Tax Court Selected Unreliable Transfer-Pricing Method, IRS Says

The US Tax Court’s decision to reject the IRS’s method for pricing intercompany transactions by medical device-maker Medtronic Inc. violates Treasury regulations because it imposed too high a standard for comparing company profits, the agency said.

Regulations put into effect by IRC Section 482 require that the Tax Court select the “best method” to price Medtronic’s intangibles, but the court failed to do so, the IRS said Dec. 14. That’s because it should have recognized the IRS’s proposal, the comparable-profits method, as more reliable than Medtronic’s proposal, which isn’t specified in the Treasury regulation.

“What the regulations make clear—and what ...