Sec. 482 Allocation of income and deductions among taxpayers

26 U.S.C. section 482, Allocation of income and deductions among taxpayers. IRC section 482 allows the commissioner to allocate income, deductions and other items among parties subject to common ownership or control to prevent evasion or to clearly reflect income and requires that income with respect to a controlled intangible transfer be commensurate with income attributable to the intangible. After the effective date of the Tax Cuts and Jobs Act, the section explicitly allows the commissioner’s aggregation of transactions or use of the realistic alternatives to the transfer in valuing intangible property. The section 482 regulations adopt the arm's-length standard, which requires that dealings between related parties reflect the pricing and other terms on which unrelated parties dealing at arm’s length would enter the same transaction or a transaction that satisfies the applicable comparability standards. The arm's-length result must be determined by selecting and applying the best method from among the potential transfer pricing methods, which include the transactional comparable uncontrolled transaction (CUT) method for intangible property and comparable uncontrolled price (CUP) method for tangible property, the profit-based comparable profits method (CPM) and profit-split method, the services cost method (SCM) for services, and unspecified methods. When valuing the platform contribution transaction (PCT) payment required for contributions to a cost-sharing arrangement, which involve the sharing of intangible development costs in proportion to the parties’ reasonably anticipated benefits, available methods also include the income method, acquisition price method, and market capitalization method. Intangibles transferred through a license or cost-sharing arrangement may be subject to retrospective periodic adjustments if realized profit deviates significantly from ex ante projected profit.