What is contemporaneous transfer pricing documentation?

It is a transfer-pricing study prepared and in existence by the time you file the tax return, showing that you chose a reasonable method and priced your intercompany transactions at arm's-length. 'Contemporaneous' means it existed when you filed — not something assembled later during an audit. It is the key to avoiding §6662(e) penalties.

How does documentation protect me from §6662(e) penalties?

The §6662(e) transfer-pricing penalty (20% or 40% of the underpayment) can be avoided if you had reasonable, contemporaneous documentation supporting your method and made it available to the IRS within 30 days of request. Even if the IRS adjusts your pricing, adequate documentation generally protects you from the penalty itself.

What are the master file and local file?

They are the two tiers of the OECD-style documentation model many multinationals follow. The master file gives a high-level overview of the whole group — its structure, businesses, and global transfer-pricing policies. The local file focuses on the specific intercompany transactions of one entity, with the detailed analysis and comparables supporting each one.

What is Form 5472 and who has to file it?

Form 5472 reports reportable transactions between a U.S. entity and its foreign related parties. It must be filed by a U.S. corporation that is 25% foreign-owned, a foreign corporation doing business in the U.S., and — since 2017 — a foreign-owned single-member LLC. Failing to file, or filing late, carries a penalty of $25,000.

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Transfer Pricing

Transfer Pricing Documentation: How to Avoid §6662(e) Penalties

Contemporaneous transfer-pricing documentation is your shield against 20%–40% §6662(e) penalties. Here's what the master file / local file model requires and where Form 5472 fits in.

SMAART Tax Team

March 9, 2026

6 min read

|Reviewed by Ray Dominguez, EA, USTCP