XIII.   Related Party Transactions

Related party transactions can be adjusted by the IRS under section 482. The powers of the IRS are very broad. Their interest is simply, to maximize US taxation. There is, in reality, no equity in the system. Foreign countries are starting to use similar concepts and are most likely to attack US owned business in retaliation to the Internal Revenue Service attacking foreign owned companies. One can only hope that the most foreign authorities will take some time before they really get their teeth into transfer pricing!

As a rule of thumb, keep related party transactions with US entities to a minimum.

When transactions are necessary, then try to apply the rule "what would an unrelated party have charged for this transaction." As can be imagined there are rather more specific rules and principles which can and must be applied. One can assume that the "big guns" of the IRS will not be used for small business examinations, but there are no guarantees. In the case of an audit, the new, inexperienced IRS agent can end up wasting much more time than an experienced one. Unfortunately, small companies are most likely to have the inexperienced auditors assigned to them.

There are stringent record keeping rules and regulations relating to transfer pricing, make sure these are complied with.