Coca-Cola is seeking a re-determination in Tax Court of certain Internal Revenue Service (IRS) transfer-pricing adjustments relating to its 2007–2009 tax years. In the case, the IRS moved for partial summary judgment seeking a ruling that a 1996 Internal Revenue Code Section 7121 “closing agreement” executed by the parties is not relevant to the case before the court.

Closing Agreement Background

Following an audit of the taxpayer’s transfer pricing of its tax years 1987–1989, the parties executed a closing agreement for Coca-Cola’s 1987–1995 tax years. In the closing agreement, the parties agreed to a transfer pricing methodology, in which the IRS agreed that it would not impose penalties on Coca-Cola for post-1995 tax years if Coca-Cola followed the methodology agreed upon. Despite following the agreed-to methodology for its post-1995 tax years, the IRS determined income tax deficiencies for Coca-Cola’s 2007–2009 tax years, arguing that pricing was not arm’s-length. (more…)