State tax departments are increasingly examining intercompany transactions within multistate businesses. They are specifically focused on identifying transactions that appear to shift income away from their jurisdiction due to either incorrect pricing or the incorrect allocation of shared income or expenses. The state tax departments' analysis generally begins with a comprehensive review of transactions between members of the same U.S. consolidated group. Companies that cannot provide proper documentation, such as valid contracts or other documentation, risk falling prey to substantial assessments of additional tax, interest, and penalties.

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