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Robert Kovacev Quoted on Likely Increase in Transfer Pricing Litigation and Audits in Thomson Reuters

"Transfer Pricing Audits Likely to Rise, Tax Expert Says"

Thomson Reuters

Robert Kovacev discussed how the Internal Revenue Service (IRS) is poised to use its $80 billion appropriation from the Inflation Reduction Act in Thomson Reuters. The expectation is that new enforcement agents and technological investments will focus on large corporations with international operations to curb tax avoidance and crack down on abusive practices. Kovacev said this will likely include transfer pricing as the IRS looks more closely for instances of companies unlawfully shifting profits to divisions in lower-tax jurisdictions to reduce their overall tax liability. "It's been a longtime priority for the [IRS], particularly under this administration, to go after businesses that in their view don't pay their fair share. A large part of that is what the IRS perceives as somebody's avoiding tax through transfer pricing." Kovacev expects transfer pricing litigation to increase alongside audits. Based on firsthand experience, he said litigating such cases can be as lengthy and resource-consuming as the audits themselves. Kovacev added that senior executives at the IRS are looking to bolster the capabilities of the Large Business and International (LB&I) Division by bringing on new hires to develop data analysis models that use artificial intelligence, which he said would "enhance cooperation with international tax authorities." There is an expectation such technology will become more sophisticated over time, with models increasingly able to make accurate predictions based on larger pools of historical data.