The IRS has been in the news lately and not for the reasons you might expect. With headlines focused on workforce reductions, especially within the Large Business and International (LB&I) Division, many multinational companies are asking a natural question:
Does this mean transfer pricing enforcement is slowing down?
In our recent Tax Thursday webinar, Lead Senior Manager Laksha Nahar walks through exactly what’s changing, and what isn’t, when it comes to U.S. transfer pricing documentation and IRS activity. With the October 15 deadline approaching and global tax authorities still very much engaged, now is the time to tune in.
If you’re wondering what IRS changes mean for your documentation, here’s the lowdown:
Fewer Agents, But Smarter Tools
It’s true: the IRS is currently operating with fewer people. The LB&I division alone saw a 20% workforce reduction between January and June of 2025. Overall, the agency is about 25% smaller than it was before 2017.
But fewer agents doesn’t mean less attention will be given to transfer pricing.
The IRS has invested heavily in technology, including AI and data analytics through its Office of Research, Applied Analytics, and Statistics (RAAS). These tools allow the agency to focus more precisely on high-risk transactions, compare your documentation with related filings (like Forms 5471 and CBCR), and send more targeted Information Document Requests (IDRs).
So, while staffing is leaner, enforcement is becoming more streamlined and data driven.
Documentation Deadlines Haven’t Changed
The U.S. requirement for contemporaneous documentation remains unchanged. For calendar-year taxpayers, that means your documentation must be substantially complete by October 15. And while the U.S. doesn’t require you to file the report with your return, you’ll need to produce it within 30 days if asked.
That’s a tight window, especially considering the stakes. Without contemporaneous documentation, penalties of up to 40% of the adjustment amount can apply.
Format and Substance Matter
Nahar emphasized that it’s not enough to “copy-paste” from a global master file. U.S. documentation must be prepared in a specific format (often referred to as the “10 principal documents”), and the analysis must go beyond boilerplate descriptions.
Key areas the IRS pays close attention to include:
- Method selection – Not just what method you chose, but why you rejected the others.
- Comparability analysis – Explaining material differences in functions, risks, and markets.
- Functional analysis – Connecting business activities to value creation and profit allocation.
- Economic rationale – Explaining adjustments and aligning the story across all filings.
And even though the IRS doesn’t formally require a master file, it’s considered best practice, especially for companies operating in multiple jurisdictions.
Global Audits Still Apply
Even if IRS activity slows temporarily, other countries’ tax authorities are still active and they’re watching both sides of intercompany transactions. Mismatches in documentation can trigger audits abroad, which in turn may draw in the IRS.
Nahar also reminded viewers that resolving double taxation through the Mutual Agreement Procedure (MAP) depends on high-quality documentation on both sides of the transaction.
Looking Ahead: Short-Term Cuts, Long-Term Rebuild
While staffing reductions are real, there are already signs that the IRS may be reversing course. Some layoffs have been paused or reversed, and enforcement roles, especially in transfer pricing, are beginning to be refilled. As Nahar shared, a colleague recently received a rehire offer from the very team she was laid off from earlier this year.
In short: this is likely a transitional moment, not a lasting retreat.
So, What Should Companies Be Doing?
Nahar’s message is straightforward: use this time wisely. The IRS may be leaner today, but documentation prepared now could be examined two or three years from now, when enforcement activity may look very different.
She recommends:
- Preparing robust, audit-ready documentation
- Aligning your methodology with actual business operations
- Treating documentation as a strategic asset, not just a filing requirement
- Conducting internal reviews to spot issues before they become red flags
Want the Full Picture?
The on-demand webinar goes deep into what the IRS is expecting, how companies can prepare, and why clear, consistent storytelling in your documentation matters more than ever.
Unsure if your documentation meets today’s expectations? Talk to one of our transfer pricing experts before the October 15 deadline.
