Gregory T Bryant, CPA | Esq
Caroline White, Esq
Introduction
There are many kinds of “values” such as “book value”, “fair market value”, “replacement value”, “insurable value”, “arm’s-length value” and “import value” to mention a few. The comparison of the transfer pricing “arm’s-length” value used for tax is now colliding with the “import value” or what is called “transaction value” for customs and duties. In this article we will explain how they are similar and how they are different and how to reconcile the two.
Tariffs and customs duties have been subjects of significant attention in recent years and especially since March 2025 when the current administration announced broad reaching tariffs.[1] With this, companies understandably want to lower customs valuations since tariffs are based on these values. However, this is often at odds with transfer pricing goals, and the relationship between the two concepts is complex. Internal Revenue Code Section 1059A limits the amount of costs that may be included in the basis or inventory cost of imported property to the amount used to determine customs value under 19 U.S.C. §1401a, unless the taxpayer demonstrates that the higher amount reflects the actual cost of the property.[2] While 1059A was historically on the IRS “no-rule” list (meaning, the IRS would not issue private letter rulings on 1059A questions), the IRS removed 1059A from this list effective January 5, 2026, and issued a private letter ruling on January 6, 2026, providing interpretive guidance on the statute’s application. This article will explore the connection between valuation for customs vs. transfer pricing, how 1059A fits into this in light of the recent IRS Private Letter Ruling, and what this means for businesses trying to balance these concepts in 2026.
Customs vs. Transfer Pricing
Under U.S. customs law (19 U.S.C. § 1401a), the transaction value is the primary method used to appraise imported merchandise. Transaction value is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain statutory additions enumerated in 19 U.S.C. § 1401a(b), including packing costs, selling commissions, assists, royalties and license fees, and proceeds of subsequent resale that accrue to the seller.[3] Customs rules apply statutory valuation methods under 19 U.S.C. § 1401a on a transaction-by-transaction basis for imported merchandise. In contrast, transfer pricing rules under IRC § 482 and Treasury Regulation § 1.482-1 et seq. apply an “arm’s length standard,” which requires that the terms and conditions of controlled transactions produce results consistent with those that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances. The OECD Transfer Pricing Guidelines provide additional interpretive guidance that may be considered in applying the arm’s length standard.
In addition to different methods, the goals differ. While customs transaction value focuses on the accurate value of each product considered separately, transfer pricing rules emphasize the entire value chain, ensuring that the prices reflect the true taxable income of each party from the entire transaction in the aggregate.[4]
1059A History and Recent Updates
IRC § 1059A was enacted as part of the Tax Reform Act of 1986 (Pub. L. 99-514, 1248(a)) to prevent taxpayers from claiming a higher basis or inventory cost for imported property on their federal income tax returns than the customs value declared for the same property, thereby preventing taxpayers from simultaneously minimizing customs duties and maximizing income tax deductions or basis.[5] With 1059A being on the IRS “no-rule” list until January 5, 2026,[6] the application and understanding of 1059A’s language was somewhat ambiguous.
On January 6, 2026, one day after 1059A was removed from the list, the IRS issued a private letter ruling.[7] According to this ruling, 1059A’s basis limitation applies only to costs that are required to be included in customs value under 19 U.S.C. § 1401a. Costs that are properly included in transfer pricing analyses under IRC § 482 but are not required to be included in customs value are not subject to the 1059A limitation.[8] As discussed above, transfer pricing takes a much more comprehensive approach to valuation, and the arm’s length standard’s core goal naturally lends itself to taking costs into consideration that are not considered for customs transaction value. This PLR provides an interpretation that is consistent with the statutory text of 1059A and its legislative purpose of preventing basis inflation beyond declared customs value. However, it is important to note that private letter rulings may not be used or cited as precedent under IRC § 6110(k)(3), and this PLR is binding only on the taxpayer to whom it was issued.
Conclusion
In the current tariff and customs landscape, the IRS’s recent ruling around § 1059A is a welcomed clarification. § 1059A does not require that the total transfer pricing outcome align with the customs value of imported property. Rather, 1059A limits the basis or inventory cost of imported property to the amount used to determine customs value under 19 U.S.C. § 1401a, unless the taxpayer establishes that a higher amount reflects the actual cost of the property. This is a targeted anti-abuse rule designed to prevent taxpayers from claiming inflated basis or inventory costs that exceed the value declared for customs purposes. This distinction is significant in practice: companies may continue to apply arm’s length principles under IRC § 482 to evaluate intercompany transactions and allocate income among related parties, even if the resulting transfer prices differ from the customs values declared for imported property, provided that the basis or inventory cost claimed for the imported property does not exceed the customs value (unless the taxpayer can demonstrate actual cost under 1059A). Companies should ensure that their transfer pricing documentation and customs valuation methodologies are consistent where the same costs are relevant to both regimes and should maintain adequate documentation to support any differences.
[1] https://www.congress.gov/crs-product/R48549.
[2] IRC § 1059A(a)
[3] 19 U.S.C. § 1401a
[4] Treas. Reg. § 1.482-1(a)(1)
[5] Pub. L. 99-514, § 1248(a) (1986); S. Rep. No. 99-313, at 418 (1986).
[6] Rev. Proc. 2026-7 § 1.02
[7] PLR 202552012
[8] Id at 4.
Custom’s Transaction Value Compared to Tax’s Arms-length Value
Gregory T Bryant, CPA | Esq
Caroline White, Esq
Introduction
There are many kinds of “values” such as “book value”, “fair market value”, “replacement value”, “insurable value”, “arm’s-length value” and “import value” to mention a few. The comparison of the transfer pricing “arm’s-length” value used for tax is now colliding with the “import value” or what is called “transaction value” for customs and duties. In this article we will explain how they are similar and how they are different and how to reconcile the two.
Tariffs and customs duties have been subjects of significant attention in recent years and especially since March 2025 when the current administration announced broad reaching tariffs.[1] With this, companies understandably want to lower customs valuations since tariffs are based on these values. However, this is often at odds with transfer pricing goals, and the relationship between the two concepts is complex. Internal Revenue Code Section 1059A limits the amount of costs that may be included in the basis or inventory cost of imported property to the amount used to determine customs value under 19 U.S.C. §1401a, unless the taxpayer demonstrates that the higher amount reflects the actual cost of the property.[2] While 1059A was historically on the IRS “no-rule” list (meaning, the IRS would not issue private letter rulings on 1059A questions), the IRS removed 1059A from this list effective January 5, 2026, and issued a private letter ruling on January 6, 2026, providing interpretive guidance on the statute’s application. This article will explore the connection between valuation for customs vs. transfer pricing, how 1059A fits into this in light of the recent IRS Private Letter Ruling, and what this means for businesses trying to balance these concepts in 2026.
Customs vs. Transfer Pricing
Under U.S. customs law (19 U.S.C. § 1401a), the transaction value is the primary method used to appraise imported merchandise. Transaction value is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain statutory additions enumerated in 19 U.S.C. § 1401a(b), including packing costs, selling commissions, assists, royalties and license fees, and proceeds of subsequent resale that accrue to the seller.[3] Customs rules apply statutory valuation methods under 19 U.S.C. § 1401a on a transaction-by-transaction basis for imported merchandise. In contrast, transfer pricing rules under IRC § 482 and Treasury Regulation § 1.482-1 et seq. apply an “arm’s length standard,” which requires that the terms and conditions of controlled transactions produce results consistent with those that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances. The OECD Transfer Pricing Guidelines provide additional interpretive guidance that may be considered in applying the arm’s length standard.
In addition to different methods, the goals differ. While customs transaction value focuses on the accurate value of each product considered separately, transfer pricing rules emphasize the entire value chain, ensuring that the prices reflect the true taxable income of each party from the entire transaction in the aggregate.[4]
1059A History and Recent Updates
IRC § 1059A was enacted as part of the Tax Reform Act of 1986 (Pub. L. 99-514, 1248(a)) to prevent taxpayers from claiming a higher basis or inventory cost for imported property on their federal income tax returns than the customs value declared for the same property, thereby preventing taxpayers from simultaneously minimizing customs duties and maximizing income tax deductions or basis.[5] With 1059A being on the IRS “no-rule” list until January 5, 2026,[6] the application and understanding of 1059A’s language was somewhat ambiguous.
On January 6, 2026, one day after 1059A was removed from the list, the IRS issued a private letter ruling.[7] According to this ruling, 1059A’s basis limitation applies only to costs that are required to be included in customs value under 19 U.S.C. § 1401a. Costs that are properly included in transfer pricing analyses under IRC § 482 but are not required to be included in customs value are not subject to the 1059A limitation.[8] As discussed above, transfer pricing takes a much more comprehensive approach to valuation, and the arm’s length standard’s core goal naturally lends itself to taking costs into consideration that are not considered for customs transaction value. This PLR provides an interpretation that is consistent with the statutory text of 1059A and its legislative purpose of preventing basis inflation beyond declared customs value. However, it is important to note that private letter rulings may not be used or cited as precedent under IRC § 6110(k)(3), and this PLR is binding only on the taxpayer to whom it was issued.
Conclusion
In the current tariff and customs landscape, the IRS’s recent ruling around § 1059A is a welcomed clarification. § 1059A does not require that the total transfer pricing outcome align with the customs value of imported property. Rather, 1059A limits the basis or inventory cost of imported property to the amount used to determine customs value under 19 U.S.C. § 1401a, unless the taxpayer establishes that a higher amount reflects the actual cost of the property. This is a targeted anti-abuse rule designed to prevent taxpayers from claiming inflated basis or inventory costs that exceed the value declared for customs purposes. This distinction is significant in practice: companies may continue to apply arm’s length principles under IRC § 482 to evaluate intercompany transactions and allocate income among related parties, even if the resulting transfer prices differ from the customs values declared for imported property, provided that the basis or inventory cost claimed for the imported property does not exceed the customs value (unless the taxpayer can demonstrate actual cost under 1059A). Companies should ensure that their transfer pricing documentation and customs valuation methodologies are consistent where the same costs are relevant to both regimes and should maintain adequate documentation to support any differences.
[1] https://www.congress.gov/crs-product/R48549.
[2] IRC § 1059A(a)
[3] 19 U.S.C. § 1401a
[4] Treas. Reg. § 1.482-1(a)(1)
[5] Pub. L. 99-514, § 1248(a) (1986); S. Rep. No. 99-313, at 418 (1986).
[6] Rev. Proc. 2026-7 § 1.02
[7] PLR 202552012
[8] Id at 4.
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