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. 

Topics:

You May be Interested in

  • The IRS May Owe Your Clients Money from the COVID Period
    Recent court decisions have opened a largely overlooked opportunity for significant tax refunds based on mandatory disaster relief under IRC Section 7508A during the federally declared COVID-19 disaster period. As a result, interest and penalties assessed during this period may be invalid and refundable, and some taxpayers who received refunds may also be entitled to unpaid overpayment interest. While uncertainty remains and the IRS may resist such claims, timely protective refund filings are critical to preserve clients rights as the statute of limitations continues to run.
  • TXCPA Advocates for Accounting’s Recognition in Definition of Professional Degrees for Student Loan Eligibility
    TXCPA submitted a formal comment to the U.S. Department of Education urging recognition of accounting as a professional degree program to protect graduate-level federal loan access and strengthen the future CPA pipeline.
  • The Verdict is In. The Texas Franchise Tax is GILTI, Raising New Questions and Potential Issues
    Beginning with the 2026 report year, the Texas Comptroller will align the franchise tax with the current Internal Revenue Code, likely requiring GILTI to be included in total revenue. This change raises sourcing, statutory and potential constitutional questions for businesses with foreign operations, creating new uncertainty and possible tax impacts.
More News

Support the Next Generation

Donate to TXCPA scholarships and help aspiring accountants achieve their goals.

Scholarships