KPMG report: IRS large foreign-owned transfer pricing initiative aimed at inbound distributors

Inbound distributors with sustained low profitability or losses may need to review their existing transfer pricing

Inbound distributors with sustained low profitability or losses

The IRS on 20 October 2023 announced new enforcement initiatives using Inflation Reduction Act funding, including a “large foreign-owned corporations transfer pricing initiative” (read TaxNewsFlash). This initiative targets inbound distributors that report losses or low profits on a consistent basis. The initiative is run through compliance alerts that the IRS intends to send to approximately 150 subsidiaries of large foreign corporations to incentivize self-correction. The IRS previously conducted a similar initiative under its now-retired “Inbound Distributor Campaign,” which commenced in 2017.

Taxpayers are now beginning to receive these compliance alerts, which generally take the form of a form nudge letter stating that the taxpayer has been identified as presenting a transfer pricing compliance risk based on its 2017-2021 tax returns. The letters request that the taxpayer respond under penalties of perjury and either explain its compliance with section 482 or amend all noncompliant returns to increase U.S. taxable income. Importantly, taxpayers who do not exactly match the intended profile for this campaign (e.g., taxpayers that operate as manufacturers as well as distributors) have also received nudge letters.

All inbound distributors with sustained low profitability or losses may need to review their existing transfer pricing, regardless of whether they have already received a nudge letter from the IRS. Taxpayers that receive letters must respond and explain their compliance with section 482, as failure to respond is likely to result in a formal audit.

For more information, contact a KPMG tax professional:

Cameron Taheri |

Thomas Herr |

Mark Martin |

Thomas Bettge |



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