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Section 482 (Tax): Key Insights into Transfer Pricing Regulations
Definition & Meaning
Section 482 of the US Internal Revenue Code empowers the Internal Revenue Service (IRS) to modify the allocation of gross income, deductions, credits, or allowances among related entities. This provision is primarily designed to prevent tax evasion and ensure that income is accurately represented, particularly between controlled taxpayers, such as corporations and their subsidiaries. Essentially, it serves as a framework for transfer pricing, which is the method used to determine the prices charged in transactions between related parties.
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Legal Use & context
Section 482 is commonly applied in tax law, particularly in the area of transfer pricing. It is relevant in both domestic and international transactions involving related parties. Legal practitioners often use this section to ensure compliance with tax regulations and to defend against IRS audits. Users can manage some aspects of compliance with the right tools, such as legal templates provided by US Legal Forms, which can help in preparing necessary documentation.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A multinational corporation has subsidiaries in different countries. If the US-based parent company charges its foreign subsidiary an inflated price for goods, the IRS may adjust the income reported by the subsidiary to reflect a fair market value, ensuring that the taxable income is accurate.
Example 2: A domestic company with multiple divisions may allocate expenses in a way that minimizes taxable income. The IRS could use Section 482 to reallocate those expenses to ensure that income is properly reported across all divisions. (hypothetical example)
Relevant laws & statutes
Section 482 is part of the Internal Revenue Code, specifically addressing transfer pricing rules. It is important to note that related regulations and guidelines can be found in IRS publications, such as the Transfer Pricing Regulations (Treasury Regulations Section 1.482).
Common misunderstandings
What to do if this term applies to you
If you are involved in transactions with related parties, it is crucial to ensure compliance with Section 482. Consider the following steps:
Review your pricing strategies for transactions between related entities.
Consult with a tax professional to assess your compliance with transfer pricing regulations.
Explore US Legal Forms for templates that can assist in documenting your transactions appropriately.
If your situation is complex, seeking professional legal advice is recommended.
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Transfer pricing refers to the pricing of goods, services, and intangibles between related entities, which must reflect fair market value to comply with tax laws.
The IRS can audit transactions between related parties and make adjustments to ensure compliance with tax regulations.
Yes, taxpayers can appeal IRS adjustments through the established appeals process if they believe the adjustments are incorrect.