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What penalties does the IRS impose for transfer pricing violations — the 20% and 40% rules?
I heard the IRS can impose a 20% or even 40% penalty on transfer pricing adjustments. My LLC has about $80K in intercompany transactions and I have minimal documentation. What exactly triggers these penalties? Is it just based on the dollar amount of the adjustment, or does intent matter? Can I avoid penalties after the fact by showing I acted in good faith?
Related Questions
What transfer pricing documentation do I need to avoid penalties under IRC 6662(e)?
I've been reading about 'contemporaneous documentation' requirements for transfer pricing and I'm confused about what I actually need to prepare. My foreign-owned LLC does about $500K in revenue with intercompany transactions totaling about $100K per year. Do I need a full-blown transfer pricing study like multinational corporations prepare? What are the specific documentation rules under IRC 6662(e) and how detailed does it need to be?
What does 'contemporaneous' documentation mean — can I prepare it after year-end?
My foreign-owned LLC's tax year ended December 31. I'm just now learning about transfer pricing documentation requirements. My tax return is due in April (or October with extension). Can I still prepare the documentation now and have it count as 'contemporaneous'? Or did I need to have it ready by December 31? I have all the data — I just never put it into a formal document.
The IRS is auditing my LLC's transfer pricing — what should I expect and how do I prepare?
I received a letter from the IRS saying they want to examine my foreign-owned LLC's Form 5472 and related transfer pricing for the past two tax years. I've been paying my overseas company a service fee and a royalty, and I have some documentation but it's not very detailed. What does the IRS examination process look like for transfer pricing? What documents will they request? How do I defend my positions?
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