NOTE: These Frequently Asked Questions are not official pronouncements of law or directives and cannot be used, cited or relied upon as such. These Frequently Asked Questions provide a general discussion of a process and are a means for collaborating and sharing knowledge among IRS employees. These Frequently Asked Questions may not contain a comprehensive discussion of all pertinent issues, law or the IRS's interpretation of current law. Frequently Asked Questions do not limit an IRS examiner’s ability to use other approaches when examining issues. These Frequently Asked Questions may not be used or cited as precedent.
This process was implemented to support our imperative that LB&I focus our limited resources on issues posing the highest risk and that we develop sustainable positions. Creating a panel of experts in transfer pricing allows for a more consistent process to support development of the strongest technical positions on all cases across the country.
A change in best method is a change from the method selected by the taxpayer as the “best method” based on the analysis in its timely provided § 6662(e) documentation to any other method, regardless of whether the new method is a specified method or an unspecified method. Changes to the application of the taxpayer’s “best method” (e.g., changes or adjustments to comparables used in the application of a method, changes to profit level indicator or tested party in the application of the Comparable Profits Method (CPM), changes to Reasonably Anticipated Benefit (RAB) share in the application of a method, etc.) are not a change in method.
If the examination is opened in the IRS Information Management System (IMS) on or after October 1, 2017, this procedure must be followed. If the examination began before October 1, 2017, these procedures do not apply.
All transfer pricing “best method” changes in examinations started on or after October 1, 2017, regardless of dollar amount, are required to go through this process for changes to the taxpayer’s selection of best method in timely provided § 6662(e) documentation that includes the related analysis and conclusion.
Yes. As provided in the Directive, “This approval process applies not only to examinations with Transfer Pricing Practice (TPP) involvement but also those conducted by Cross Border Activities (CBA) or Geographic Practice Area revenue agents without TPP involvement (including Campaigns).”
Form 15082 Transfer Pricing Review Panel Approval Request for Approval to Change Taxpayer’s Method and instructions are available in the IRC 482 Toolkit located on the International Knowledge Base - Outbound Transfer Pricing Practice Network SharePoint site.
Form 15082 instructions require the completion of the form along with a list of documentation that will take the form of work papers, a draft report, or any other format that is clear and concise. For field examinations, the package will be submitted to the issue team manager and territory manager for approval. Once approved, it will be submitted to the Transfer Pricing Practice (TPP) Director of Field Operations (DFO), for approval before being uploaded to a SharePoint site by our support staff for review by TPRP.
The format can take any form of documentation created or gathered by the issue team in the normal course of the examination. It could include work papers, an in-process Notice of Proposed Adjustment (NOPA) or Economist Report, or responses to Information Document Requests (IDR). What is most important is not the format but that the information be clear, concise and complete to make the process as efficient as possible and not require the creation of documentation not otherwise necessary to support the examination analysis and case file.
A request to change the taxpayer’s selection of best method should be brought to TPRP as soon as the issue team has performed sufficient analysis to determine that the taxpayer’s method, even with adjustments where possible, is not the best method, and the team has determined another method is reasonably expected to be more reliable.
The issue team will submit the Form 15082 and required information through its management chain to make the request. TPRP will review the submission. If, after a review of the submission, TPRP has clarifying questions or is inclined to disapprove it, TPRP will discuss its findings with the issue team. Once TPRP finishes their review, they will formally document their decision on Form 15082 for communication back to the issue team.
The issue team, in conjunction with their manager, is responsible for elevating the recommendation. As with all aspects of the examination, the issue team will keep the team coordinator and team manager informed about this process. The directive uses the normal chain of command for review. The request must be signed off by the issue manager, the territory manager and the DFO prior to submission to TPRP.
Managers are expected to have an in-depth understanding of the cases and issues within their span of control. Requiring managers to sign the application ensures that the case has the level of collaboration and development expected.
The timeframe for the TPRP process will depend on several factors including the thoroughness of the submission by the team, the complexity of the issue and the number of cases before TPRP at a given time. The TPRP will generally respond within 60 days. In all cases, TPRP will work as expeditiously as possible. The Best Method Directive and TPRP are intended to support examination development, not hinder it.
TPRP will meet on an ad hoc basis, driven by the number of submissions. TPRP anticipates meeting at least bi-monthly if needed.
TPRP generally will consist of the same group of people: TPP DFO, Transfer Pricing Practice Network (PN) manager, and one member who is a senior advisor to the Director of Treaty & Transfer Pricing Operations (TTPO).
ECDs should be issue driven. If more time is required to work an issue, the issue team, in conjunction with the issue manager, team coordinator and team manager will discuss adjusting the ECD to allow sufficient time to work the issue.
Properly planning an examination includes managing the statute of limitations. It is the responsibility of the issue team to ensure that adequate time remains on the statute for all necessary actions to fully develop the issue under consideration.
No. The Directive states that the process applies solely in cases where the taxpayer timely provides contemporaneous documentation that clearly states the method the taxpayer selected as the best method and includes analysis to support the best method conclusion. In cases where the taxpayer does not maintain or timely provide contemporaneous documentation, the TPRP process will not apply.
If there is no best method analysis, then the taxpayer’s report is not compliant documentation and the approval process does not apply. If there is a best method analysis, determining whether it is sufficient to support the taxpayer’s selection of best method is the job of the issue team. When the issue team determines the taxpayer’s best method analysis and conclusion do not produce the most reliable arm’s length result, the TPRP process must be used.
Yes. A change in method is a change from the taxpayer’s method to any other method, regardless of whether to a specified or unspecified method.
Approval is required to change the taxpayer’s primary (i.e., best) transfer pricing method.
Issue teams are encouraged to discuss with the taxpayer the relevant facts and potential changes in taxpayer’s transfer pricing method prior to submission to TPRP. This gives the taxpayer the opportunity to provide additional information to the issue team to further support their choice of best method earlier in the examination process. Further, this will contribute to the issue team’s eventual development of the Acknowledgement of Facts.
A transfer pricing examination is a collaborative process that requires the expertise of the economist, a tax law specialist, a revenue agent, or other issue team members. A request to change the taxpayer’s best method will require the efforts of all issue team members.
This process is put in place to protect the interests of the Service with the view to increase the quality of our transfer pricing case work. Economists and every other professional team member whether revenue agent, tax law specialist, or other specialist are employees of the Service and as such, their work products represent the view and position of the Service, not a specific individual.
LB&I field counsel should be consulted on all transfer pricing examinations and may provide assistance to the issue team. (See IRM 22.214.171.124.7)
As long as the issue is the same, the facts are the same and there is no change in the applicable law or regulations, review by the TPRP is not applicable because such cases should already be coordinated with LB&I Counsel and the issue manager.
Treas. Reg. § 1.482-1(c)(1) requires use of the method that provides the most reliable measure of an arm’s length result. To establish that the Service’s method is more reliable, it is important for the issue team to demonstrate why the taxpayer’s method is not reliable through a comparative analysis of potential methods. It may be most efficient to analyze the reliability of a taxpayer’s method before spending significant time analyzing other methods. But every case has its unique facts. This is not a different standard, just an emphasis on being able to demonstrate why the taxpayer’s method is less reliable. Exploring an alternative method should always be considered where appropriate.
There are many resources to assist issue teams in analyzing the taxpayer’s Best Method and gathering information to support an alternative method. These include the Transfer Pricing PN, senior advisors to the TTPO Director, LB&I counsel, and Associate Chief Counsel (International) (ACCI).
The submission to TPRP should be complete and compelling. If, after a review of the submission, TPRP has clarifying questions, TPRP will discuss its questions and preliminary findings with the issue team prior to formally documenting a decision on Form 15082.
The issue team will make a submission to TPRP, which will include the required information listed in Form 15082 as well as any additional information the team believes may be useful. It is anticipated that when TPRP receives this information, it will be sufficient to enable them to make an informed decision. If TPRP has questions for clarification or inclined toward disapproving a submission, however, TPRP will have a discussion with the issue team.
If TPRP disapproves the issue team’s request, a discussion will be held with the issue team prior to formally documenting a decision on Form 15082. If TPRP approves the issue team’s request, there is generally no need to follow up with a discussion – the approved Form 15082 will be provided.
The process to request a change to the taxpayer’s selection of best method is an internal process. The written communication from TPRP to the issue team will be limited to an approval or disapproval.
TPRP’s role is not to choose the best method. TPRP only approves changing taxpayer’s best method because the taxpayer’s method is not the most reliable method. Once TPRP reviews the submission and discusses questions or concerns with the issue team, it is expected that any differences between the TPRP and issue team will be resolved.
No. This is an internal process for the issue team, managers, and TPRP. Taxpayers may address any concerns through normal examination processes.
As with all examination issue disagreements, taxpayers must be reminded that when there are concerns, they should first discuss concerns with the team in place before raising concerns up the management chain.
If permission to change the method is approved, there is no need to re-engage TPRP. Further decisions are under the purview of the issue team.
TPRP will discuss their conclusions with the issue team. If TPRP is convinced that additional factual development might alter its conclusion, they will let the issue team know during the discussion.
It is anticipated that the issue team’s request to change the taxpayer’s selection of best method will be made once the pertinent facts have been gathered and analyzed. If the issue team becomes aware, at a later date, that the information on which it relied is incomplete or inaccurate, it may be necessary to re-engage with TPRP. It is anticipated that this will happen only in unusual circumstances, as issue teams are expected to submit requests only when all necessary information has been considered.
The new method selected by the taxpayer in a Protest would not be part of timely §6662(e) documentation, so TPRP approval would not be required.
Yes. For example, if, a taxpayer used internal transactions as comparables to apply the Comparable Profit Split method, while the issue team proposed using the same internal transactions as comparables to apply the Comparable Uncontrolled Transaction (CUT) method, such a change requires approval from TPRP.
Regardless of the best method name applied by the taxpayer in the transfer pricing documentation, if the issue team recommends changing the method used by the taxpayer, approval of TPRP is required.