PORTFOLIO

Transfer Pricing: The Code, the Regulations and Selected Case Law (Portfolio 886)

Tax Management Portfolio, Transfer Pricing: The Code, the Regulations, and Selected Case Law, is the foundation of the Transfer Pricing Portfolio Series.

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DESCRIPTION

The first part of this Portfolio discusses the evolution of §482 from its beginnings in the early 20th century to the current iteration and the adoption in 1986 of the commensurate-with-income standard for transfers of intangible property.
The second part of the Portfolio analyzes the §482 regulations in depth, focusing on the 1994 regulations (as amended to date), but including discussion of prior regulations to facilitate understanding of current concepts and methods. All aspects of these regulations and associated case law are addressed, including definitions and basic concepts, such as collateral adjustments; the power of the IRS to reallocate items among controlled taxpayers, the arm's-length standard, and the scope of review; the basic elements of transfer pricing analysis, including the best method rule, comparability standards, the arm's-length range, and methods applicable across transaction types, such as the comparable profits method (CPM); and finally, transaction-based methods for specific types of transactions, such as transfers of tangible property, transfers of intangible property, and controlled services transactions.
The final part of the Portfolio traces the development of judicial approaches to the problem of comparability through an analysis of significant cases decided under §482. The vast majority of these cases arose during the era of the 1968 regulations, but they remain instructive, albeit to a limited extent, under the current regulatory scheme.
The reader should note that many important topics, such as cost-sharing arrangements, documentation requirements and penalties, are only touched on here, but are treated in detail in other portfolios in the Transfer Pricing Portfolio Series.


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AUTHORS

Transfer Pricing: The Code, the Regulations, and Selected Case Law was authored by the following experts.
SAMUEL M. MARUCA, ESQ.
Samuel M. Maruca, B.A. Yale University (1977); J.D., Georgetown University (1982); Member, ABA Section on Taxation; Member, International Fiscal Association; Admitted to practice, District of Columbia, United States Tax Court, United States Court of Federal Claims, United States Supreme Court.

JOHN P. WARNER, ESQ.
John P. Warner, Esq., Buchanan Ingersoll & Rooney, PC, Washington, D.C. B.A., George Washington University (1971); J.D., University of California, Berkeley (1977); Chair, ABA Section on Taxation Transfer Pricing Committee; Admitted to practice, United States Tax Court, United States Court of Federal Claims, United States Supreme Court.

REUVEN S. AVI-YONAH, ESQ.
Reuven S. Avi-Yonah, Esq., University of Michigan Law School, Ann Arbor, Mich. A.B. Hebrew University (1983); Ph.D. Harvard University (1986); J.D., Harvard Law School (1989); Irwin I. Cohn Professor of Law and Director of International Tax L.L.M. Program, the University of Michigan Law School; Admitted to practice, Michigan, New York and Massachusetts.

TABLE OF CONTENTS

Detailed Analysis

I. Example

A. Background Facts

B. USS Operations

II. Tax Disputes

A. 1988-1989 Taxable Years

1. IRS Audit of 1988 and 1989 Taxable Years

a. Initiation of Audit

b. IRS Document Request

c. Proposed IRS Adjustments

d. USS Options After Audit

2. IRS Appeals Office Consideration of 1988 and 1989 Taxable Years

a. Protest

b. Appeals Office Response

c. USS Counterproposal

3. Competent Authority Consideration of 1988-89 Taxable Years

B. 1990-1991 Taxable Years

1. 1990-1991 Audit

a. IRS Document Requests

b. Proposed IRS Adjustments

c. Options Available to USS

2. IRS Appeals Office Consideration of 1990-91 Taxable Years

a. Taxpayer Protest

b. Appeals Office Conference

c. Taxpayer Counterproposal

d. Terms of the Settlement

3. Competent Authority Consideration of 1990-91 Taxable Years

C. 1992-1994 Taxable Years

1. Reported Results

2. Audit of 1992-1994 Taxable Years

3. Appeals Office Consideration of 1992-1994 Taxable Years

a. D'Andrea Study of Comparable Distributors

(1) Functional Analysis

(2) Arm's Length Range

(3) Use of Multiple Year Data

(4) Selection of Best Method

(5) Comparability Adjustments

(6) Results of the Study

b. Appeals Office Response

4. Competent Authority Resolution of 1994 Adjustment

D. 1995 and Beyond

1. Consideration of Advance Pricing Agreement

2. Consideration of Cost Sharing Agreement


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Consumer Products Comparability Analysis of Financial Results Three Year Average of 1992-1994

Worksheet 2 Consumer Products Comparability Analysis of Financial Results for 1994

Worksheet 11 IRC Section 482

Worksheet 12 1994 Final Section 482 Regulations.

Worksheet 13 1993 Temporary and Proposed Section 482 Regulations.

Worksheet 14 1968 Section 482 Regulations.

Bibliography

OFFICIAL

Statutes:

Treasury Rulings:

Cases:

UNOFFICIAL

Periodicals: