Question

Section 482 is used by the Treasury to:

a. Force taxpayers to use arms-length transfer pricing on transactions between related parties.

b. Reallocate income, deductions, etc., to a related taxpayer to mimimize tax liability.

c. Increase information that is reported about U.S corporations with non-U.S owners.

d. All of the above.

Please explain.

Answer 1

Correct answer is a. Force taxpayers to use arms-length transfer price on transactions between related parties.

Section 482 is used by Treasury to prevent any fraudulent activity while dealing with related parties. It ensures that related party transactions should be transacted only at arms-lenght transfer pricing whereas arms-lenght transfer pricing means amount charged from related parties is the same amount as amount charged in ordinary course of business i.e amount charged from others which are not related parties.