This report provides information on the Internal Revenue Service's (IRS)
enforcement of section 1059A of the Internal Revenue Code, which deals
with transfer pricing regulations. Section 1059A was meant to prevent
the federal government from being whipsawed by an importer, on property
acquired from a related party, who claims a low valuation for customs
purposes and a higher valuation for tax purposes. GAO discusses IRS'
difficulties in applying the section and a July 1992 IRS legal opinion
on the applicability of section 1059A to transactions between a U.S.
parent firm and its Mexican related parties. GAO also discusses
proposals to reconcile differing IRS and U.S. Customs Service valuation
rules that affect the use of section 1059A.
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