adjunct to the IRS, just as a professional investigator (PI) serves as an adjunct to the
police in securing data that might be unavailable to the IRS.
29.20 DEVELOPING THE STANDARD INITIAL TRANSFER PRICING INFORMATION
DOCUMENT REQUEST. Audits have been decreasing as a percentage of taxpayer
returns during the past few years because of IRS staffing shortages. These shortages
may have led to a kinder, gentler IRS but have severely challenged the veracity of
America’s taxing system. Charles Rossotti, Commissioner of Internal Revenue, is
making strong steps to fill this gap.
It is our belief that overall tax compliance would benefit from meeting the IRS
staffing needs and from the IRS agents’ greater use of information document re-
quests. Such a need is for a standard information document request in the transfer
pricing context.
We have prepared such a standard transfer pricing information document request for
the IRS as part of our presentation to IRS officials. This was part of our presentation
concerning “documentation, examination procedures, and methodologies” so recently
praised by Mr. Rossotti and by Treasury Secretary Paul O’Neill. In preparing these
standard transfer pricing information document requests for the IRS, as practitioners
we are mindful of the time and effort in preparing and retaining such documentation.
(a) Initial Transfer Pricing Information Document Request. The following provi-
sions apply for Part I of the Initial Transfer Pricing Information Document Request.
(i) Profit and Loss Statement. A profit and loss statement includes records that per-
tain to profit and loss. These records requested herein reflect the following:
- Profit or loss statements of the taxpayer and all related parties (the related-party
group) that meet required parameters and - Profit or loss statements of the taxpayer and all related parties (the related-party
group) attributable to U.S.-connected products or services that meet required pa-
rameters.
The definition of profit and loss statement is taken from Treasury Regulation Section
1.6038A-3(c)(2)(ii). This definition of a profit and loss statement is broader for the
Initial Transfer Pricing Information Document Request than it is for the Treasury
Regulation Section 1.6038A-3(c)(2)(ii) definition. This broader definition enables the
IRS to determine whether the taxpayer is complying with other facets of Section
6038A, Section 482, and Section 6662. Treasury Regulation Section 1.6038A-
3(c)(2)(ii) seeks records that are material. The Initial Transfer Pricing Information
Document Request treats these documents as tentative material in the first instance,
pending future examination by the IRS.
(ii) Related Party. A related party meets one of three definitions:
- A related party is a party that is a direct or indirect shareholder of the taxpayer,
- A related party is a party that is a direct or indirect subsidiary of the taxpayer, or
- A related party is a party that is acting in concert with the taxpayer as otherwise
as defined under Section 267(b), Section 707(b)(1), or Section 482.
29.20 THE STANDARD INITIAL TRANSFER PRICING REQUEST 29 • 27