Written by: Kristen Schroeder—Director, State Income Tax Practice Lead
With recent decisions and a focus on enforcement, transfer pricing compliance is critical for US companies with intercompany transactions. The IRS, alongside international tax authorities, is increasingly using tools like Artificial Intelligence (AI) to identify and analyze high-risk transactions. Here’s why businesses should consider staying prepared and compliant.
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.
Need support with state income tax compliance? Contact our DMA team today.
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 ASSIST WITH STATE INCOME TAX COMPLIANCE AFTER FEDERAL AUDITS
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 state income and franchise tax 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
Take Control of Your State Tax Strategy
Facing complex state income tax challenges? Let DMA’s expert team simplify compliance and maximize savings. Contact us for a consultation today.