On March 22, 2024 the IRS’s Advance Pricing Mutual Agreement Program (“APMA” or the “Program”) released Announcement 2024-16 which provides their annual Advance Pricing Agreement (“APA”) report (the “Report”), and the statistics show a record-breaking result for 2023 – 156 APAs resolved.  APMA resolves actual and potential transfer pricing disputes and other competent authority matters through United States’ bilateral income tax conventions.  This Report focuses on APAs (a solution to prevent future transfer pricing disputes) during calendar year 2023 and provides statistical informa ..read more

On February 19, 2024, the OECD Inclusive Framework on BEPS published its long-awaited final report on Pillar One – Amount B.[i]  The report details guidance on the “simplified and streamlined approach” (formerly known as Amount B) for applying the arm’s length principle to certain “baseline marketing and distribution activities.”  While offering some potential benefits in terms of reducing the need for comparables analyses and avoiding some disputes about comparables selection and adjustments, it is nevertheless narrow in scope, complex in application, and will likely give rise to in ..read more

The IRS has made it clear once again that transfer pricing remains a key focus in its ongoing enforcement efforts.[1]  And with significant additional resources to do so over the next decade, the IRS is likely to focus some of these resources on taxpayers who have not undergone a transfer pricing audit in recent years or, perhaps, ever.  For example, while the IRS is onboarding the many new transfer pricing experts it hired in 2023, it has sent compliance alerts to certain U.S. subsidiaries of foreign corporations that distribute goods in the U.S. where the IRS thinks that these subs ..read more

On January 29, 2024, the OECD released the results and statistics for its growing International Compliance Assurance Program (“ICAP”).[1] The data spans the life of the ICAP program, dating back to the first pilot program that began in January 2018, through its full program operations as of October 2023. In all, the statistics generally suggest that the program has been efficient and productive, with most participants receiving mostly low-risk outcomes from tax administrations. Key highlights are: the average time to complete a case was 61 weeks; an average of five tax administrations took pa ..read more

“Implicit support” comes charging out of the gates as an early candidate for Word or Phrase of the Year for 2024.  Before year’s end, the IRS Office of Chief Counsel dropped a new generic legal advice memorandum (“GLAM”), AM 2023-008, titled “Effect of Group Membership on Financial Transactions under Section 482 and Treas. Reg. § 1.482-2(a).” The GLAM visits some familiar territory, including the “realistic alternatives” principle, this time in the intracompany lending context.   Tax authorities and taxpayers, of course, each have incentives to police the arm’s length nature of ..read more

In a recent case, Villa-Arce v. Commissioner,[1] a whistleblower sent information to the IRS that he believed showed that the company was using improper transfer pricing practices and taking unjustified deductions. The IRS opened an examination that resulted in other adjustments, but none based on the information from the whistleblower. For that key reason, the D.C. Circuit affirmed the Tax Court decision that the whistleblower was not entitled to an award for the collection of proceeds from the unrelated adjustments. Yet while the whistleblower walked away emptyhanded, the case illustrates a ..read more

Last week, the IRS released a mysterious new audit “campaign” that may implicate – inadvertently or otherwise – transfer pricing practices. The campaign, which was announced on August 8, is simply entitled “Inflated Cost of Goods Sold.”    The only glimmer of explanation the IRS gives as to what exactly this is all about is the brief statement that the campaign “focuses on LB&I taxpayers that have indications of inflated Cost of Goods Sold to reduce taxable income.” But this tells us very little. Absent book-tax differences (e.g., FIFO/LIFO materials inventory conventions), an in ..read more

In a recent case, the IRS sued a corporate taxpayer in district court for supposedly unpaid taxes—without issuing a notice of deficiency first. The taxpayer claimed that this move was improper, but the district court sided with the IRS. In an opinion issued in June, the court held that the deficiency process is essentially optional for the IRS. We discuss this case—United States v. Liberty Global, Inc.—in a recent Tax Notes article. We suggest that the IRS might not take a similar approach in other tax disputes because of the so-called “burden of proof.” Normally, the taxpayer bears the burden ..read more

In Moore v. U.S., Mr. and Mrs. Moore challenge the constitutionality of the transition tax under § 965. The Moores ask the Supreme Court to reaffirm a realization requirement for income taxable under the Sixteenth Amendment. The Moores argue that this realization requirement applies to § 965 and that §965, as a tax on unrealized gain, is unconstitutional. In contrast, the government argues that the transition tax is a permissible extension of tax regimes like Subpart F that already tax undistributed corporate earnings. (See our recent client alert on the case generally.) A ruling on the realiz ..read more

Today, the Supreme Court decided to hear a case that could have wide-ranging implications on US taxation of income earned abroad. The case challenges a key international provision in the Tax Cuts and Jobs Act: the Section 965 transition tax. The case has attracted attention (including multiple Wall Street Journal writeups) for its potential impact on Biden’s proposal to impose a wealth tax on high-income Americans. But the case is also of interest to the corporate tax community. In Moore v. United States, a married couple made a $40,000 investment in a small Indian corporation that proved high ..read more