A taxpayer may avoid the net adjustment penalty if it has satisfied the documentation requirements of IRC Section 6662(e)(3)(B) and Treas. Among other penalties, a net adjustment penalty under IRC Section 6662(e)(1)(B)(ii) can apply when a taxpayer's net IRC Section 482 transfer pricing adjustment exceeds the relevant dollar thresholds for a substantial or gross valuation misstatement.
Reasonable and adequate transfer pricing documentation can help taxpayers avoid certain penalties that might otherwise apply. The guidance is designed to encourage and help taxpayers to prepare improved documentation with an aim to decrease the number of issues selected for examination and improve the examination efficiency for the issues that are selected.
The IRS has published new frequently asked questions (FAQs) describing best practices and common mistakes in preparing transfer pricing documentation. IRS releases FAQs on transfer pricing documentation best practices
