case – Effective enforcement of the arm’s length standard requires the exercise of judgment. Thus, a “working hypothesis” developed early, based on initial basic fact development, is a necessary guide to further detailed examination.

  • Effective presentation can make or break a case-Even a strong position may not be sustained on review if it is not presented clearly and persuasively.

The IRS Roadmap is intended to be an evolving document. To this end, the IRS is encouraging interested parties to provide feedback. To view the current IRS Roadmap visit the IRS’ website.

If you have any questions regarding the IRS Roadmap or audit issues surrounding transfer pricing matters, Duff & Phelps’ transfer pricing specialists would be pleased to assist you.

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