Prop. rev. proc. on transfer pricing conforming adjustments.

• Author: Shein, Caren
• Position: IRS proposed Revenue Procedure

The IRS released the proposed text of a long-awaited update to Rev. Proc. 65-17, which addressed the extent to which taxpayers could make conforming adjustments to reflect Sec. 482 transfer pricing adjustments without additional Federal income tax consequences. In Announcement 99-1 (which includes the text of the proposed revenue procedure), the Service announced its intent to update Rev. Proc. 65-17 and a series of related revenue rulings and procedures. The new revenue procedure is proposed to be effective prospectively from the date it is published in final form.

The proposed revenue procedure reflects the IRS's current policy under Sec. 482 and its reliance on penalties under Sec. 6662(e) to foster taxpayers' up-front compliance with the arm's-length standard in transfer pricing. The following are some significant proposed changes to Rev. Proc. 65-17:

* The subjective tax avoidance standard used as a condition for claiming benefits would be replaced with an objective standard. Thus, a taxpayer would be entitled to the benefits of the new revenue procedure as long as it was not subject to penalty under Sec. 6662(e)(1)(B) or (h) as a result of the Sec. 482 adjustment (the primary adjustment).

* The cash repatriation treatment would be made available for...