Recent developments within the IRS LB&I transfer pricing program

Tax Controversy & Dispute Resolution ()

At a Tax Executives Institute conference on October 13, 2011, Mike Danilack, Internal Revenue Service ("IRS") Deputy Commissioner (International), discussed his concern with the disproportionately large number of cases in the U.S. Competent Authority Program involving transfer pricing adjustments made by foreign governments on inbound transactions involving U.S. taxpayers. He acknowledged that the IRS has placed a much greater focus on transfer pricing cases involving outbound transactions and needs to increase its focus on transfer pricing cases involving inbound transactions.

Mr. Danilack also expressed his concern that some foreign governments may be making aggressive and unprincipled transfer pricing adjustments. He encouraged taxpayers to involve the U.S. Competent Authority in these cases, especially considering that some foreign governments might be encouraging taxpayers to waive their right to competent authority assistance as a condition for entering into a settlement. Mr. Danilack reminded the audience that not involving competent authority could result in the IRS denying foreign tax credits claimed on the foreign tax paid, in light of the requirement to exhaust administrative remedies prior to claiming a foreign tax credit.