IRS Transfer Pricing Guidance: Adjustments Based On Actual Results

The IRS has issued guidance endorsing a muscular approach to the application of "periodic adjustments" provisions. Those provisions authorize IRS adjustments of a taxpayer's pricing for transfers of high-value intangibles, including platform contribution transactions, for taxable years after the year of transfer, based on the actual, realized profitability of those intangibles in those later years.¹ In General Legal Advice Memorandum 2025-001 (the "GLAM"), released January 17, 2025 and directed to the group within the IRS responsible for APAs and transfer pricing audits, the IRS asserts that the periodic adjustments rules trump the general arm's length standard. That is, unless the taxpayer qualifies for an exception provided in the regulations, the taxpayer cannot avoid periodic adjustments by relying on the general arm's length standard or the best method rule.²