With an increase in staffing and resources focused on transfer pricing issues, the IRS has turned its attention to intercompany lending and interest rates.  As highlighted below in a recent BNA article, taxpayers are seeing a sharp increase in cases aimed at intercompany lending arrangements.  Coinciding with the substantial increase in interest rates in recent years and emboldened by an internal legal memo on the topic, IRS exam teams are taking a closer look at the variables taxpayers are using to set related party interest rates.  

The primary point of emphasis is that taxpayers need to take into account a number of factors, similar to third-party financial institutions, when setting intercompany rates such as credit risk, liquidity and subordination, etc.  

Taxpayers who haven't reviewed their current related party lending agreements within the last few years should reassess those arrangements in light of true third-party lending criteria before the IRS shows up at the company's doorstep.