We have assisted our clients with the preparation of their contemporaneous documentation including modeling and substantiating related party transactions including cross-border tangible goods transactions, and U.S. corporate headquarter expense charge-outs to their foreign subsidiaries. And if necessary, we tap into our relationships with different economists and firms across the U.S. to assist us in completing the reports.
Transfer pricing, one of the shortest Internal Revenue Code statutes and one of the oldest, is a fairly easy concept to understand.
Congress has authorized the IRS to review transactions between "related" business entities controlled by the same person or persons, and to prevent tax evasion by distributing, apportioning, or allocating income or expense between the related business entities to reflect the true income of each entity. Another way to describe transfer pricing is that IRS is allowed to review taxable income of any business entity resulting from related party transactions, compare it to similar functions and financial results of third parties, and adjust the financial results of the related parties' transactions to reflect an arm's-length (third party) result.
In order for the IRS to determine whether a U.S. taxpayer has related party transactions that require review as well as for the U.S. taxpayer to avoid the imputation of penalties, the U.S. taxpayer is required to prepare contemporaneous documentation.
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