Frequently Asked Questions
Who is eligible for the Transfer Pricing Penalty Protection?
Taxpayers must have documentation in existence at the time of filing that establishes the use of a reasonable pricing method and provide it to the IRS within 30 days of a request.
How does the Transfer Pricing Penalty Protection work?
Avoids substantial valuation misstatement penalties (20-40%) on Section 482 adjustments by maintaining contemporaneous documentation of pricing methods.
What law authorizes the Transfer Pricing Penalty Protection?
The Transfer Pricing Penalty Protection is authorized under IRC §6662 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §6662
Source: Internal Revenue Code, Title 26, United States Code
§ 6662. Imposition of accuracy-related penalty on underpayments(a) Imposition of penaltyIf this section applies to any portion of an underpayment of tax required to be shown on a return, there shall be added to the tax an amount equal to 20 percent of the portion of the underpayment to which this section applies.
(b) Portion of underpayment to which section appliesThis section shall apply to the portion of any underpayment which is attributable to 1 or more of the following:(1) Negligence or disregard of rules or regulations.
(2) Any substantial understatement of income tax.
(3) Any substantial valuation misstatement under chapter 1.
(4) Any substantial overstatement of pension liabilities.
(5) Any substantial estate or gift tax valuation understatement.
(6) Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(o)) or failing to meet the requirements of any similar rule of law.
(7) Any undisclosed foreign financial asset understatement.
(8) Any inconsistent estate basis.
(9) Any overstatement of the deduction provided in section 170(p).
(10) Any disallowance of a deduction by reason of section 170(h)(7).
This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 6663. Except as provided in paragraph (1) or (2)(B) of section 6662A(e), this section shall not apply to the portion of any underpayment which is attributable to a reportable transaction understatement on which a penalty is imposed under section 6662A.
(c) NegligenceFor purposes of this section, the term “negligence” includes any failure to make a reasonable attempt to comply with the provisions of this title, and the term “disregard” includes any careless, reckless, or intentional disregard.
(d) Substantial understatement of income tax(1) Substantial understatement(A) In generalFor purposes of this section, there is a substantial understatement of income tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of—(i) 10 percent of the tax required to be shown on the return for the taxable year, or
(ii) $5,000.
(B) Special rule for corporationsIn the case of a corporation other than an S corporation or a personal holding company (as defined in section 542), there is a substantial understatement of income tax for any taxable year if the amount of the understatement for the taxable year exceeds the lesser of—(i) 10 percent of the tax required to be shown on the return for the taxable year (or, if greater, $10,000), or
(ii) $10,000,000.
(C) Special rule for taxpayers claiming section 199A deductionIn the case of any taxpayer who claims any deduction allowed under section 199A for the taxable year, subparagraph (A) shall be applied by substituting “5 percent” for “10 percent”.
Showing first 3,000 characters of full section text.