IRS Bolsters Transfer Pricing Operations Unit
The IRS has recently gone on a hiring spree, bringing on board personnel with expertise in law, accounting, and economics, needed to identify, audit, and litigate “transfer pricing” cases.
Transfer pricing, in short, allows taxpayers with international operation to allocate deductions to high tax jurisdictions, and allocate income to low tax jurisdiction, thereby increasing the value of the deduction and parking profits in low tax jurisdictions. (Transfer pricing is governed by section 482 of the Internal Revenue Code, available here, which addresses the “allocation of income and deduction among taxpayers.” Although Section 482 is fairly short, the Treasury Regulations under section 482, available here, are long and exceedingly complex.) The overall effect of transfer pricing is to decrease the amount of worldwide tax paid by the global company. The drug manufacturing and high-tech sectors extensively use transfer pricing to creatively minimize world-wide tax and reduce the amount of tax owed to the IRS, and over time, the practice of transfer pricing has come under increased scrutiny by the United States government.
In response to the increased profile that the issue has received, there has been a realignment within the IRS. The Advance Pricing Agreement (APA) program has shifted from IRSs Office of Chief Counsel to the new Transfer Pricing Operations. (The IRSs press release on the realignment is available here.) The IRS recently hired Samuel Maruca to be the new director of its Transfer Pricing Operations unit. Mr. Maruca, an attorney, has hired personnel from the Big 4 accounting firms, as well as law firms. He has already hired 40 people and is looking to fill another 60 positions. As a result of the realignment, companies should expect that their transfer pricing agreements will come under scrutiny by the IRS. Likewise, increased audits and litigation regarding transfer pricing appear to be certain.
The attorneys at Fuerst Ittleman frequently handle highly complex matters against the IRS, and are well versed on the laws governing transfer pricing. You can contact us by phone at 305.350.5690 or by email at contact@fidjlaw.com.