In other words, the rules of IRC 482 are applied to determine the true taxable income from the business activities of a controlled taxpayer by comparing its controlled transactions to the same type of transaction between unaffiliated corporations. Acme Corporation, a California manufacturer of aircraft components, sells products to Acme Italia, its Italian subsidiary, and to unrelated customers in Italy. The auditor determines the same type of tracker is sold to an unrelated foreign corporation. The unrelated sale is considered to be transacted at an arm's length price because the transaction occurs between unrelated parties. There is potential for the auditor to identify an IRC 482 issue anytime there is an intercompany transaction between entities that are not both included in the same combined report.
Problems can arise from a wide variety of dealings between related corporations.
IRC 482 can be applied to any intercompany transaction. Sharing facilities, properties and services. Income may be shifted from entities with relatively high effective rates of tax to those with relatively low effective rates. Deductions or losses may be shifted from entities with relatively low effective rates to those with relatively high rates. In addition, income may be shifted to entities to offset operating losses or to absorb expiring net operating loss carryovers.