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Dividend Offset Softens the Impact of §482Allocations In some circumstances, otherwise taxable dividends received by aU.S. controlled party are treated as a prepayment of deemed payable/receivable, and dividends excluded from taxable income Under Rev. Proc. 65-17, any dividend paid during the year to whichthe allocation relates could be treated as a pre-payment Rev. Proc. 99-32 limits the utility of the dividend offset For IRS-initiated adjustments, only dividends counted are those madeduring the year in which a closing agreement is finalized For taxpayer-initiated adjustments, eligible dividends are those made in (1)the year to which the primary adjustment relates and (2) the year in which atimely-filed original return is filed reporting the primary adjustment14
Simple Example – Rev. Proc. 99-32 Dividend OffsetIntangible LicenseUSPRoyaltyCFC• Year 1 – CFC pays royalty to USP for intangible license• Year 2 – USP files return for Year 1• Year 3 – IRS determines $100x increase in royalty for Year 1; auditresolved• Year 1 dividends - $30x, Year 2 dividends - $50x, Year 3 dividends -$70x• If Taxpayer initiated adjustment, then Year 1 and Year 2 dividendsmay be excluded• If IRS initiated adjustment, Year 3 dividends may be excluded15
Page 1 and 2: TP Audit Procedures and Adjustments
Page 3 and 4: Burden of Proof - Transfer Pricing
Page 9 and 10: Correlative Adjustments A working d
Page 11 and 12: Interaction Between §482 and Forei
Page 13: Rev. Proc. 99-32 Rules Election to
Page 17 and 18: Transfer Pricing Information - IRS

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