With the US’s October 15 transfer pricing deadline fast approaching, now is the time to decide how you will present intercompany transactions to the IRS. While the Large Business and International Division has lost 20% of its workforce, that’s no excuse for taking shortcuts on compliance. In fact, we’d argue that 2025 is the time to step up your game.
Fewer IRS employees may mean fewer audits overall, but the ones they do launch will focus on cases they are likely to win. Incomplete or missing documentation will raise red flags, signaling there’s something to hide. With a leaner workforce, the IRS will likely rely more heavily on technology to review documentation, which means gaps and inconsistencies won’t go unnoticed.
Remember: Audits for your 2025 documentation won’t be conducted for two or three years. By then, the IRS could be fully staffed and eager to make up for lost time—potentially leading to an audit surge. Solid US documentation can strengthen your position in other jurisdictions, and even if you’re faced with adjustments, having adequate documentation means you’re likely to face reduced penalties for putting in the effort.
If you’re preparing documentation for the contemporaneous October 15 deadline, here are a few tips:
Tip #1: Use the Right Format: While the IRS requests information similar to the OECD’s BEPS Action 13—the master file, local file, and country-by-country report—it uses its own 10 principal documents format instead.
Tip #2: Analyze the Data: Your documentation must go beyond numbers and tables—it should include in-depth analyses and self-assessments to anticipate potential IRS questions.
Tip #3: Follow Best Practices: In the Transfer Pricing Documentation Best Practices FAQ, the IRS recommends:
- Performing a sensitivity analysis of your “best method”
- Testing the impact of removing one company from your comparable set
- Comparing your tested party’s results against a variety of profit level indicators (PLIs)
Tip #4: Comply with US-specific transfer pricing rules: That’s where ExactReport, Exactera’s new AI-driven software, comes in. It runs local file analyses, flagging gaps between your documentation and local requirements, and recommends modifications. The result: higher-quality reports and instant reviews of your analyses, making it easier to hit that October 15 deadline with confidence.
Check it out: Become an ExactReport Early Adopter today.
