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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 4 of Series): “TPEP Resolution Phase & Takeaways”

Transfer Pricing Exams & IRS Preparedness Measures

In this fourth article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we briefly summarize the IRS’s Transfer Pricing Examination Process (TPEP) Resolution Phase, which is the final phase of the TPEP’s three phases, and we list extrajudicial taxpayer courses of action such as Appeals.

The goal of the Resolution Phase is to reach agreement on the tax treatment of each transfer pricing issue examined. Important parts of the Resolution Phase include the IRS’s presentation of the issue and its resolution, case closing, and when necessary, issuing a Revenue Agent Report with adjustments, penalties (if the taxpayer failed to timely provide documentation), and tax liability.

The TPEP instructs the issue team to provide the taxpayer an opportunity to agree or disagree with the findings for each transfer pricing issue developed during the examination. For a transfer pricing issue to be resolved, there must be an open discussion between the issue team and the taxpayer in three areas: 1) factual development, 2) the law(s) that applies to the facts, and 3) each party’s interpretation of the law(s). The issue team should meet with the taxpayer to discuss all issues and determine whether a “principled resolution” can be reached. If a field resolution is not reached, the issue team will finalize the Notice of Proposed Adjustment (“NOPA”) and Economist Report.

The TPEP discusses options that the taxpayer can pursue, including Appeals,[1] and when a tax treaty country is involved, U.S. Competent Authority (CA) requests, Accelerated CA Procedures to cover subsequent taxable years, and Simultaneous Appeals Procedures whereby Appeals works jointly with the Advance Pricing and Mutual Agreement (APMA) Program and the taxpayer prior to APMA’s consultations with the foreign CA(s). Taxpayers may request CA assistance after receiving a NOPA and are not required to wait until the conclusion of an examination to file a CA request. If APMA accepts a CA request, it will assume jurisdiction over the transfer pricing issues. Otherwise, the case remains under the jurisdiction of the issue team.

We invite you to read our article Six Time-Tested TPEP Takeaways where we share pertinent insights that are even more important today than a few years ago when the TPEP was still hot off the press.

Stay tuned for the next blog post in this series, where we discuss the IRS’s April 2020 transfer pricing guidance, Transfer Pricing Documentation Frequently Asked Questions (FAQs).

If you have any questions or would like more information on the issues discussed in this article, please contact the authors:

Guy Sanschagrin, Principal in Charge of Transfer Pricing and Valuation Services, WTP Advisors (Minneapolis, MN, USA) guy.sanschagrin@wtpadvisors.com

Doug Schwerdt, Transfer Pricing and Valuation Specialist, WTP Advisors (Houston, TX, USA) doug.schwerdt@wtpadvisors.com

 

Read Blog Post Part 1 in this Series

Read Blog Post Part 2 in this Series

Read Blog Post Part 3 in this Series

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[1] The TPEP reaffirms that the IRS requires 365 days to remain on the statute of limitations for taxpayers to request Appeals consideration.

The CARES ACT And The IC-DISC

The CARES ACT And The IC-DISC

Congress sent the Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’ to the President, who signed it into law.

There are three significant provisions that impact 2018, 2019, and 2020 income taxes and your use of the IC-DISC.

Net operating loss carrybacks.  The provisions enacted as part of the Tax Cuts and Jobs Act at the end of 2017 eliminated the ability to carry back net operating losses to obtain tax refunds.  The CARES Act provides for a five-year net operating loss carryback for losses generated in years beginning after December 31, 2017 and before January 1, 2021.

Section 461(l) delayed effective date.  Section 461(l) limits the deductibility of losses for taxpayers other than corporations.  The provisions, enacted as part of the Tax Cuts and Jobs Act at the end of 2017 limited the current deductibility of these losses to $500,000 for married filing jointly taxpayers ($250,000 for all others).  The CARES Act delays the impact of this provision until taxable years beginning after 2020 for most taxpayers, however the provision was completely eliminated for excess farm losses.

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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 3 of Series): “TPEP Execution Phase”

Doug Schwerdt

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.

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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 2 of Series): “TPEP Planning Phase”

GUY SANSCHAGRIN

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.

Evolving Guidance
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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 1 of Series)

Transfer Pricing Examination Process: Are You Prepared?

The IRS guidance, Transfer Pricing Examination Process, Publication 5300 (TPEP), released in June 2018, is more relevant now than ever before. There is a broad consensus among transfer pricing and international tax practitioners that tax authorities around the globe will step up transfer pricing audit activity within the next year as a means to recoup lost tax revenue resulting from the pandemic-induced recession. Fortunately, for US-based entities in multinational enterprise (MNE) groups, the IRS has in recent years issued taxpayer guidance on how to prepare for transfer pricing examinations. This series of blog articles is structured to help tax executives quickly get up to speed with the IRS’s guidance on transfer pricing examinations and its expectations on documentation.

In this first installment we introduce the TPEP. The next three installments of this series highlight and summarize the essential aspects of the three TPEP Phases: Planning, Execution, and Resolution. Subsequent installments examine how the TPEP diverges from the Transfer Pricing Audit Roadmap, its predecessor guidance, and provide TPEP insights in the form of useful takeaways. Saving the best for last, the concluding article of this series will focus on the IRS’s most recent transfer pricing guidance, FAQs re Transfer Pricing Documentation Best Practices.

TPEP Primer

IRS transfer pricing examinations can be unpleasant experiences for taxpayers. Chances are, an international business in the U.S. – whether it is headquartered in the U.S., or a subsidiary of a foreign parent – is going to have its transfer pricing examined by the IRS at some point. Transfer pricing has been cited by IRS officials for years as one of their most important enforcement priorities. But as a direct result of the OECD’s Base Erosion and Profit Shifting (BEPS)1 project, tax authorities around the world are actively engaged in the process of revising and tightening their expectations and requirements with respect to transfer pricing. The prospect of thorough and detailed examinations of taxpayers’ transfer pricing positions is growing every day.
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