Transfer Pricing Audit Roadmap: Internal Revenue Service Provides Guidance to Assist IRS Agents in Planning, Executing and Resolving Transfer Pricing Examinations

Sullivan & Cromwell LLP - February 19, 2014

On February 14, 2014, the Internal Revenue Service (the “IRS”) released a Transfer Pricing Audit Roadmap (the “Roadmap”) that provides IRS employees with audit techniques and tools to assist in the planning, execution and resolution of transfer pricing examinations. The Transfer Pricing Operations (“TPO”) of the IRS Large Business and International (“LBI”) Division prepared the Roadmap, and shared it with the public in order to provide insight into what taxpayers can expect during a transfer pricing examination.

The Roadmap breaks a transfer pricing examination into three “phases”: (1) the planning phase, (2) the execution phase and (3) the resolution phase. Each phase is further divided into components, each of which identifies core members of the examination team that should be involved, recommends various audit procedures to be followed and provides links to useful reference materials (not all of which are available to the public). Although the Roadmap contemplates a twenty-four month audit timeline, the IRS refers to that timeline as “notional” and notes that the sequencing of audit steps over the course of the timeline is more important than the timeline itself.

Recognizing that every transfer pricing case is unique, the IRS made clear that the Roadmap is intended to serve as a “toolkit” rather than a one-size-fits-all template that must be used in every transfer pricing examination. In this regard, the IRS instructs examiners to use their judgment and discretion in applying the recommendations contained in the Roadmap. The IRS also refers to the Roadmap as “a work in process” and requests suggestions for improvement.

After summarizing the Roadmap, this publication discusses some ways in which taxpayers may be able to use the Roadmap to their advantage during the course of a transfer pricing examination.