Elizabeth Stevens Comments on Unspecified Methods in Tax Notes

The IRS's Large Business and International Division hopes that funding allocated for tax enforcement in the Inflation Reduction Act will mean more transfer pricing work in the future, the division’s acting deputy commissioner said.

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Elizabeth Stevens of Caplin & Drysdale noted that since the Tax Court’s opinion in Medtronic Inc. v. Commissioner, T.C. Memo 2022-84, “there’s been much ado about the idea of unspecified methods” among tax commentators. The Medtronic decision is a good reminder that if taxpayers are in a situation in which they’re considering the comparable profits method as a fallback or “least worst” method, it may be time to think outside the box about methods that may be more reliable.

Asked by Stevens how receptive LB&I’s transfer pricing functions are to the use of unspecified methods, Best said that in most cases, a specified method is going to be the best. In appropriate cases, however, the taxpayer's or IRS's choice of an unspecified method “will work if it is consistent with the regulations and it does produce the most reliable result,” she said. That may be the exception rather than the rule, “but in appropriate cases, an unspecified method will produce the most reliable result,” she added.

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