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ARTICLE · 02 DECEMBER 2020

IRS Seeks To Bar Transfer Pricing Argument In Western Digital

Mayer Brown
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The parties recently completed briefing on an IRS motion for partial summary judgment in Western Digital Corporation v. Commissioner.

United StatesTax
William McGarrity
William McGarrity
Anthony D. Pastore
Anthony D. Pastore
Daniel S. Emas
Daniel S. Emas
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The parties recently completed briefing on an IRS motion for partial summary judgment in Western Digital Corporation v. Commissioner. The motion asks the US Tax Court to hold that a safe harbor in the Section 482 regulations is not relevant to whether intercompany receivable terms are "ordinary and necessary" under a provision in Subpart F. In our view, the motion is an unusual attempt to bar the taxpayer from making a well-founded legal argument in a case that is over a year away from trial.

The Subpart F issue hinges on foreign affiliates' intercompany sales to a US affiliate. The US affiliate paid the foreign affiliate for finished goods within 90 of the invoice date. Under Section 956(c)(2)(C), intercompany receivables are treated as "United States property" if they are not "ordinary and necessary." And the IRS determined that the receivables here were not "ordinary and necessary" because the 90-day period was a few weeks longer than appropriate. The IRS

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