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Anthony D. Pastore

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Anthony Pastore is a partner in Mayer Brown’s Chicago office and a member of the Tax Controversy & Transfer Pricing practice.

Since joining the firm in 2013, Anthony has represented corporate, partnership, and individual taxpayers in all stages of tax controversy, including examination, administrative appeal, litigation, and trial. He has experience with transfer pricing allocations, debt-equity characterization, valuations, accounting method changes, substance-over-form arguments, and penalties.

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The Big Catch

In January, the IRS issued a generic legal advice memo on periodic adjustments and the arm’s length standard. Although the “GLAM” states that it merely “clarifies” and “updates” a prior memo, it contains insights into the IRS’s aggressive thinking on this topic. And the very fact that the IRS issued the memo now suggests that disputes over periodic adjustments are heating up in audits and litigation.

Background. The new memo “addresses the relationship” between “the general arm’s length standard” and “the specific periodic adjustments rules” in the section 482 regulations. Since 1986, the second sentence of section 482 has required the income from the transfer of intangible property to “be commensurate with the income attributable to the intangible.” The agency takes the position that this statutory language authorizes the IRS (and only the IRS) to adjust the income of a transferor of IP based on the actual income earned by the transferee. The agency views these “periodic adjustments” as a necessary palliative when considering IP with a high—but uncertain—profit potential.Continue Reading A “Capacious” Arm’s Length Standard?

When planets collide

Last week, the US Treasury released long-awaited proposed regulations on the corporate alternative minimum tax or “CAMT.” In a press release, Treasury estimated “that around 100 of the largest and most profitable companies will pay the CAMT annually.” According to Janet Yellen, the new rules will help combat “egregious U.S. corporate tax avoidance” that has led, in her view, to artificially low tax liabilities. Transfer pricing practitioners take note: one tool that Treasury plans to use in this effort to combat “abuse” is Section 482.Continue Reading When Worlds Collide: Transfer Pricing and the CAMT

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Multinational groups constantly evolve, grow, and consolidate, and operational facts and circumstances always change. Say a growing company decides to expand internationally. It may choose to incorporate new foreign subsidiaries that will operate a manufacturing facility in one country and a limited-risk distributor in another.

The tax department will probably pay a lot of attention to the proper transfer pricing for transactions between these related parties of the growing multinational group. When it does so, it should ensure that the intercompany transactions, including the arm’s-length pricing, are memorialized in written intercompany agreements. We’ll address the most common questions you might have about these agreements.Continue Reading How Intercompany Agreements Can Mitigate Transfer Pricing Risk

In most transfer pricing disputes, the taxpayer squares off with the IRS or some other taxing authority, and the issue is the amount of tax due. But, in some cases, a company’s transfer pricing policies can lead to disputes between private parties. It is important for tax-department personnel to be aware of the risks from these private disputes so that they can take them into account when setting up intercompany documentation and transfer pricing policies. Examples include:Continue Reading Private Transfer Pricing Disputes

In a recent case, Villa-Arce v. Commissioner,[1] a whistleblower sent information to the IRS that he believed showed that the company was using improper transfer pricing practices and taking unjustified deductions. The IRS opened an examination that resulted in other adjustments, but none based on the information from the whistleblower. For that key reason, the D.C. Circuit affirmed the Tax Court decision that the whistleblower was not entitled to an award for the collection of proceeds from the unrelated adjustments. Yet while the whistleblower walked away empty-handed, the case illustrates a unique type of transfer pricing and audit risk that comes from whistleblowers that companies should recognize. And given the indefinite nature of transfer pricing and the potential amount of dollars at stake, we will likely see more whistleblower actions involving transfer pricing.Continue Reading Blowing the Whistle on Transfer Pricing

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In a recent case, the IRS sued a corporate taxpayer in district court for supposedly unpaid taxes—without issuing a notice of deficiency first. The taxpayer claimed that this move was improper, but the district court sided with the IRS. In an opinion issued in June, the court held that the deficiency process is essentially optional for the IRS.Continue Reading Liberty Global and the Burden of Proof

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In Moore v. U.S., Mr. and Mrs. Moore challenge the constitutionality of the transition tax under § 965. The Moores ask the Supreme Court to reaffirm a realization requirement for income taxable under the Sixteenth Amendment. The Moores argue that this realization requirement applies to § 965 and that §965, as a tax on unrealized gain, is unconstitutional. In contrast, the government argues that the transition tax is a permissible extension of tax regimes like Subpart F that already tax undistributed corporate earnings. (See our recent client alert on the case generally.)

A ruling on the realization requirement bears on whether Pillar Two might be constitutional in the United States. Specifically, a ruling that § 965 does not comply with a realization requirement, if not suitably cabined, could imperil the ability of the U.S. to implement Pillar Two legally, because Pillar Two might be viewed as similarly not complying with the realization requirement.  Continue Reading Moore and Pillar Two: Possible Interactions

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Today, the Supreme Court decided to hear a case that could have wide-ranging implications on US taxation of income earned abroad. The case challenges a key international provision in the Tax Cuts and Jobs Act: the Section 965 transition tax. The case has attracted attention (including multiple Wall Street Journal writeups) for its potential impact on Biden’s proposal to impose a wealth tax on high-income Americans. But the case is also of interest to the corporate tax community.Continue Reading Moore Money, Moore Problems

Mayer Brown announced today that Sonal Majmudar, former international tax counsel with the Internal Revenue Service (IRS), joined its Tax practice as a partner. Sonal will be resident in the firm’s Washington DC office. Her arrival bolsters Mayer Brown’s market-leading, global tax offerings, particularly with regard to transfer pricing controversies and high-stakes international disputes.

In 2018, the IRS reminded exam teams to perform a “diligent penalty analysis” in every transfer pricing case. Since then, we have observed that the agency is increasingly willing to impose penalties, even where reasonable minds differ as to the appropriate transfer pricing. Penalties are often raised late (at the very end of an audit or even after the dispute is in court) and can create an extra liability of hundreds of millions—or billions—of dollars. For all these reasons, it is worth your time to brush up on how these penalties work, as well as what you can do to defend against them.Continue Reading Turning the Screw: Penalties in Transfer Pricing Disputes