Strengthen Your Company’s Tax Strategies as IRS Audits Intensify

As IRS audits become tougher, now is the time for businesses to reevaluate their tax strategies, especially when it comes to transfer pricing. In recent years, the IRS has significantly ramped up its efforts to ensure compliance, particularly targeting multinational companies with complex intercompany transactions. These transactions, known as transfer pricing, are under closer scrutiny, with stricter audits and harsher penalties being imposed.

At Tonneson + Co, we are committed to helping companies like yours navigate these evolving challenges. Here’s what you need to know and how our expert tax advisors can assist.

Increased IRS Resources Lead to Stricter Audits

The IRS has long been working to strengthen its ability to address transfer pricing violations, and recent developments, such as new funding from the 2022 Inflation Reduction Act, are accelerating their efforts. With more resources at its disposal, the IRS is conducting more detailed audits and leveraging advanced technology to analyze taxpayer data.

This means companies need to ensure their transfer pricing documentation is airtight. By working with a tax advisor early on, businesses can fine-tune their documentation to support their positions and avoid future disputes. Our team at Tonneson + Co can help you stay proactive, reducing your risk of penalties and costly litigation.

The Role of Advanced Pricing Agreements (APAs)

One effective way to head off audits is through an Advanced Pricing Agreement (APA). This agreement establishes a clear transfer pricing methodology for a specified time, providing peace of mind that your company’s transactions will comply with tax regulations.

While the APA process can be time-consuming and costly, it is increasingly being seen as a worthwhile investment, especially for companies with large intercompany adjustments. The potential penalties for non-compliance are steep, and securing an APA can significantly reduce that risk. At Tonneson + Co, we can guide you through the APA process and help you determine if it’s the right strategy for your business.

New Documentation Standards

The IRS and international tax authorities have raised the bar for what qualifies as adequate transfer pricing documentation. This is no longer just a compliance formality; documentation must now provide detailed justification for pricing decisions and demonstrate that transactions are at arm’s length—meaning they reflect market terms as if the transactions occurred between unrelated companies.

Our team of experienced tax professionals can assist in ensuring your transfer pricing documentation meets these updated requirements. This proactive approach is essential in defending your company against increasingly rigorous audits.

Data Analytics Driving IRS Enforcement

Another critical change is the IRS’s use of data analytics to identify potential compliance issues. Earlier this year, around 180 companies received compliance alerts regarding their transfer pricing, prompting many to self-correct before facing an audit. The IRS’s ability to sift through its massive databases means companies should expect this data-driven approach to continue.

To stay ahead, it’s crucial for businesses to regularly review and update their tax positions. At Tonneson + Co, we can provide comprehensive reviews to ensure that your tax strategies are in line with the latest developments and help mitigate any potential risks.

State-Level Transfer Pricing Enforcement on the Rise

In addition to federal scrutiny, several U.S. states have begun enforcing their own transfer pricing rules, particularly in states with mandatory unitary combined reporting. This development adds another layer of complexity for businesses operating across multiple jurisdictions.

Our team understands the nuances of state-specific tax requirements and can help you adjust your strategies accordingly. By staying ahead of both federal and state tax regulations, you can better protect your company from unexpected liabilities.

Why Consult a Tax Advisor?

As IRS audits become tougher and more data-driven, working with a qualified tax advisor is more important than ever. Tonneson + Co’s team of professionals is here to provide the guidance and expertise you need to stay compliant and protect your business.

We can help you:

• Strengthen your transfer pricing documentation
• Navigate the complexities of Advanced Pricing Agreements
• Conduct thorough compliance reviews
• Prepare for state and federal audits
• Stay updated on changing tax regulations

By consulting with our advisors, you’ll be better equipped to handle any tax challenges that come your way. Contact Tonneson + Co today to learn how we can support your business’s tax strategy and ensure compliance in this evolving landscape.