James Kelly, IRS's deputy associate chief counsel for international, said that the generic legal advice memorandum AM 2025-001 (GLAM) on the relationship between the general arm's-length standard and the specific periodic-adjustment rules "clarifies existing law rather than changing policy."

Speaking on July 29, 2026, at the National Association for Business Economics' annual transfer pricing symposium in Washington, D.C., Kelly said the GLAM is "fully consistent" with IRC Section 482 and the final regulations, which are the "binding authorities governing periodic adjustments" and was not a change in the IRS's legal position.¹ He also said that the GLAM revises and supersedes an earlier 2007 GLAM (AM 2007-007). While the GLAM reflects the IRS's current position, he noted, it cannot have retroactive effect.

2025 GLAM

In the GLAM, the IRS addressed two factual scenarios and came to the following conclusion: a taxpayer may not invoke the general arm's-length standard under Treas. Reg. Section 1.482-1(b)(1) or the best-method rule under Treas. Reg. Section 1.482-1(c) to overcome a periodic adjustment to high-profit-potential intangible property under Treas. Reg. Section 1.482-4(f)(2) or 1.482-7(i)(6) if both:

• The property is transferred or contributed to a cost-sharing arrangement (CSA)
• None of the exceptions under Treas. Reg. Sections 1.482-4(f)(2)(ii) or 1.482-7(i)(6)(vi) apply

(See Tax Alert 2025-0326.)

In other words, the IRS can look at what actually happened after the transaction and increase the transferor's income based on actual profits even if the taxpayer had a reasonable, prospective valuation when the transaction occurred.

IRS official's comments

According to the article, Kelly confirmed that, while periodic adjustments to taxable income can only be made in open years, the IRS can use information from earlier years to compute the adjustment.

Addressing how IRS examination teams will approach periodic adjustments, Kelly said "exam teams should consider periodic adjustments when actual profits substantially exceed those implied by the original pricing. Although the IRS is not legally required to first review the taxpayer's ex ante pricing analysis before asserting a periodic adjustment, audit teams would generally evaluate both the original pricing analysis — for example, using an income method or aggregate pricing method — and the actual results in practice."² Kelly also emphasized that the IRS narrowly applies the exceptions to the periodic adjustment rules.

Kelly had said in June 2026 at a Texas Federal Tax Institute conference in San Antonio that the GLAM "continues to come up in audits of companies' transfer pricing."³ Kelly had also said the issues addressed in the memo have also arisen in some pending court cases but declined to comment on them.

Implications

Taxpayers should consider reviewing existing intangible-property transactions, platform-contribution transactions and related documentation to evaluate whether actual results have diverged from original projections and whether any of the specific regulatory exceptions to periodic adjustments may be available. Kelly's comments also highlight the need to address periodic adjustment exposure early in audits involving valuable intangibles, rather than focusing only on the reliability of the original transfer pricing method.