Federal Tax

Section 482 Allocations: Specific Allocation Methods and Rules the Code and Regulations (Portfolio 552)

  • This Portfolio examines rules regarding allocation methods under §482 and addresses other particular issues, such as correlative allocations, the burden of proof, and penalties.

Description

Bloomberg Tax Portfolio No. 552, Section 482 Allocations: Specific Allocation Methods and Rules in the Code and Regulations, examines specific rules in the Code and regulations prescribing allocation methods under §482 and addressing other particular issues, such as correlative allocations, and the burden of proof and penalties, in relation to the domestic context.

This Portfolio is a companion to 551 T.M., Section 482 Allocations: General Principles in the Code and Regulations, and 553 T.M., Section 482 Allocations: Judicial Decisions and IRS Practice.

The Portfolio discusses the allocation methods for income from transfers of tangible property, from the use of tangible property, from the performance of services, from loans or advances, and from the transfer of intangibles.

The Portfolio examines the comparable profits method and transactional profit split methods authorized by the regulations. Having reviewed these detailed allocation rules in the regulations, the Portfolio returns to the problem of how to apply the overarching “best method rule” described in 551 T.M., and, based on the regulations, gives a number of specific examples.

The Portfolio then explores other important issues addressed in the regulations, including the special rules dealing with (1) collateral adjustments; (2) setoffs; (3) the effect of legal restrictions on transfer pricing adjustments; (4) the relationship between §482 and specific nonrecognition provisions of the Code, such as §351; and the very detailed rules for so-called “cost sharing arrangements.” Drawing upon the coverage of these various rules, the Portfolio examines standards in the Code and regulations regarding the burden of proof in tax cases generally and how these standards affect §482 cases. Finally, the Portfolio takes up the all-important issue of transfer pricing penalties, considers the statutory and regulatory provisions governing these penalties, and provides advice on how taxpayers can minimize the risk of being subject to such penalties.

Table of Contents

I. Introduction
II. Allocation Methods for Income from Transfers of Tangible Property
III. Allocation Methods for Income from the Use of Tangible Property
IV. Allocation Methods for Income from the Performance of Services
V. Allocation Methods for Income from Loans or Advances
VI. Allocation Methods for Income from the Transfer of Intangibles
VII. The Comparable Profits Method
VIII. Profit Split Methods
IX. Examples of the Application of the Best Method Rule
X. Other Issues Addressed in the Regulations
XI. Cost Sharing Arrangements
XII. The Burden of Proof in § 482 Cases
XIII. Penalties

lepard-brian-2015
Brian Lepard
Harold W. Conroy Distinguished Professor of Law Director, LL.M. in Global Legal Practice Program
University of Nebraska College of Law
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