Does transfer pricing apply to small businesses?

Yes. IRC §482 has no revenue floor. If you have two or more commonly controlled entities and any of them is foreign, the prices you charge between them must be arm's-length — regardless of how small the business is. Many owners assume this is only a big-company issue; it is not.

What kinds of transactions trigger transfer pricing rules?

Any transfer of value between related entities: sale of goods, provision of services (management, IT, marketing), intercompany loans and interest, use of intellectual property or trademarks (royalties), and cost-sharing arrangements. If money or value moves between commonly controlled companies, §482 can apply.

What can the IRS actually do if my intercompany pricing is off?

Under IRC §482 the IRS can reallocate income and deductions between the related entities to reflect arm's-length results — increasing your U.S. taxable income. On top of the extra tax and interest, §6662(e) transfer-pricing penalties of 20% or 40% of the underpayment can apply if the adjustment is large enough.

We're a U.S. company with a foreign subsidiary. Do we have a filing obligation?

Often yes. A U.S. corporation that is 25% foreign-owned, or a foreign corporation engaged in U.S. business, must file Form 5472 to report related-party transactions. Since 2017, foreign-owned single-member LLCs must file it too. The form is informational, but not filing it carries a $25,000 penalty.

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Transfer Pricing

Transfer Pricing 101: Why the IRS Cares About Your Intercompany Deals

If your business has a related entity in another country, the price you charge yourself is an IRS matter. IRC §482 lets the IRS re-price intercompany transactions — and the adjustments are expensive.

SMAART Tax Team

February 10, 2026

6 min read

|Reviewed by Ray Dominguez, EA, USTCP