On January 12, 2018, the Large Business and International Division ("LB&I") of the Internal Revenue Service issued5 directives which provide instructions on how IRS agents should approach an audit examination. These directives will remain in effect through January 12, 2020 (or until the appropriate Internal Revenue Manual and related references are updated).
Prior to the issuance of the new directives, the IRS was required to request contemporaneous transfer pricing documentation at the beginning of an examination of a taxpayer engaged in cross-border transactions. This request is referred to as a mandatory transfer pricing information document request. This documentation is required under Internal Revenue Code Section 6662(e) to provide penalty protection to taxpayers in the event of a transfer pricing adjustment upon audit.
The new directives focuses on:
- The issuance of mandatory transfer pricing information document requests ("IDR");
- The appropriate application of penalties;
- The analysis of the best method selection;
- Reasonably anticipated benefits in the cost sharing arrangements ("CSA"); and
- CSA stock-based compensation.
Read more at: Tax Times blog