Transfer Pricing and §6662 Penalties: The IRS Means It This Time

For over 30 years, §6662(e) and (h) have provided for 20% and 40% penalties, respectively, for certain §482 transfer pricing adjustments made by the Internal Revenue Service (“IRS” or “Service”). For much of that period, the IRS did not apply the penalty provisions as assertively as the statute and regulations would allow. That has begun to change.

In 2018, the IRS Advisory Council observed in a Public Report (the “2018 Report”) that although the quality of some transfer pricing documentation possibly fell short of the §6662 requirements, the IRS had not consistently asserted the penalty. In the years ...