IRS Cracking Down on U.S. Transfer Pricing Enforcement

Published: Aug 27, 2024

The IRS is increasing transfer pricing enforcement, sending letters to 180 U.S. subsidiaries of foreign companies with low margins or losses. Taxpayers should review documentation for cross-border transactions.

 

By Josh Whitworth, CPA-Dallas 

 

In late 2023 as part of the funding the IRS received from the Inflation Reduction Act, the IRS has expanded its transfer pricing enforcement efforts on U.S. subsidiaries of foreign companies that distribute goods in the U.S. The IRS sent letters to around 180 U.S. subsidiaries of large corporations reminding taxpayers of their tax obligations. These taxpayers filed Form 1120, had a Form 5472 (Information Return of a 25% Foreign-owned U.S. Corporation), were engaged in the purchase and resale of tangible goods from a foreign related party and had reported losses or low margins.  

 

This is to remind taxpayers to review existing transfer pricing documentation if there are transactions between a U.S. subsidiary and a non-U.S. parent, as the IRS is cracking down on enforcement in this area. 

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