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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