US Treasury Inspector General suggests ways to improve IRS transfer pricing exams

The US Treasury Inspector General (TIGA) on November 3 released a report outlining its recommendations on how to improve the IRS’s handling of transfer pricing issues. The report includes the IRS’s responses to the recommendations.

The TIGA recommended the Commissioner, LB&I Division, ensure that:

  1. Employees follow the IRS’s Transfer Pricing Audit Roadmap and include this as an attribute of the quality review process.
  2. Taxpayers undergoing examinations with a transfer pricing issues have a clear understanding of the Roadmap. This should include providing them a copy of the Roadmap prior to the beginning of the examination engagement and requiring employees to be consistent in its use.
  3. Ensure that Transfer Pricing Practice (TPP) employees have full access to the Specialist Referral System (SRS) and that they work collaboratively with the International Business Compliance (IBC) function to ensure that transfer pricing issues are consistently identified and directed for specialized review.
  4. Ensure that the TPP and IBC function employees follow the Rules of Engagement and include this as an attribute of the quality review process.
  5.  Coordinate with the Commissioner, SB/SE Division, to ensure that adequate transfer pricing training is provided. The LB&I Division should require mandatory transfer pricing specific training for TPP and IBC function employees and managers. The LB&Iand SB/SE Divisions should ensure that LB&I (Domestic) and SB/SE Divisions’ Examination function employees and managers with potential exposure to transfer pricing issues be adequately trained to identify, refer (as necessary), and work transfer pricing issues appropriately. Detailed training plans should be implemented and include documentation and tracking of all employees’ successful completion of the mandatory training.
  6.  The Commissioner, LB&I Division, should develop a comprehensive transfer pricing strategy that includes outcome-related strategic goals, a description of how the LB&I Division intends to achieve those goals, and an action plan with a timeline for implementation. This strategy should measure the success and productivity of the examinations of transfer pricing issues. This should include, but isnot limited to, the amount of the examination adjustments and the taxes ultimately assessed.

The report notes that the IRS agreed or partially agreed with all recommendations except recommendation 1 and 3.

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