Code Section 482 requires that transactions between related companies be conducted based on “arms-length” pricing. The purpose of the section is to foreclose inappropriate pricing methods that attempt to shift profits to low-tax jurisdictions or companies. The rules relating to determination of an acceptable “arms-length” price are quite detailed and voluminous. IRS examinations of pricing can be a difficult ordeal for both the taxpayer and the IRS.
To assist its employees in Section 482 audits, the IRS has issued a Transfer Pricing Audit Roadmap that details the steps that the examining personnel should take, including when those steps should be undertaken. The Roadmap is useful for non-IRS professionals, both as to establishing proper arms-length pricing in advance that can withstand an audit, and guiding those professionals about what to expect and when during an audit.
The Roadmap details three phases. A summary chart of the phases is included in the Roadmap:
The Roadmap goes into detail as to each of these phases and subphases. For those that practice in this area, the Roadmap is mandatory reading. A copy of the Roadmap can be viewed here (on my computer, downloading and opening it was easier to read than reading it in my browser).
Transfer Pricing Audit Roadmap