Key Takeaways IRC Section 482 grants the IRS broad authority to reallocate income between related entities to reflect arm's length results The arm's length standard requires intercompany transactions to be priced as if between unrelated parties Five primary transfer pricing methods exist: CUP, resale price, cost plus, comparable profits, and profit split Contemporaneous documentation is required to avoid 20-40% penalties on transfer pricing adjustments The Advance Pricing Agreement (APA) program offers certainty through prospective IRS agreements on methodology Effective defense requires experienced representation with deep transfer pricing expertise Why Transfer Pricing Matters Transfer pricing is one of the most significant and complex areas of international tax enforcement. With billions of dollars at stake in cross-border intercompany transactions, the IRS devotes substantial resources to examining whether multinational companies are shifting profits out of the United States through non-arm's length pricing. Understanding Transfer Pricing and Section 482 Transfer pricing refers to the prices charged in intercompany transactions between related parties — typically between a US parent corporation and its foreign subsidiaries, or between different foreign affiliates of a US-based multinational group. These transactions include sales of goods, provision of services, licensing of intellectual property, intercompany loans, and cost-sharing arrangements. IRC Section 482 is the primary weapon in the IRS's transfer pricing enforcement arsenal. It grants the IRS authority to "distribute, apportion, or allocate gross income, deductions, credits, or allowances" between related entities if it determines that such allocation is necessary to "prevent evasion of taxes or clearly to reflect the income" of the entities involved. The power under Section 482 is extraordinarily broad. The IRS can reallocate income between a US parent and its foreign subsidiary, between two foreign subsidiaries of a US parent, or between any other related entities that engage in intercompany transactions. The practical effect is that the IRS...