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Burden of Proof – Transfer Pricing Cases (cont’d) Because of the heavy burden of proof that taxpayers face in transfer pricingcases, courts may allow taxpayers more leeway to “look behind” the IRS’snotice and examine the IRS’s conduct There are often disputes in transfer pricing cases as to whether the IRShas asserted a “new matter” that shifts the burden of proof to the IRS or,instead, a “new theory” that does not shift the burden These disputes typically arise when the IRS retains new experts for trial whodevelop new theories and methodologies4
Burden of Proof – Transfer Pricing Cases (cont’d) Perkin-Elmer Corp. v. Comm’r, T.C. Memo 1993-414 In the Notice of Deficiency, the IRS based its Section 482 allocations on acharacterization of the taxpayer’s Puerto Rican affiliate as a consignmentcontract assembler Prior to trial, the IRS abandoned this theory and adopted a position thatrespected the affiliate’s status as a licensed manufacturer The taxpayer argued that the IRS’s abandonment of both the factual and legalbases underlying the Section 482 allocations in the Notice caused the IRS’sallocations to be arbitrary, capricious and unreasonable The Tax Court held that the taxpayer met its burden of showing the IRS abusedits discretion, where the IRS’s initial theory had been rejected in other cases The Tax Court held, however, that the taxpayer still must meet its burden ofproving that its transfer pricing was arm’s length “The task thus thrust upon us is, to put it mildly, frustrating. In this case, as inother significant section 482 cases before the Court in recent years, each partyhas spent most of the time attacking the other party’s allocation formula ratherthan establishing the soundness of its or her own formula.”5
Page 1 and 2: TP Audit Procedures and Adjustments
Page 3: Burden of Proof - Transfer Pricing
Page 7 and 8: 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 and 14: Rev. Proc. 99-32 Rules Election to
Page 15 and 16: Simple Example - Rev. Proc. 99-32 D
Page 17 and 18: Transfer Pricing Information - IRS

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