slides - NABE

Burden of Proof – Transfer Pricing Cases The IRS’s determination in a transfer pricing case is generally entitled to aheightened presumption of correctness This heightened presumption arises from the broad discretion given to the IRSunder Section 482 To overcome this presumption, a taxpayer generally must show that (i) theIRS abused its discretion (i.e., that the IRS’s Section 482 allocations are“arbitrary, capricious or unreasonable”) and (ii) the taxpayer’s own transferpricing was arm’s length Whether the IRS has abused its discretion is a question of fact As a practical matter, these two burdens are often collapsed (e.g., by showingthat its own pricing was arm’s length, the taxpayer may also establish that theIRS’s allocations are arbitrary, capricious or unreasonable) Courts typically determine their own Section 482 allocations if they conclude thatneither the IRS’s nor the taxpayer’s methodology is defensible, though somecourts have expressed reluctance to do so3