There are still a number of corporations which have not fully recovered from the economic downturn, which consequently leads to less tax revenue for tax authorities. As such, some of the tax authorities around the globe have taken steps to counter the effects of the diminishing revenue by increasing a number of tax audits or performing audits in a more aggressive manner. However, based on the statistics provided by Internal Revenue Source (“IRS”), the IRS does not fall under this category. While the total number of business tax returns has slightly increased from 9.5 million in 2008 to 9.9 million in 2013, an examination coverage ratio, calculated by dividing the number of examined returns by the total number of returns, marginally reduced from 0.63% to 0.61%. It is not surprising to see that enforcement revenue collected during this period decreased from $56.4 billion to $53.3 billion. At a glance, it may seem that the IRS has remained friendly and not undergone dramatic changes as a whole.
However, when it comes to transfer pricing, it’s a different story. Ever since the IRS settled a landmark case in 2006 in which GlaxoSmithKline Holdings Inc. agreed to pay $3.4 billion to resolve the largest tax dispute in the history of the IRS at that time, the IRS has continuously increased its enforcement efforts. In 2009, the IRS added 1,200 employees to deal with international issues and the following year, it even reorganized the organization structure. More specifically, in October 2010, the IRS created the Large Business & International (“LB&I”) division along with a number of subdivisions including the Transfer Pricing Operations (“TPO”) group to handle transfer pricing issues exclusively. [More]