Preparing for Increased Transfer Pricing Enforcement

THE ROLE OF AI IN MODERN TRANSFER PRICING AUDITS

Global tax authorities, including the IRS, are leveraging AI to improve the accuracy and depth of transfer pricing audits. By analyzing vast datasets, AI can uncover patterns that might otherwise go unnoticed. While this technology promises quicker and more thorough compliance checks, it also raises the likelihood of increased scrutiny. Ensuring accurate, well-documented transfer pricing data is essential for companies in this new era.

IRS EXPANDS ENFORCEMENT: MORE AUDITS, MORE COMPLIANCE LETTERS

To close a significant tax gap, the IRS is strengthening its transfer pricing enforcement team, hiring 70 new specialists, including economists and tax professionals. This additional support enables the IRS to better monitor and penalize companies with insufficient documentation. Last year, compliance letters were sent to numerous companies, urging them to review and adjust their practices. Ignoring these letters could result in audits.

MORE AUDITS, MORE STATE AND LOCAL COMPLIANCE

The increase in IRS audit closures leads to additional state and local compliance requirements for legacy periods, often spanning several years. Legacy periods generally have more separate company state returns, necessitating a higher volume of amended returns. Several high-profile tax court cases have resulted in large dollar amounts owed to the IRS and have covered tax periods dating back to 2004. Taxpayers could be looking at amending several hundred state and local tax returns to report the changes due to transfer pricing. Those same high-profile tax court cases span ten years in some instances.

HOW DMA CAN SUPPORT YOUR TRANSFER PRICING COMPLIANCE

As transfer pricing decisions and IRS enforcement intensify, DMA offers specialized support to help companies navigate these changes confidently and effectively. Here’s how partnering with DMA can strengthen your compliance strategy:

• Comprehensive Transfer Pricing Review: DMA ensures that all applicable state level implications of federal transfer pricing adjustments are applied at the state and local levels. Our approach is thorough and customized, positioning your business for seamless compliance.
• Ongoing Risk Assessment and Strategic Updates: DMA conducts regular risk assessments and advises strategy adjustments to align with the latest regulatory trends. Our team stays current with tax developments, including cases recently filed in tax court, so you can rest assured that your compliance strategy is always up-to-date.
• Proactive Audit Defense and Compliance Support: Should you receive compliance letters or face potential audits, DMA provides robust support in responding promptly and effectively.

With DMA by your side, you’ll have access to industry-leading expertise and guidance, ensuring that your company’s transfer pricing practices are compliant, efficient, and resilient. Reach out to our team of experts today to build a stronger, future-ready transfer pricing strategy.