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1 IRS Examination Data Reveal an Effective Administration of Section 482 Regulations: Report to the Associate Commissioner [i] (1984)

handle is hein.tera/isendat0001 and id is 1 raw text is: Associate Commissioner .Operations) by the Assistant Commissioner (Examination) IRS Examination Data Reveal an Effective Administration of Section 482 Regulations In its most comprehensive study to date, IRS has completed an objective and critical look at its administration of and the effectiveness of the section 482 regulations. The statistical data obtained from this 2-year project is expected to provide the Service with valuable information to better assess, plan, and manage its enforcement efforts in dealing with inter- company transactions between U.S. multinationals and their foreign affiliates. Signif-it Observaans in its compilation of data on 823 cases closed at the ex- amination level, the Service identified 3,080 potential section 482 issues and recommended income adjustments of $4.4 billion on 2,306 of these issues. Of this amount, approxi- mately $2.4 billion (54%) involved nontreaty foreign countries; $909 million (21%) involved treaty countries; and $1.1 billion (25%) involved domestic corporations and Domestic Interna- tional Sales Corporations (DISCs). The report validates the Service's administrative practice not to recommend de minimis adjustments. The average adjust- ment was approximately $1.9 million. The data support IRS efforts to increase the number of economists to provide professional expertise in the develop- ment of a proper arm's length price. Economists are most effective when involved in the preplanning stages of the audit. Arm's Length Price The report discusses four previous section 482 studies con- ducted over the past ten years, and provides data which, upon interpretation, reach a different conclusion than the 1981 General Accounting Office (GAO) report. GAO found that only 3 percent (12 of 403) of IRS' total recommended Sec- tion 482 adjustments to reported income were based on a true arm's length price. The current study shows that ex- aminers used the comparable uncontrolled price method at a rate of 21.2 percent (225 of 1,062). Department of the Treasury internal Revenue Service Publication 1243 14-84)