“Because so many sweeping economic changes have occurred over the last couple years, it’s important that taxpayers review their transfer pricing strategy,” Alexander said. “Is it possible that a change in strategy could take advantage of new efficiencies or cut costs that were not incurred prior to the pandemic? Now is a good time to address that.”
“Make sure that if you’re a U.S. business operating across state borders that you also can demonstrate that you apply the arm’s-length principle” to transfer pricing, meaning that the price is the same as if the two entities were not connected, Adey said.
“We advice companies is to take an extra step prior to year’s end, that they commission an interim pricing study taking into consideration all affiliates and subsidiaries,” McMahon said. “This interim report should then be used to modify the budget numbers and ... ensure that the final report will be more complete and less exposed to IRS correction.”
Business owners should have time to prepare for IRS action, Alexander said.
“The IRS will likely continue to focus on the same issues and use the same audit selection criteria, with the change coming in the number of audits,” Alexander said, adding that ramping up federal audits, despite the new IRS funding, still could take years.
“The IRS’s new staff will need to be trained, and the backlog of current audits will need to be cleared. Because the IRS remains focused on more complex issues, which require more training time, the number of audits concluded may even decline in the near term,” Alexander said. “The upside is that, although the number of transfer pricing audits will undoubtedly increase, taxpayers have some time to prepare.”