Most current data requirement of sec. 6662.

• Author: Wood, Kenneth W.

Under Temp. Regs. Sec. 1.6662-6T(d)(2)(ii)(b), a transfer pricing analysis must use the most current reliable data available at the time a return is filed. The legislative history of this provision provides: Since the transfer pricing method that the taxpayer selects is to be applied prior to filing the tax return for the current taxable year, in some cases it will only be possible to apply such method based on data from a preceding year or years. Sole reliance on such data is acceptable (solely for purposes of section 6662(e)) unless more current reliable data becomes available prior to filing the tax return.

Read literally, this "most current data" requirement imposes a tremendous burden on taxpayers. While it is clear that at some point prior to filing its return a taxpayer must terminate its search for additional data, a failure to incorporate late-arriving information could make it liable for the 20% and 40% transfer pricing misstatement penalties imposed under Sec. 6662(e) and (h) and Temp. Regs. Sec. 1.6662-6T(b) and (c).

There are numerous practical problems with the "most current data" requirement. First, taxpayers face a daunting task of finding "reliable" data that meets the comparability standards of the Sec.482 regulations. This data collection burden is substantially increased by requiring taxpayers to include the most current data available at the time a return is filed. Second, public information on potentially comparable companies is generally not available until May of each year, despite the fact that many companies file annual reports with the Securities and Exchange Commission at the end of March. In addition, some companies...