Anticipated Increases In Transfer Pricing Enforcement Beginning To Materialize

On October 20, 2023, the Internal Revenue Service ("IRS") announced the launch of a three-pronged corporate tax compliance initiative as part of the Inflation Reduction Act of 2022¹ with the overarching agenda to reduce the U.S. federal government deficit. As anticipated by Bennett Thrasher ("BT") in a blog post published earlier this year , a major prong of this initiative is to address non-compliance and aggressive tax positions taken by large corporations by fueling increased transfer pricing scrutiny and enforcement.

As evidence of its new focus on transfer pricing, the IRS disclosed that it plans to send "compliance alerts" to roughly 150 U.S. subsidiaries of foreign corporations that the IRS believes are using questionable transfer pricing tactics to report low profits on domestic activities. The IRS hopes these alerts will remind those taxpayers of their obligations and "incentivize self-correction." In a recent interview with Tax Notes International ("Tax