Holly Paz, IRS Large Business & International Division Commissioner, said that US-based subsidiaries of foreign-owned corporations that received letters from the IRS asking about their intercompany transaction pricing and did not respond have been referred for examination.¹ Speaking on October 24, 2024, at the Managing Tax Audits and Appeals conference in Washington, D.C., hosted by Crowell and Moring, Paz added that most taxpayers that received compliance letters have responded.²

The letters (Letters 6607 and 6608) have gone mostly to corporations that distribute goods in the United States and, in limited instances, to corporations that manufacture goods in the United States. These letters stem from the corporations' alleged use of certain transfer-pricing strategies that the IRS may deem improper.

The IRS had announced (IR-2023-194) on October 20, 2023, that it planned to send letters to approximately 150 US-based subsidiaries (see Tax Alert 2023-1907). The IRS updated this number to 180 in January 2024 (see Tax Alert 2024-0383); subsequently, Paz said that corporations that did not respond to the letters would be referred for examination (see Tax Alert 2024-1337).

Separately, Paz mentioned that the IRS will focus on transfer pricing issues now that it has additional resources to perform audits. She identified the Compliance Assurance Process (CAP) as an area the IRS will pursue for transfer-pricing compliance. In CAP, Paz said, an IRS team reviews transactions listed on a company's Material Intercompany Transactions Template as part of an assessment. The IRS will establish another team to conduct examinations if transfer pricing issues are flagged, she added.³

Implications

Taxpayers must apply for CAP, so the IRS's pursuit of transfer-pricing compliance through this program will depend on taxpayer participation. Taxpayers should continue to monitor the progress of the IRS's transfer-pricing-compliance initiatives.