The Internal Revenue Service (IRS) issued IR-2023-194 on October 20, 2023, indicating the launch of new initiatives using funding from the IRS Inflation Reduction Act Strategic Operating Plan (FY2023 – 2031) (Inflation Reduction Act) to ensure large corporations pay taxes owed. Large corporations are defined as those with more than $1 million in revenue.
According to IRS Publication 3744 (rev. 4-2023), the IRS will increase enforcement activities to help ensure tax compliance of large corporate taxpayers. Resources will be allocated to ensure that large corporations that have complicated tax filings that involve a variety of tax issues, such as cross-border activities, financial product issues, and transfer-pricing transactions, are tax compliant.
New initiative targets large foreign-owned corporations
Under the IRS release from October 20, 2023, the IRS will increase transfer pricing compliance efforts on the U.S. subsidiaries of foreign companies that distribute goods in the U.S. Large U.S. corporations with foreign subsidiaries are not targeted by this initiative.
Improper compliance of Section 482 of the Internal Revenue Code (IRC) resulted in the reporting of losses or exceedingly low margins year after year. As a result, the IRS will send out compliance alerts to approximately 150 U.S. subsidiaries of large foreign corporations to reiterate their U.S. tax obligations and incentives self-corrections.
Alert recipients must act and defend their compliance
U.S. taxpayers who receive letters must respond and explain their compliance with IRC Section 482, as failure to do so might result in a formal audit.
Taxpayers who are currently in compliance with IRC Section 482 and Treas. Reg. § 1.6662-6 are not obligated to take additional steps.
Written by Donna Frye.
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