Publication 5300 (Rev 9-2020) Catalog Number 71492Y Department of the Treasury Internal Revenue Service www.irs.gov

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TRANSFER

PRICING

EXAMINATION

PROCESS

Publication 5300 (Rev 9-2020) Catalog Number 71492Y Department of the Treasury Internal Revenue Service www.irs.gov

DEPARTMENT OF TREASURY – INTERNAL REVENUE SERVICE

The Transfer Pricing Examination Process (TPEP) provides a guide to best

practices and processes to assist with the planning, execution, and resolution of

transfer pricing examinations consistent with the Large Business & International (LB&I)

Examination Process (LEP), Publication 5125. This guide will be shared with taxpayers

at the start of a transfer pricing examination, so they understand the process and can

work effectively with the examination team.

Transfer pricing examinations are factually intensive and require a thorough

analysis of functions performed, assets employed, and risks assumed along with an

accurate understanding of relevant financial information. They are resource intensive

for both the IRS and taxpayers. To ensure resources are applied effectively, LB&I is

using data analytics to identify issues for examination that have the most significant

risk for non-compliance. In addition, teams should continually assess the merits of

issues during an examination. Our goal in a transfer pricing examination is to

determine an arm’s length result under the facts and circumstances of the case.

Teams should keep an open mind during an examination to new facts as they are

identified. Arm’s length results are rarely a precise answer, but instead may be a

range of results. If the facts of the case show that the taxpayer’s results fall within an

appropriate arm’s length range, then our resources should be applied elsewhere.

Likewise, teams should continually assess opportunities for issue resolution with

taxpayers during the examination process.

The TPEP provides a framework and guide for transfer pricing examinations.

Every transfer pricing issue is unique, and teams should exercise their judgment on

how to best apply this guide. This guide will be updated regularly based on feedback

from examiners, taxpayers, practitioners and others.

Revised September 8, 2020

DEPARTMENT OF TREASURY – INTERNAL REVENUE SERVICE

Table of Contents

II.

Planning Phase ....................................................................................................... 6

Issue Team Member Collaboration and Coordination ....................................... 6

Practice Units.................................................................................................... 7

Initial Transfer Pricing Risk Assessment ........................................................... 8

Review Prior Year Workpapers...................................................................... 8

Collaborating with Advance Pricing Mutual Agreement Program .................. 9

Analyze the Income Tax Return .................................................................... 9

Analyze the Country-by-Country Report ...................................................... 10

Prepare Ratio Analysis ................................................................................ 11

Research Taxpayer’s Background and Operations ...................................... 11

Develop a Preliminary Working Hypothesis ................................................. 12

Complete Risk Analysis ............................................................................... 13

IRC Section 6662(e) Documentation Request ................................................ 13

Internal Planning Meeting(s) ........................................................................... 14

Issue Team Examination Plan, Timelines, and Key Milestones ...................... 15

Opening Conference ....................................................................................... 16

Execution Phase ................................................................................................... 18

Revised September 8, 2020

DEPARTMENT OF TREASURY – INTERNAL REVENUE SERVICE

Risk Assessment ............................................................................................ 18

Review IRC Section 6662(e) Response....................................................... 18

Request Financial Statement Orientation..................................................... 19

Request Transfer Pricing/Supply Chain Orientation ..................................... 20

Update Risk Assessment ............................................................................. 21

Fact Finding and Information Gathering .......................................................... 22

Issue IDRs and/or Summonses ................................................................... 22

Review Intercompany Agreements .............................................................. 23

Conduct Functional Analysis ........................................................................ 24

Taxpayer Meetings ......................................................................................... 25

Mid-Cycle Risk Assessment............................................................................ 25

Issue Development ......................................................................................... 27

Economic Analysis....................................................................................... 27

Penalties...................................................................................................... 28

Drafting Reports .......................................................................................... 29

Acknowledgement of Facts IDR................................................................... 30

III. Resolution Phase .................................................................................................. 31

Issue Presentation and Resolution.................................................................. 31

Case Closing/RAR .......................................................................................... 32

Appeals ........................................................................................................... 33

U.S. Competent Authority Request ................................................................. 34

Revised September 8, 2020

DEPARTMENT OF TREASURY – INTERNAL REVENUE SERVICE

Competent Authority Request Concerning U.S.-Initiated Actions ................... 35

Competent Authority Resolution .................................................................. 35

Accelerated Competent Authority Procedure (ACAP) .................................. 35

Simultaneous Appeals Procedures (SAP).................................................... 36

IV. Exhibits ................................................................................................................. 37

Practice Units.................................................................................................. 37

Example of 24 Month Examination ................................................................. 40

Example of 36 Month Examination ................................................................. 41

Revised September 8, 2020

PLANNING PHASE

Planning Phase

This phase of the examination process determines the scope of the audit. Issues

selected for transfer pricing examinations should have the broadest impact on achieving

compliance regardless of the size or type of entity. The examination team will work with

the taxpayer to establish a plan to complete the examination in a timely manner. The

examination plan will be issue-focused and contain the following: issues identified, audit

steps, timeline(s), and communication agreements. The examination plan may be

adjusted throughout the examination process. Both parties must commit sufficient

resources to achieve the agreed-upon case and issue timelines.

Helpful Reference:

IRC 482 Audit Toolkit

Issue Team Member Collaboration and Coordination

The Issue Selection and Collaboration Process will be used to determine if a specialist

is assigned to an Industry Case. The team assigned to examine a specific issue, such

as a transfer pricing transaction, is referred to as the issue team. For transfer pricing

cases, the issue team can be composed of various individuals, including members of

the Transfer Pricing Practice (TPP) and Cross Border Activities (CBA); such as the:

•

Senior Revenue Agent (SRA)

Revenue Agent (RA)

Economist

Tax Law Specialist (TLS)

In accordance with the LEP, there should be coordination and collaboration among the

team members and advisors including the:

•

Case Manager

Issue Manager

Team Coordinator

SRA and/or the RA responsible for international issues

Computer Audit Specialist (CAS)

Counsel

Other specialists

Revised September 8, 2020

PLANNING PHASE

The issue team should coordinate to issue an Information Document Request (IDR)

requesting accounting records, including geographic, tax and legal organizational

charts, worldwide geographic and initial segmented accounting data, and financial

statements necessary for transfer pricing review.

Best Practices:

•

The roles and responsibilities for each issue team member assigned will be

determined in the planning phase based on the resources available

Involve LB&I Division Counsel early in the examination process

The issue team should coordinate IDR requests with the entire case team

to avoid duplicate IDR requests

Helpful References:

IRM 4.46.1.1.3 - Roles and Responsibilities

IRM 4.46.3 - Planning the Examination

IRM 4.60.6 - International Referral Criteria and Procedures

Revenue Agent Case Quality Improvement Job Aid

Memorandum of Understanding Between Internal Revenue Service Large Business &

International ("LB&I") and National Treasury Employees Union concerning process for

specialist referrals

Practice Units

Practice Units are reference and training tools for evaluating and developing potential

issues encountered over the Planning, Execution, and Resolution phases of an

examination. Practice Units are located on the “International Knowledge Base” site

under the Tax Examination/Issues portion of the IRS Virtual Library on the Servicewide

Knowledge Management (KM) SharePoint site. Following are some examples of

Practice Units that can be used to assist with the Planning Phase:

•

Arm’s Length Standard

Overview of IRC Section 482

Three Requirements of IRC 482

A list of additional Practice Units is provided in Exhibit A.

Revised September 8, 2020

PLANNING PHASE

Best Practice: Check for Directives or other forms of guidance affecting transfer pricing

issues.

Initial Transfer Pricing Risk Assessment

Review Prior Year Workpapers

Risk assessment includes the review of prior year workpapers and documents, if

applicable, to identify potential controlled transactions. The issue team should

analyze prior year information 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

Legal advice

Taxpayer protests and examination’s rebuttals

Other specialist’s reports

Functional analysis

Appeals Case Memorandum (ACM)

Examination historical notes

Best Practice: Workpapers are used to document the audit procedures performed,

information gathered, analysis performed, and conclusions reached over the course

of the examination. To promote efficiency, workpapers must be prepared on a timely

basis. The issue team will begin documenting workpapers at the inception of the

examination and continue to update the file throughout the examination process.

Also, meet with the prior examination cycle issue team, if possible.

Helpful References:

IRM 4.10.9.7 - Workpapers

IRM 4.46.3.3.1 - Examiner’s Preliminary Risk Analysis – Information Resources

IRM 4.46.3.3.5 - Risk Analysis Factors to Consider

IRM 4.46.3.3.6 - Documenting the Risk Analysis

IRM 4.61.3.3.8 - Initial Transfer Pricing Risk Assessment

Revised September 8, 2020

PLANNING PHASE

Collaborating with Advance Pricing

Mutual Agreement Program

The issue team must consult with the Advance Pricing Mutual Agreement (APMA)

program when reviewing a taxpayer’s intercompany transactions involving a treaty

partner, regardless of whether the taxpayer currently has a MAP or APA case in

APMA or whether APMA has an active relationship with the treaty partner. Follow the

Interim Guidance on Mandatory Issue Team Consultations with APMA for

Examination of Transfer Pricing Issues Involving Treaty Countries. Also, the issue

team will consider obtaining information or foreign-based documentation from treaty

partner using collateral requests, information requests pursuant to treaties, and the

Simultaneous Examination Program (SEP). The issue team should consider Advance

Pricing Agreements (APAs) or Mutual Agreement Procedure (MAP) agreements.

Helpful References:

IRM 4.60.3 - Tax Treaty Related Matters

IRM 4.61.3.3.8 - Initial Transfer Pricing Risk Assessment

Interim Guidance on Mandatory Issue Team Consultations with APMA for Examination

of Transfer Pricing Issues Involving Treaty Countries

Instructions for LB&I Examination Consultations with APMA

United States Income Tax Treaties - A to Z

APMA Program Contact Information

Analyze the Income Tax Return

The issue team will access the CAS website for a variety of tools to conduct analysis

on e-filed income tax returns. Tutorials are available for instructions and training. The

Auditor's Workbench tool will be used to analyze data from Forms 1120, 1065,

1120S,4797, 5471, 5472, 8858, and 8865. In addition to the potential for transfer

pricing issues, the examiner should collaborate with CBA to identify any Subpart F or

U.S. trade or business/permanent establishment issues related to the controlled

transaction. Forms to analyze include, but are not limited to:

•

Form 926 - Return by a U.S. Transferor of Property to a Foreign Corporation

Form 4797 - Sales of Business Property

•

Form 5471 - Information Return of U.S. Persons With Respect To Certain

Foreign Corporations

Form 5472 - Information Return of Foreign Owned Corporation

•

Revised September 8, 2020

PLANNING PHASE

•

Form 8858 - Information Return of U.S. Persons With Respect To Disregarded

Entities (FDEs) and Foreign Branches

Form 8865 - Return of U.S. Persons With Respect to Certain Foreign

Partnerships

Form 8833 - Treaty-Based Return Position Disclosure Under 6114 or 7701(b)

Schedule M-3 Net Income (Loss) Reconciliation

Schedule UTP - Uncertain Tax Position Statement (UTP)

Helpful References:

IRM 4.61.3.3.8 - Initial Transfer Pricing Risk Assessment

LB&I Schedule UTP Guidance

Auditor’s Workbench Tutorials

Auditor’s Workbench Income Shifting Outbound Custom Queries

Auditor’s Workbench Income Shifting Inbound Custom Queries

CAS and Examiner Analysis Tools

Analyze the Country-by-Country Report

The issue team should utilize the Form 8975, Country-by-Country (CbC) Report and

accompanying Schedules A – Tax Jurisdiction and Constituent Entity Information. It

is a tool intended to provide useful information to analyze high level transfer pricing

risk, Base Erosion and Profit Shifting (BEPS) related risk, and where appropriate,

conduct further economic and statistical analysis. Before analyzing the CbC report,

the issue team members will complete the required training. Guidance for foreign

parent CbC reports will be available on the Income Shifting Practice Network

SharePoint websites under Audit Tools and Reference Resources.

Helpful References:

IRM 4.61.3.3.8 - Initial Transfer Pricing Risk Assessment

LB&I Country-by-Country Guidance and Procedures for Large Business and

International (LB&I) Division

ELMS 67517 Country-by-Country Report Training

Revised September 8, 2020

PLANNING PHASE

Prepare Ratio Analysis

The issue team should perform analysis to compute key financial ratios for multiple

years, make industry comparisons, and consider whether cross border income shifting

is occurring. Ratios should be based on both tax and financial data. The ratios are

useful as a diagnostic tool to help focus the examination. However, they do not provide

a definitive indication as to whether the price for a controlled transaction achieves an

arm’s length result. To determine whether ratios indicate potential transfer pricing

issues, the issue team should appropriately develop the relevant facts to support a

transfer pricing adjustment, a subpart F adjustment, or both. Below are some of the

tools that can be used to compute ratio analyses of the U.S. party and foreign related

parties to the transaction:

• Tax Information Gateway (TIG) Report - company financial data, worldwide

profitability analysis, and historical information

• Auditor's Workbench - ratio analysis reports (building custom queries as

needed)Campaign and Case Built File (CBF) data provides issue-focused

financial ratios and analysis

• The Service has subscriptions to other helpful tools. Subscription services may

change over time, so consult the Income Shifting Practice Network with any

questions.

Research Taxpayer’s Background and Operations

The issue team will obtain an understanding of the taxpayer’s history, background,

overall core business operations, and profit drivers. Perform a review the taxpayer’s

website, Form 10-K or Form 20-F filed with the Securities and Exchange

Commission (SEC), and complete an internet search of the taxpayer’s name. This

information may include the following:

•

Overview of a taxpayer’s history, background, and business, including operations

in various countries

Geographical, legal, and tax organizational structure information

Financial statements

Segmented operational and profitability levels

Functional activities and their locations

Significant transactions

Revised September 8, 2020

PLANNING PHASE

•

Descriptions of patents, trademarks, and other intangibles

Industry and competitor information

Value (profit) drivers

Merger, acquisition, and other reorganization activity

Helpful References:

SEC Website (Edgar)

United States Patent and Trademark Office

IRM 4.46.6 - Workpapers and Reports Resources

IRM 4.61.3.3.8 - Initial Transfer Pricing Risk Assessment

Develop a Preliminary Working Hypothesis

The purpose of the risk assessment is to identify specific transactions between the

U.S. taxpayer and its affiliates warranting examination. The goal is to gather and

analyze information relevant to those transactions. The development of a

preliminary working hypothesis is a fluid concept. It will include an issue statement

that will be proved or disproved as additional information is obtained. The issue

team will develop a preliminary working hypothesis taking into consideration the:

•

Worldwide effective tax rate, profitability, and whether the taxpayer’s overall

tax position benefits from income shifting from a financial accounting/cash

flow standpoint

•

Industry averages, benchmarks, or reference sets, if available

Source of income and tax credit availability

Subpart F issues and need to collaborate with CBA

Hybrid entities and how the taxpayer uses hybrid entities within its structure

Net operating losses (NOLs)

Collateral adjustments and other impacting factors

Tax treaties and the need to collaborate with relevant APMA personnel

Revised September 8, 2020

PLANNING PHASE

Caution: Treasury Regulation (Treas. Reg.) 1.482-1(d)(2) states that “unadjusted

industry average returns themselves cannot establish arm's length results.” Therefore,

unadjusted industry average returns should only be used to assess transfer pricing

risk and on their own should not be used to make a transfer pricing adjustment.

Helpful References:

IRM 4.60.3 - Tax Treaty Related Matters

United States Income Tax Treaties - A to Z APMA Program Contact Information

Complete Risk Analysis

The issue team will complete the risk analysis using the current Form 13744-I, as

recommended. However, Forms 4764, 4764-A, 4764-B, 4764-IC, and 13745 can still

be used, as appropriate:

•

Submit the initial risk analysis for approval by the Issue Manager and Territory

Manager (TTM)

Update and document the risk assessment at various stages of the

examination. Risk assessment is a continuous process that occurs throughout

the audit. Document the audit steps taken, facts discovered, and the initial risk

assessment in the audit file. Begin to outline and document the facts that will be

updated throughout the examination process

Caution: When a transfer pricing adjustment is made, a deemed distribution or

other conforming adjustment(s) may result and potentially be subject to withholding

or have other tax consequences. Ensure that the Form 1042 statute remains open.

Also, see Treas. Reg. 1.482-1(g)(3) and Revenue Procedure 99-32 for a discussion

of conforming adjustments.

Helpful Reference:

IRM 4.46.3.2 – Initial Risk Analysis of the Return

IRC Section 6662(e) Documentation Request

The Initial Transfer Pricing Documentation IDR (formerly known as the Mandatory

Transfer Pricing IDR) is no longer required for all cases. Follow the Interim

Instructions on Issuance of Mandatory Transfer Pricing IDR in LB&I Examinations.

Revised September 8, 2020

PLANNING PHASE

The SRA/Team Coordinator and the issue team members will collaborate on the

issuance of the IDR. It is important to issue the IDR early in the audit process to start

working the issue as soon as possible to close the case timely. Please review IRM

4.61.3.4.3.1 - Issuing the Initial Transfer Pricing Documentation IDR for the

Taxpayer’s IRC 6662(e) Documentation for specific language:

•

Treas. Reg. 1.6662-6(d)(2)(iii) IDR includes a request for principal documents

and an index for background documents

• IRC 6662(e) and Treas. Reg. 1.6662- 6(d)(2)(iii) require that the taxpayer

respond within 30 calendar days. The 30 days starts with the date of the IRC

6662(e) IDR

• The 30 day response time is defined by statute and is an exception to the new

IDR and related enforcement processes as described in LB&I Directive on IDR

Enforcement Process

• The issue team should use this 30 day period to perform analysis of currently

available information, which may include prior tax returns and financial

statements

Helpful Reference:

IRM 4.61.3.4.3.1 - Issuing the Initial Transfer Pricing Documentation IDR for the

Taxpayer’s IRC 6662(e) Documentation

Internal Planning Meeting(s)

The issue team will conduct internal planning meeting(s). General agenda items

would include timeframes, key milestones, and topics specific to the transfer pricing

examination:

•

Discuss the initial risk analysis, preliminary audit steps, estimated audit timeline,

and key milestone dates

Discuss resource needs

Discuss the accounting data and records that will be requested from the

taxpayer, such as segmented profit and loss statements for specific product(s)

or product line(s)

Discuss the IDR process (formulation of questions, taxpayer input, response

times, and dealing with delays)

Revised September 8, 2020

PLANNING PHASE

Best Practice: Various planning meetings and informal discussions may be

held depending on the complexity and size of the return, the planned scope of

the examination, and the resource commitments required.

Helpful References:

IRM 4.46.3.4 - Internal Planning and Internal Planning Discussions

IRM Exhibit 4.46.3-2 - Sample Agenda Topics for Internal Planning Meeting(s)

Issue Team Examination Plan, Timelines, and

Key Milestones

The issue team will establish an estimated audit timeline with key milestone dates

for completion of the transfer pricing examination:

•

Coordinate with the Team Coordinator and Case Manager regarding the

timeline and potential transfer pricing issue(s)

•

Establish a tentative timeline with key milestone dates

•

Complete the examination plan after the opening conference

•

Include a date for the mid-cycle risk analysis. Provide the taxpayer with the

examination plan, timeline, and initial risk analysis

•

Input detailed transfer pricing specific Uniform Issue Listing (UIL) codes in

Issue Management System (IMS)

Best Practice: Refer to Exhibits B and C for general timelines that could apply to a

transfer pricing case. The examination timeline exhibits should only be used as

guides. Each case has its own unique characteristics. The examination plan timeline

should be specific for each case.

Helpful References:

IRM 4.46.3.4.8.4 Setting Tentative Timelines for the Case and Issues

UIL Codes

Revised September 8, 2020

PLANNING PHASE

Opening Conference

The issue team will participate in the formal opening conference with the

taxpayer. Agenda topics specific to the transfer pricing examination should

include:

•

LEP and the three key phases of the process: Planning, Execution, and

Resolution (Publication 5125)

• TPEP - ensure that the taxpayer is given appropriate information to allow it to

access the most current document on IRS.gov and discuss it to facilitate

understanding

• Preliminary scope of the transfer pricing examination and general timelines

• Discuss IDR and related enforcement processes as described in IRM 4.46.4.6 –

Information Document Request Process

• Discuss IRM 4.46.3.7 - LB&I Claims Process regarding claims for refund. IRM

Exhibits 4.46.3-7 - LB&I Guidelines for Reviewing Claims and 4.46.3-8 - Risk

Assessing Claim Issue(s) illustrate the processes for reviewing and risk

assessing claims. A claim could have an indirect or direct impact on potential

issues. Claims could also change audit plans. Potential issues may need reevaluation due to claims

• Discuss the expectation for financial statement orientation meetings to be held,

ideally, within 30 days of the opening conference:

- Identify employees responsible for the accounting records

- Include segmented financial statements and records

- Consider whether a CAS is available to attend the meeting

• IRM 4.46.3.8 - Issue Discussion Meetings:

- Discuss the benefits of issue discussion meetings

- Discuss the roles and responsibilities of the issue team and the taxpayer

- Share the initial risk analysis and preliminary working hypothesis with the

taxpayer

• Work with the taxpayer to establish initial audit steps

• Develop a timeline for the issue

• Discuss that transfer pricing examinations may take longer than other issues to

examine and a statute extension may be requested during the examination

• Discuss the impact to the timeline if the taxpayer fails to meet deadlines for

IDRs or if the taxpayer fails to be transparent about facts and positions

Revised September 8, 2020

PLANNING PHASE

•

Identify the taxpayer personnel that will work with the issue team

Discuss the need to schedule the transfer pricing/supply chain

orientation after the financial statement orientation:

- Request that employees involved in the planning and structuring of

transactions be available

- Request that personnel responsible for the transfer pricing documentation be

available

- Emphasize expectations that the transfer pricing orientation should be a

comprehensive presentation that should cover business operations, key

functions, worldwide structure, title flow, product flow, service flows, and

transfer pricing policies

Discuss the quality of responses received to date

Discuss the potential need for interviews and site visits, if known

Anticipate the additional information needs, order, and priority

Discuss the NOPA, Economist Report, and issue resolution processes

Discuss the IRC 6038A rules and procedures governing foreign-based

documentation, if applicable. It may be necessary to obtain an authorization of

agent for U.S. subsidiaries of foreign parents

Discuss IRM 4.60.2 - Mutual Agreement Procedures and Report Guidelines to

notify the taxpayer regarding statute of limitation protections on foreign affiliates’

returns

Issue Pattern Letter 1853(P) to allow the taxpayer to protect its foreign statute of

limitations. Indicate countries of origin to be determined and amounts to be

determined. This is notification to the taxpayer of potential double taxation

Helpful References:

IRM 4.46.3.6 - Opening Conference/Meeting

IRM Exhibit 4.46.3-3 - Sample Agenda for Opening Conference/Meeting

IRM 4.46.5.4 - Issue Resolution Tools

Best Practices: The issue team will conduct weekly or bi-weekly discussions with the

taxpayer to support communication and ensure common expectations regarding the

audit progress, IDRs, and timelines.

Revised September 8, 2020

EXECUTION PHASE

II.

Execution Phase

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

should conduct interactive discussions, including using the IDR process to develop the

facts. Every effort should be made to resolve any factual differences. Open

communication and continuous reassessment should continue throughout the Execution

Phase.

Helpful Reference:

IRC 482 Audit Toolkit

Risk Assessment

Review IRC Section 6662(e) Response

The issue team will review and analyze the taxpayer’s IRC 6662(e) documentation

prior to the taxpayer’s transfer pricing orientation meetings and note areas that require

further development, confirmation, or inquiry:

•

Coordinate and update the initial risk analysis, timeline, examination plan, and

working hypothesis with issue team members

Evaluate taxpayer’s best method selection, application of its best method

selection (e.g. inputs and assumptions) and the potential applicability of various

methods

Consider whether the transfer pricing documentation meets the requirements

of Treas. Reg. 1.6662-6(d)(2) or (d)(3)

Determine whether the documentation covers all material controlled transactions

Consider whether additional information may be necessary regarding Subpart F

or other tax implications

The issue team will consult with APMA when the transaction involves a treaty

partner

Revised September 8, 2020

EXECUTION PHASE

Best Practice: In evaluating the taxpayer’s documentation, the issue team should

consider not only whether the documentation requirements of Treas. Reg. 1.66626(d)(2)(iii) are met, but also whether the documentation reasonably and accurately

addresses the controlled transactions and whether the conclusions reached can be

considered reasonable.

Helpful References:

IRM 4.46.4 - Executing the Examination

IRM 4.60.8.3.5 - IRC Section 6038A and 6038C Penalty

Cases IRM Exhibit 4.60.8-1 - Index to IRC 6038A Exhibits

IRM 4.61.3.4.12 - Selecting the Best Method

IRM 4.61.3.4.17 - Penalty Considerations

Practice Unit on IRC 6662(e): Calculating the Net Adjustment Penalty for a Substantial

Valuation Misstatement

Interim Guidance on Mandatory Issue Team Consultations with APMA for Examination

of Transfer Pricing Issues Involving Treaty Countries

Request Financial Statement Orientation

The issue team will prepare an IDR to request a financial statement orientation to be

conducted within 30 days from the opening conference. The orientation meeting

should be scheduled to coordinate availability of the issue team. Generally, the

financial statement orientation IDR should request, but not be limited to the following:

•

A walk-through of the geographic, legal entity, tax, and functional organizational

charts, and all reporting platforms that exist (for example, different management

reporting platforms)

Provide the taxpayer the opportunity to voluntarily walk the issue team through

its CbC report. Refer back to section I.C.4. - Analyze the Country-by-Country

Report, of this document for additional information

Reconciliation from the geographic trial balance to the SEC Form 10-K

consolidated financial statements

Reconciliation between foreign accounting standards and Generally Accepted

Accounting Principles (GAAP), for example International Financing Reporting

Standards v. GAAP

Revised September 8, 2020

EXECUTION PHASE

•

Segmented financial statements and roll ups to the consolidated financial

statements, including roll ups of Disregarded Entities into Controlled Foreign

Corporation (CFC) owners

Map from the tax return to the trial balance to the general ledgers

Work papers for book/tax differences

Year-end and month-end adjusting entries

True-up entries

Chart of accounts

List of cost centers and profit centers

Taxpayer’s relevant accounting practice and policies

Request Transfer Pricing/Supply Chain Orientation

The issue team may request a transfer pricing/supply chain orientation meeting. If so,

the issue team will prepare and issue an IDR.

•

The orientation should be conducted early in the execution phase of the

examination but after the financial statement and accounting records orientation

is held

The orientation should be scheduled to coordinate with the availability of all

members of the issue team

In order for the issue team to fully understand the taxpayer’s transaction, request a

transfer pricing/supply chain orientation from the taxpayer, which should include, but

not be limited to:

•

The taxpayer’s background and the history of intercompany transactions

Selected intercompany transactions in the year(s) under examination:

- The taxpayer’s rationale for entering into the transactions

- The taxpayer’s value driver(s) associated with the intangible, services,

loans, leases, tangible goods, or other transactions

- Whether the intercompany transaction is associated with the transfer of an

income stream (e.g., transfer in functions, assets, or risks)

The characterization and business reason for the transaction

Revised September 8, 2020

EXECUTION PHASE

•

Identifying persons responsible for structuring the transaction from the tax

planning perspective, including any step plans for structuring/restructuring

including, but not limited to, special purpose or new entities

The functions performed, assets employed, and risks assumed by each

controlled party to the respective controlled transaction

The total profits or losses associated with each material controlled transaction

and each controlled party’s share of the total profits or losses

How the preparer of the IRC 6662(e) documentation gained knowledge of each

controlled party’s functions performed, assets employed, and risks assumed (for

instance, interviews or minutes)

The need to request background documentation or identify the taxpayer and/or

preparer personnel to interview

The need to request additional documentation, including contracts and

agreements

The transfer pricing methods selected by the taxpayer for significant transactions

Best Practice: Discuss processes for requesting follow-up meetings and clarifications.

Update Risk Assessment

The issue team will hold reassessment meetings throughout the Execution Phase, with

the Practice Network members, LB&I Division Counsel, and respective managers:

•

Discuss any new information and reassess/adjust working hypothesis(es)

Determine which transactions warrant further development or whether issues

should be closed

Determine whether additional transactions should be added for further analysis

Collaborate with APMA for potential issues involving a tax treaty partner

Discuss what has been done and needs to be done to complete the issue(s).

The Estimated Completion Date (ECD) may need to be reevaluated as the

examination progresses

Continually monitor and reassess the resources available for issues being

examined. Assess level and scope of Counsel’s involvement and begin to

consider any discrete legal issues

Assess resource/outside expert needs. In any transfer pricing case that may

require outside expert consideration, TPP should be involved early in the

examination process. Document concurrence of a TPP Territory Manager with

any request for outside expert assistance on transfer pricing issues:

Revised September 8, 2020

EXECUTION PHASE

Work with the TPP and LB&I Division Counsel to request outside experts, as

necessary

- Review the Outside Expert Program website

Continue to document, organize, and outline transactions determined to warrant

further development and analysis based on information gathered to date

Evaluate the taxpayer’s selection of the best method:

- Consider whether the characterization of the transaction is framed

appropriately

- Assess the degree of comparability between controlled and uncontrolled

transactions and the reliability of the assumptions and completeness and

accuracy of the data used in the taxpayer’s selected best method

- Determine additional accounting data and records needed for this

assessment

- Follow the Revised Instructions for LB&I on Transfer Pricing Issue Selection

and Scope of Analysis - Best Method Selection. It is important for issue

teams to begin the approval process as early as possible.

•

Helpful References:

IRM 4.61.3.4.5 - Continuous Risk Analysis

IRM 4.46.3.3.6 - Documenting the Risk Analysis

Fact Finding and Information Gathering

Issue IDRs and/or Summonses

The issue team will request any additional information not obtained during the

Planning Phase, including:

•

Follow-up on the financial statement orientation, transfer pricing/supply

chain orientation, Treas. Reg. 1.6662-6(d)(2)(iii) documentation, and other

data and information necessary to test the working hypothesis and the best

method assessment. Clarify any items that do not reconcile or that have

missing information.

Issue IDRs or summonses for factual development, including requests for

interviews, plant tours and site visits:

Revised September 8, 2020

EXECUTION PHASE

•

Follow the requirements for issuing IDRs in accordance with IRM 4.46.4.6

Collaborate with LB&I Division Counsel when drafting IDRs that may

potentially require a summons

- Requesting third-party information is not subject to the IDR process and

may require a summons in the first instance (e.g. requests for documents

from or interviews of third-parties may require third-party summonses)

Best Practices: The issue team should coordinate IDR requests with the entire case

team to avoid duplicate IDR requests. Open communication between the taxpayer and

the examination team throughout the process is critical. Conduct weekly or bi-weekly

discussions between the examination team and the taxpayer to support

communication and ensure common expectations regarding audit progress, IDRs, and

timelines.

At this stage, the examination team should explain the Advance Pricing Agreement

(APA) program to the taxpayer and explain its benefits as a tool to achieve certainty

in transfer pricing transactions.

Helpful References:

IRM 25.5 - Summons

IRM 4.46.4.2 - Overview of the Execution Phase

IRM 4.11.57 - Third Party Contacts

Rev. Proc. 2015-41 - APMA advance pricing agreements

Review Intercompany Agreements

The issue team should perform a review and analysis of relevant

intercompany agreements:

•

Collaborate with LB&I Division Counsel to understand legal terms and content

of intercompany agreements:

- Determine relevant parties

- Identify important terms of the agreement

- Identify compensation and forms of payments

- Assess the contractual risks assigned to the controlled parties

- Determine if the conduct of the parties is consistent with the

written agreements

Revised September 8, 2020

EXECUTION PHASE

Identify any discrete legal issues

Conduct Functional Analysis

A functional analysis identifies the economically significant activities performed

regarding the transaction. An economically significant activity is one that, at

arm’s length, materially affects the following:

•

The price charged in a transaction

The profits and/or losses from a transaction

The issue team must perform a functional analysis, including a review and analysis

of the accounting data. Consider performing the following actions, as appropriate:

•

Identify functions performed by each entity, with respect to the

controlled transaction under analysis

Identify risks assumed by each entity with respect to the controlled

transaction under analysis and verify that the conduct of parties is consistent

with the way in which risk is allocated in the intercompany agreement(s)

Identify assets utilized by each entity

Identify title flow, product flow, services performed, and money flow

Identify value drivers of the business or transaction

Work with the taxpayer to identify key personnel for interviews and site tours

Work with the taxpayer to identify and plan site tour(s)

Work with the issue team to prepare for interviews and tours. If foreign travel

is required, start the administrative process early and follow the procedures

on the International Travel Office website

Consider the need for a court reporter at interviews. The “Court Report

Services Request” form should be initiated by the Issue Manager and signed

by both the Issue Manager (if applicable) and the Case Manager. Upon

completion, the request is then forwarded to both the Issue Territory Manager

and the Territory Manager for approval. Please allow 45 days to process

A functional analysis is a critical aspect of any transfer pricing examination and is best

conducted as a team with robust internal communication, and ongoing discussions

with the taxpayer to further understand its business operations.

Revised September 8, 2020

EXECUTION PHASE

Best Practice: The issue team must consider the potential for other issues to

maximize the efficiency and effectiveness of the examination. In planning and

performing a functional analysis, consider information needed for any Subpart F,

effectively connected income, permanent establishment, or other implications.

Helpful References:

IRM Exhibit 4.61.3-2 - Development of IRC 482 Cases - General Transfer Pricing Audit

Tools, References and Resources

IRM 4.61.3 - Development of IRC 482 Cases

IRM 4.61.3.4.11.2 - Functional Analysis

IRM 4.10.3.3 - Interviews: Authority and Purpose

IRM. 4.10.3.3.6 - Requests to Audio Record Interviews

Taxpayer Meetings

The issue team should meet periodically with the taxpayer to confirm all relevant

facts developed during the examination:

• Consider a full, open discussion/presentation with the taxpayer – preferably

including the relevant personnel from the taxpayer’s business operations –

regarding the team’s working hypothesis(es) and preliminary findings

• Issue additional IDRs, as necessary

Best Practice: A written agenda should be prepared for every taxpayer meeting

and shared with the taxpayer in advance. Designate a dedicated note taker for

these meetings.

Mid-Cycle Risk Assessment

Risk assessment is a continuous process. The issue team must use their

professional judgment to determine which issues will continue to be examined or

modified in scope as facts and information about the relevant transfer pricing issues

are developed. New information discovered by LB&I during an examination may

necessitate expanding or modifying the Examination Plan and timeline, including

adding new issues or alternatively, closing one or more of the transfer pricing issues

under examination.

Revised September 8, 2020

EXECUTION PHASE

•

Reassess the risk analysis and refine the working hypothesis based on an

analysis of information gathered and reviewed to date

Determine which transactions warrant further analysis

Determine which transactions should be eliminated/added to the work plan

Consider additional IDRs, as necessary

Reevaluate the need for additional internal resources and outside experts

Document, organize, and outline transactions determined to warrant further

development or analysis based on information gathered to date

Consider the impact of any other potential audit adjustments on the transfer

pricing issues under consideration. Communicate with the other issue teams, as

necessary

Document and update the audit steps taken, facts discovered, and risk

reassessment in the audit file and in a potential NOPA and Economist

Report

Discuss the preliminary findings with the taxpayer and engage in a meaningful

discussion about any missing facts or any misinterpreted facts that materially

influence the preliminary findings

The issue team should prepare a mid-cycle risk analysis to reflect the results of

the updated risk reassessment:

•

Conduct an internal meeting with the issue team to discuss the progress of the

audit steps taken, concerns or delays and proposed plan to address them,

recommendation and timing for next steps, and any potential resolution options

•

Consider whether the Letter 1853-P should be updated and sent to the

taxpayer

- Update timelines and milestones as necessary, including in IMS which would

include entering an “Actual Completion Date” for all closed issues

Secure managerial approvals

Discuss mid-cycle risk analysis with the taxpayer

Helpful Reference:

IRM 4.46.3.3 - Risk Analysis Process

Revised September 8, 2020

EXECUTION PHASE

Issue Development

Economic Analysis

The issue team should work with the economist to perform an economic analysis

consistent with the working hypothesis to:

•

Evaluate the taxpayer’s best method analysis

- Consider whether the taxpayer’s method, as applied, or whether the method

with adjustments, would reflect an arm’s length result. If not, refer to Form

15082 - Transfer Pricing Review Panel Approval Request for Approval to

Change Taxpayer’s Transfer Pricing Method Examination Cases

Analyze the facts, including accounting data, to determine the applicable legal

analysis

Prepare a draft Economist Report, as appropriate. Arrange a meeting with the

taxpayer to discuss the economic analysis to date

When the transaction involves a treaty partner, the issue team will regularly

coordinate regarding the economics of the transaction with APMA

If the taxpayer asserts an IRC 482 setoff:

- Issue additional IDRs for information, as necessary

- Request a comparability and economic analysis that supports the potential

setoff, as appropriate

- Request the taxpayer’s support of the setoff. Generally, the taxpayer should

be able to support the setoff in the same manner as the original controlled

transaction under examination

- Consider how a setoff will affect the examination plan, timeline, and ECD, if

applicable

Helpful References:

IRM 4.61.3.4.12 - Selecting the Best Method

IRM 4.61.3.4.12.1 - Transfer Pricing Review Panel (TPRP)

Form 15082 - Transfer Pricing Review Panel Approval Request for Approval to Change

Taxpayer’s Transfer Pricing Method Examination Cases

APMA Program Contact Information

Revised September 8, 2020

EXECUTION PHASE

Rev. Proc. 2005-46 - setoff procedures

Penalties

Penalties should be considered whenever adjustments are made to a tax return. The

determination whether to assert penalties, identify the appropriate penalties, and

calculate

the penalty amount accurately is primarily the issue team’s responsibility and should

take place throughout the examination process. Workpapers must support the

analysis and conclusion. Issue teams should consult with LB&I Division Counsel and

Associate Chief Counsel International (ACCI), as appropriate.

One potential penalty is the IRC 6662(e) penalty. Regulations require the IRS to

apply penalties when the taxpayer fails to create or to timely provide IRC 6662(e)

documentation or when the IRC 6662(e) documentation provided is unreasonable or

inadequate, assuming the net adjustment penalty thresholds are met. IRC 6662(e)

documentation does not automatically protect against penalties because the IRC

6662(e) documentation must be assessed for adequacy and reasonableness. To

meet the reasonable cause exception of the penalty regulations, taxpayers must

document they reasonably selected the best method for their analysis and they

reasonably applied that best method. Factors to consider in evaluating the adequacy

of a taxpayer’s transfer pricing documentation are outlined in the regulations.

Other penalties may also apply. The Information Gathering Practice Network can

provide assistance to issue teams in evaluating and applying penalties. As with all

penalties, the manager’s written approval is required before assertion of the penalty

(ideally when the penalty is initially raised and, if not completed earlier, before the

issuance of a 30-day letter or notice of deficiency). Documentation of that approval

must be maintained in the case file.

Best Practice: The issue team should discuss the imposition of penalties at the

same time as the primary adjustment. Do not wait until the end of the examination

process.

Helpful References:

IRM 20.1.5.9 - IRC 6662(e), Substantial Valuation Misstatement

IRM Exhibit 20.1.5-3 - IRC 6662(e), Transfer Pricing Penalty

IRM 4.46.4.11 - Penalty Consideration

Revised September 8, 2020

EXECUTION PHASE

IRM 4.61.3.4.17 - Penalty Considerations

Practice Unit on IRC 6662(e): Calculating the Net Adjustment Penalty for a Substantial

Valuation Misstatement

Drafting Reports

The issue team continues to build the Economist Report and NOPA collaboratively, as

a team, based on the functional analysis that was performed. The Economist Report

should include:

•

Executive Summary

Factual Background and Functional Analysis of the Taxpayer and the

Transaction(s) at Issue

Summary of Taxpayer’s Proposed Economic Analysis for the Transaction at

Issue

Critique Taxpayer’s Methodology and Analysis for the Transaction at Issue

IRS Economist’s Determination of Arm’s Length Price based Upon Economic

Analysis

Summary and Conclusion

The issue team should utilize Transfer Pricing NOPA Best Practices. The NOPA

should include:

•

Adjustment Table

Issue Statement

Executive Summary of Issue

Facts

Law

Taxpayer’s Position

Analysis – Government’s Position

Conclusion

Best Practices: The facts of the case should be agreed upon with the taxpayer

whenever possible. Continuous open communication between the taxpayer and the

issue team throughout the examination is critical. Consider whether an issue

presentation meeting with the taxpayer would be beneficial at this point in the

examination.

Revised September 8, 2020

EXECUTION PHASE

Coordinate with LB&I Division Counsel regarding the analysis presented in the reports.

Helpful References:

IRM 4.46.4.12 - Notice of Proposed Adjustment (NOPA)

IRM 4.46.6 - Workpapers and Reports Resources

IRM 4.61.3.4.15 - Economist Report

IRM 4.61.3.4.16 - Notice of Proposed Adjustment (NOPA)

Form 5701 - Notice of Proposed Adjustment

Form 886-A - Explanation of Items

NOPA Preparation - Training Materials

Economist Report Template on the Economics Practice Networks SharePoint Website

Acknowledgement of Facts IDR

The issue team members are responsible for documenting all facts have been secured

to ensure examiners reach correct conclusions. All relevant facts, including those from

the taxpayer’s response to the acknowledgement of facts (AOF) IDR or facts in the

taxpayer’s favor, should be considered before issuing a final NOPA and Economist

Report. The facts of the case must be consistent in the Economist’s Report, NOPA,

and AOF IDR.

•

Coordinate legal issues with LB&I Division Counsel, ACCI, TPP and the

Practice Networks

Ensure communication and collaboration with Case Managers and

Territory Managers throughout the examination process

Issue a statement of facts requesting taxpayer’s acknowledgement

following current procedures

Resolve any factual differences and/or document factual disputes

Best Practice: An AOF IDR should be issued for all transfer pricing issues (whether

potentially agreed or unagreed). The issue team should revise the Economist’s Report

and NOPA based on additional taxpayer input, as appropriate. An issue team review of

the facts and findings is strongly encouraged. This review should include the issue

team and applicable managers.

Helpful References:

IRM 4.46.4.10 - Written Acknowledgment of the Facts (AOF)

Revised September 8, 2020

RESOLUTION PHASE

IRM Exhibit 4.46.4-3 - Pro-Forma IDR for Acknowledgment of Facts on Unagreed

Issues

III.

Resolution Phase

The goal of the resolution phase is to reach agreement, if possible, on the tax

treatment of each issue examined and, if necessary, issue a Revenue Agent Report

(RAR) to the taxpayer. Starting with the development of the issue and continuing

through resolution, early and frequent discussions with the taxpayer are crucial for a

complete understanding of the respective merits of an issue.

Helpful Reference:

IRC 482 Audit Toolkit

Issue Presentation and Resolution

The issue team should meet with the taxpayer to discuss results of all issues prior

to finalizing the NOPA and the Economist Report. Focus taxpayer discussions on

the following:

•

Determine whether the taxpayer agrees with the facts as presented in the

AOF IDR

Evaluate the taxpayer’s position

Compute any offsetting/correlative adjustments, changes to foreign tax credit,

net operating losses, etc.

Engage in an open dialogue with the taxpayer to determine whether a

principled resolution can be reached

Understand the nature of disagreements (facts or interpretations of law, etc.)

Issue additional IDRs to clarify any new information that may arise

Utilize early resolution tools:

- Early Referral to Appeals: For example, Fast Track is a mediated effort

where the taxpayer, the issue team, and Appeals must agree to

participate and agree to a mutual resolution

- Accelerated Issue Resolution

Include LB&I Division Counsel in drafting any closing agreement

Revised September 8, 2020

RESOLUTION PHASE

Best Practice: The first point of contact for the taxpayer should be the issue teams

and their respective managers when resolving issues.

Helpful References:

IRM 4.46.5.4 - Issue Resolution Tools

IRM 4.46.5.5 - Management Involvement in the Issue Resolution Process

Case Closing/RAR

The issue team should follow case closing procedures appropriate to the situation. If

the issue is agreed:

•

Update IMS to include the input of an “Actual Completion Date” for all

closed issues

Consider Rev. Proc. 99-32 ramifications and elections

- If penalties are proposed, the taxpayer is not entitled to Rev. Proc. 9932 relief

- Discuss the Rev. Proc. 99-32 options with the taxpayer

- If Rev. Proc. 99-32 relief is requested and granted, secure a closing

agreement with the assistance of LB&I Division Counsel. See also IRM

4.60.3 for Tax Treaty Related Matters

Issue final Pattern Letter 1853(P) with the final amounts and countries of

origin. This is notification to the taxpayer of potential double taxation

Prepare the Mutual Agreement Procedure (MAP) report, if applicable.

Coordinate and discuss with APMA

Make certain any agreement reached is clear as to the transactions and years

to which the agreement applies

Clarify with the taxpayer any implication of the resolution on subsequent

years. This will avoid inappropriate reliance on current year outcomes in

future examinations and positions. Consult LB&I Division Counsel in drafting

any closing agreement.

If field resolution is not reached, then the issue team will finalize the NOPA,

Economist Report, and secure final approvals.

•

Confirm whether 365 days remain on the statute for the taxpayer to

request Appeals consideration

Revised September 8, 2020

RESOLUTION PHASE

•

A statement indicating the taxpayer's response to the AOF IDR must be

included in the opening of the Facts section of the NOPA

Prepare the RAR/30-Day Package and case closing workpapers

Issue the RAR/30-Day Letter

Prepare the MAP report, if applicable. Coordinate and discuss with APMA

Taxpayer Protest/IRS Rebuttal

- Review and discuss the taxpayer Protest among the issue team members

Determine the issue team members’ roles and responsibilities in the

preparation of the Rebuttal and address every point raised in the

taxpayer’s Protest

Determine whether new facts have been raised and, if so, are additional

IDRs warranted

Collaborate to finalize the Rebuttal to the taxpayer’s Protest

Best Practice: If the Protest contains new factual information, raises new factual

disputes, or presents new economic or legal theories, then consider re-engaging

the examination process. The issue team should re-evaluate the timeline and reset

the milestone dates, as appropriate.

Helpful References:

IRM 4.60.3.1.19 - Simultaneous Appeals Competent Authority Procedure

(SACAP)/Overview

Rev. Proc. 2015-40 - procedures for requesting CA assistance

IRM Exhibit 4.60.2-1 - Right to Request Competent Authority Consideration

Letter 1853(P)

IRM Exhibit 4.60.2-3 - Double Taxation Issue Schedules 1853(P)/1915(P)

Appeals

As a best practice, the issue team will begin preparing the pre-Appeals presentation

immediately after closing the case. Upon contact from Appeals that the case has

been assigned, the issue team should:

•

Request a pre-Appeals conference using Forms 3198 and 4665

Contact the Appeals Officer and request examination’s presence at the

taxpayer’s portion of the presentation

Prepare the pre-conference presentation with the assistance of Counsel

Secure Counsel’s participation in the pre-conference meeting, when warranted

Revised September 8, 2020

RESOLUTION PHASE

•

Determine which LB&I team members should attend the pre-Appeals

conference

Determine the roles and responsibilities of the issue team members

Hold mock presentations to prepare for the pre-conference meeting

Hold the Appeals pre-conference meeting

Request a post-Appeals Conference and attend the meeting. The issue team should:

• Understand Appeals’ rationale for the outcome

• Review and analyze the Appeals Case Memorandum (ACM)

• Counsel may assist in evaluating the settlement and ACM

• Determine if a dissent is warranted

• Consider the impact to the subsequent year(s) risk assessment

Helpful References:

IRM 4.46.5 - Resolving the Examination

IRM 4.46.5.4 - Issue Resolution Tools

IRM 4.46.5.11 - Conference with Appeals

IRM 4.61.3.5.5 - Appeals

NOPA Preparation - Training Materials

Rev. Proc. 2015-40 - procedures for requesting CA assistance

Rev. Proc. 2006-54 - procedures for requesting CA assistance for tax treaties

U.S. Competent Authority Request

The APMA Director is the delegated U.S. Competent Authority (CA) for cases arising

under the business profits and associated enterprises articles of U.S. tax treaties

(transfer pricing issues). APMA endeavors to resolve CA cases under the MAP

agreement article of a U.S. tax treaty through consultations with the applicable

foreign competent authority.

Revised September 8, 2020

RESOLUTION PHASE

Competent Authority Request Concerning U.S.-

Initiated Actions

Taxpayers are not required to wait until the conclusion of an examination to file a CA

request for assistance with respect to CA issues. The taxpayer may request

assistance immediately after the amount of the proposed adjustment is communicated

to the taxpayer in writing, e.g., with a Form 5701, NOPA, or a Form 4549, Income Tax

Examination Changes.

The taxpayer should contact CA directly to request assistance. If a request for

assistance is accepted by APMA, it will assume jurisdiction over the transfer pricing

issue(s) accepted. The protection of the statute of limitations continues to be the

responsibility of the examination team if the case itself remains under the jurisdiction

of examination.

Competent Authority Resolution

If the taxpayer accepts the terms of the tentative CA resolution, then APMA will

close the case. APMA will provide the examination team with the results to be

incorporated in the taxpayer’s RAR and to the extent authorized under the

applicable U.S. tax treaty, the CA resolution will be implemented notwithstanding

any time limits or other procedural limitations under the Code and regulations. See

Rev. Proc. 2015-40, Sec. 9.04.

If the taxpayer rejects the terms of the tentative CA resolution and either APMA or

the foreign CA is unwilling to consult further, then APMA will formally close the case

and return jurisdiction to examination.

Accelerated Competent Authority Procedure (ACAP)

A taxpayer may request that the terms of a CA resolution for a given taxable period

be extended to cover subsequent taxable periods for which it has filed tax returns.

See Rev. Proc. 2015-40, Sec. 4.01.

In appropriate cases, APMA may request that the taxpayer expand the scope of its

CA request to include ACAP years.

Revised September 8, 2020

RESOLUTION PHASE

Simultaneous Appeals Procedures (SAP)

SAP is an optional aspect of the CA process whereby Appeals works jointly with

APMA and the taxpayer toward the development of APMA’s position on an underlying

U.S. initiated adjustment prior to APMA’s consultations with the foreign CA. See Rev.

Proc. 2015-40, Sec. 6.04(2)(a).

SAP review will be initiated only upon a taxpayer’s request.

Helpful References:

Rev. Proc. 2015-40 - procedures for requesting CA assistance

Rev. Proc. 2006-54 - procedures for requesting CA assistance for tax treaties

IRM 4.60.3.1.19 - Simultaneous Appeals Competent Authority Procedure

(SACAP)/Overview

Revised September 8, 2020

EXHIBITS

IV.

Exhibits

Practice Units

Practice Units are reference and training tools for evaluating and developing potential

issues encountered during the Planning, Execution, and Resolution phases of an

examination. Practice Units are located on the “International Knowledge Base” site

under the Tax Examination/Issues portion of the IRS Virtual Library on the

Servicewide Knowledge Management (KM) SharePoint site.

Following are some examples of Practice Units that can be used to assist with

the Planning Phase of a transfer pricing examination and are available on

irs.gov:

•

Arm’s Length Standard

Overview of IRC Section 482

Common Ownership or Control Under IRC 482 – Inbound

Common Ownership or Control Under IRC 482 – Outbound

Review of Transfer Pricing Documentation by Outbound Taxpayers

Review of Transfer Pricing Documentation by Inbound Taxpayers

Three Requirements of IRC 482

Effectively Connected Income (ECI)

Following are some examples of Practice Units that can be used to assist with

the Execution Phase of a transfer pricing examination and are available on

irs.gov:

•

Accounting for Intangibles and Services Associated with the Sale of

Tangible Property Outbound

Best Method Determination for an Inbound Distributor

Calculating the Net Adjustment Penalty for a Substantial Valuation Misstatement

Change in Participation in a Cost Sharing Arrangement (CSA) - Controlled

Transfer of Interests and Capability Variation

Comparability Analysis for Tangible Goods Transactions

Comparison of the Arm’s Length Standard with Other Valuation Approaches –

Outbound

Revised September 8, 2020

EXHIBITS

•

Conducting Functional Analysis for Foreign Base Company Income

Cost Sharing Arrangements vs. Licensing Alternative

CPM Simple Distributor Inbound

CPM Simple Distributor Outbound

Distinguishing Between Sale, License and other Transfers of Intangibles to

CFCs by US Transferors

Dual Consolidated Losses Overview

Foreign Shareholder Activities and Duplicative Services

Foreign to Foreign Transactions 367(b) Overview

High Value Services: Technical and Marketing Fees - Inbound

Inbound Resale Price Method Routine Distributor

IRC 367(d) Transactions in Conjunction with Cost Sharing Arrangements (CSA)

License of Foreign Owned Intangible Property by US Entity

License of Intangible Property from U.S. Parent to a Foreign Subsidiary

Management Fees

Outbound Liquidation of US Corp to Foreign Parent IRC Section 376(e)(2)

Overview

Outbound Services by US Companies to CFCs

Outbound Transfer of Foreign Stock

Outbound Transfers of Property to Foreign Corporation - IRC Section 367

Overview

Pricing of Platform Contribution Transaction (PCT) in Cost Sharing

Arrangements (CSA) Initial Transaction

Pricing of Platform Contribution Transaction (PCT) in Cost Sharing

Arrangements (CSA) Acquisition of Subsequent IP

Purchase of Tangible Goods from a Foreign Parent CUP Method

Residual Profit Split Method - Inbound

Revenue Procedure 99-32 Outbound Guidance

Residual Profit Split Method - Outbound

Sale of Tangibles Goods from a CFC to a USP CUP Method

Services Cost Method Inbound Services

Using an IRC 6038(A) Summons when a U.S. Corporation is 25%

Foreign Owned

Following are some examples of Practice Units that can be used to assist with

the Resolution Phase of a transfer pricing examination and are available on

irs.gov:

Revised September 8, 2020

EXHIBITS

•

Advance Pricing Agreements for Tangible Goods Transactions - Inbound

Advance Pricing Agreements for Tangible Goods Transactions - Outbound

Competent Authority Revenue Procedure 2015-40 Guidance; U.S.-initiated

Adjustments

Revenue Procedure 99-32 Inbound Guidance

The public can view these Practice Units on www.irs.gov and new units are

continually added. There may be additional Practice Units relevant to the particular

facts or circumstances of a transfer pricing examination that are not included in this

Exhibit. Please consult the website for a complete current list of Practice Units.

Revised September 8, 2020

EXHIBITS

Example of 24 Month Examination

This examination timeline should only be used as an example. Each case has its own

unique characteristics. The examination plan’s timeline should be specific to the facts of

each case.

TRANSFER PRICING EXAMINATION PROCESS

PLANNING

EXECUTION

RESOLUTION

Cycle Time in Months

Prior to Opening Conference

Initial Transfer Pricing Risk

Assessment

Issue IRC Section 6662(e) IDR

1st to 2nd

3rd to 4th

5th to 6th

7th to 17th

18th to 20th

21st to 24th

Internal Planning Meeting(s)

Exam Plan/Timeline/Key

Milestones

Opening

Conference

Risk Assessment

Fact Finding/Info Gathering/Issue Development

Mid-Cycle Risk

Assessment

Issue Presentation and

Resolution

Case Closing/RAR

Appeals

U.S. CA Request

THE TIMELINE SHOULD BE USED ONLY AS A GUIDE AND MUST BE ADAPTED TO EACH CASE

Revised September 8, 2020

EXHIBITS

Example of 36 Month Examination

This examination timeline should be only used as an

example. Each case has its own unique characteristics.

The examination plan's timeline should be specific to the

facts of each case.

TRANSFER PRICING EXAMINATION PROCESS

PLANNING

EXECUTION

RESOLUTION

Cycle Time in Months

Prior to Opening Conference

1st to 2nd

3rdto 4th

5th to 30th

30th to 31st

32nd to 36th

Initial Transfer Pricing Risk Assessment

Issue IDR for IRC Section 6662(e)

Internal Planning Meeting(s)

Exam Plan/Time line/Key Milestones

Opening

Conference

Risk Assessment

Fact Finding and Information Gathering/Issue Development

Mid-Cycle Risk Assessment

Issue Presentation

and Resolution

Case Closing/RAR

Appeals

U.S. CA Request

THE TIMELINE SHOULD BE USED ONLY AS A GUIDE AND MUST BE ADAPTED TO EACH CASE

Revised September 8, 2020

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.