Summary: Under an advance pricing agreement (APA) program, the Internal Revenue Service (IRS) and taxpayers agree on the methods to determine the prices that related companies charge each other when transferring goods and services over a specific period. Unilateral APAs are between IRS and specific taxpayers; bilateral APAs concern negotiations with tax authorities in foreign countries that have income tax treaties with the United States. Taxpayers agree to submit annual reports that demonstrate compliance with terms of the agreement. According to an IRS official, most taxpayers in the program were large corporations spread across many industries. As of September 1999, 10 percent of the 1,245 large corporate taxpayers with international related parties had an approved agreement or one pending. This 10 percent accounted for 42 percent of the dollar value of the intercompany transactions. IRS did not consistently meet its timeliness targets for processing unilateral APAs and the first phase of bilateral APAs. Of the 211 annual reports reviewed between October 1995 and September 1999, only 15 reports involving 11 taxpayers caused IRS to adjust or consider adjusting tax returns.
