Fundamentals
IRC Section 482
IRC Section 482 is the provision of the US Internal Revenue Code that grants the IRS authority to reallocate income, deductions or credits between related organisations when necessary to prevent tax evasion or to clearly reflect the income of each entity, applying an arm's length standard to related-party transactions.
Section 482 empowers the IRS to adjust the reported income of commonly controlled entities where transactions between them do not reflect arm's length results. The accompanying Treasury regulations set out detailed methods for pricing tangible property, intangibles, services and financial transactions, closely paralleling.
US taxpayers subject to Section 482 must maintain contemporaneous documentation to qualify for penalty protection under related rules, demonstrating that a reasonable method was selected and applied to support the pricing of controlled transactions. Failure to do so can expose a business to substantial penalties in addition to.
In practice
What matters when applying irc section 482
- Core US statute governing related-party pricing
- Grants the IRS authority to reallocate income and deductions
- Detailed Treasury regulations define acceptable methods
- Parallels but is not identical to OECD guidance
- Contemporaneous documentation provides penalty protection
Frequently asked
Common questions
How does Section 482 differ from OECD guidelines?+
While both apply an arm's length standard, Section 482 and its regulations have some distinct features, such as specific rules on cost-sharing arrangements and the best method rule, which requires selecting the method producing the most reliable measure of an arm's length result for the transaction.
What penalties apply under Section 482?+
Related penalty provisions can impose substantial understatement penalties, often twenty to forty percent of the underpayment, if the IRS makes a significant transfer pricing adjustment. Maintaining adequate contemporaneous documentation is the primary way businesses protect themselves from these penalties.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.