While we have periodically written about the Transfer Pricing Examination Process, Publication 5300 (TPEP) and its predecessor, the Transfer Pricing Audit Roadmap, for this blog post we revisited the TPEP to determine how well this IRS guidance and our initial insights on it have withstood the test of time relative to our field-based transfer pricing (“TP”) experience since the TPEP’s initial 29 June 2018 release. This blog post is a companion to our article “Impactful FYE Transfer Pricing Examination Preparedness Measures” in the December 2020 TGS Global AMÉRICA Regional Magazine. Following are six TPEP takeaways that we have found to be even more important today than a few years ago.
1. Robust documentation is the first and best line of defense against an IRS TP adjustment and non-deductible penalties and interest.
In this third article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Execution Phase.
The Execution Phase immediately follows the opening conference and consists of continued risk assessment, fact finding, information gathering, and issue development. Stages of issue development include determining the facts, applying the law to those facts, and understanding the various tax implications of the issue. The issue team is advised to make every effort to resolve factual differences with the taxpayer.
In this second article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Planning Phase.
The Planning Phase determines the scope and issues of the transfer pricing examination. The TPEP states, “Issues selected for examination should have the broadest impact on achieving compliance regardless of the size or type of entity.” Important steps in the Planning Phase are: 1) the Initial Transfer Pricing Risk Assessment, 2) issuance of the Initial Transfer Pricing Information Document Request (IDR), 3) IRS internal planning meetings, 4) development of the exam plan, timelines and milestones, and 5) the opening conference, which is the final step of the Planning Phase and marks the transition to the Execution Phase.
(The Transfer Pricing Examination Process was recently updated by the Department of Treasury – June 2018. TaxConnections posts this valuable eight part a series to keep you informed of these changes.)
C. Initial Transfer Pricing Risk Assessment
1. Review Prior Year Workpapers
Risk assessment includes the review of prior year workpapers, if applicable, to identify potential controlled transactions. The issue team should analyze prior year documents including, but not limited to:
• Initial and mid-cycle risk analysis
• Taxpayer’s transfer pricing documentation
• Revenue Agent Reports and closing agreements
• Notice of Proposed Adjustments (NOPA)
• International Examiner’s Report
• Economist’s Report
• Other specialist’s reports
• Functional analysis
• Appeals Case Memorandum (ACM)