IRS transfer pricing directives address penalties, stock-based compensation, best method, CSA RAB shares, document requests

The US IRS’s Large Business and International (LB&I) division on January 12 issued five directives that provide administrative guidance to examiners relating to transfer pricing.

•  Instructions for Examiners on Transfer Pricing Issue Examination Scope – Appropriate Application of IRC §6662(e) Penalties provides instructions to LB&I examiners with respect to the assertion of penalties in certain transfer pricing examinations.
• Instructions for LB&I on Transfer Pricing Issue Selection- Reasonably Anticipated Benefits in Cost Sharing Arrangements instructs examiners to stop developing adjustments to cost sharing arrangements (CSAs) based on changing the taxpayer’s multiple reasonably anticipated benefits (RAB) shares to a single RAB share when subsequent platform contribution transactions are added to an existing CSA until a Service-wide position is finalized.
•  Instructions for Examiners on Transfer Pricing Issue Selection- Cost-Sharing Arrangement Stock Based Compensation instructs examiners to stop opening issues related to stock-based compensation included in cost-sharing arrangement intangible development costs until the Ninth Circuit issues an opinion in the Altera case on appeal.
• Instructions for LB&I on Transfer Pricing Selection and Scope of Analysis – Best Method Selection instructs examiners to obtain Treaties and Transfer Pricing Operations Transfer Pricing Review Panel approval before changing the taxpayer’s selection of a Treas. Reg. §1.482 method as the best method as supported in contemporaneous transfer pricing documentation or APA submission.
•  Interim Instructions on Issuance of Mandatory Transfer Pricing Information Document Request (IDR) in LB&I Examinations communicates to LB&I employees certain changes to requirements for issuing the mandatory transfer pricing IDR until Internal Revenue Manual 4.60.8, International Procedures, International Examination and Processing Procedures, and related references are updated. The guidance states that the mandatory transfer pricing IDR is no longer required for all cases.

The directives are designed to ensure consistent tax administration. They do not establish IRS position on legal issues and are not legal guidance.