by Brian Mahany
The IRS has formed a very talented team of agents to crackdown on transfer pricing abuses. For the average Joe and Jane, the new team has no meaning. But for businesses that move profits from one country to another to reduce taxes, the news is huge.
President Obama has long disliked large corporations that avoid paying U.S. taxes by shiting profits around the world. The practice, known as transfer pricing, is not necessarily illegal. Every taxpayer wants to pay as little taxes as possible – of course, the average taxpayer doesn’t have global facilities and the ability to switch profit centers around the world.
Last spring the IRS formed the special transfer pricing team and began recruiting high power accountants and economists from big name firms like KPMG, Ernst & Young and the Baker & McKenzie law firm.
Transfer pricing has always been a difficult issue for the IRS. The audits are incredibly complex and the Service just doesn’t have the institutional knowledge. Recruiting from well known private sector sources may level the playing field.
The stakes are high and many are skeptical that the IRS can effectively police multinational corporations many of which do business in dozens of countries and produce thousands of products.
To minimize taxes, many companies shift assets and productions steps from one country to another so that any profits occur in low tax jurisdictions and not in places like the U.S.
Although the IRS recently settled one case for $1.2 billion, it has also lost a few cases that went to trial in U.S. Tax Court. Will the IRS turn around its losing streak on transfer pricing assessments? It’s too early to tell but manufacturing, pharma and tech companies can expect the new transfer pricing “SWAT” team will soon be knocking on their doors.
Mahany & Ertl is a boutique law firm concentrating in protecting taxpayers involved in IRS tax controversies. Our staff includes a CPA, an LLM, and several tax lawyers including a former Assistant Attorney General – Tax and the former state revenue commissioner of Maine. Large or small, we can help defend any audit and protect your rights in U.S. Tax Court.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Detroit, Portland (ME) and Minneapolis. IRS tax representation worldwide.