IRS Opens Transfer-Pricing Front Against UnitedHealth
UnitedHealth Group is contesting a proposed Internal Revenue Service adjustment targeting how the company priced transactions with one of its foreign subsidiaries, according to disclosures in the company's May and August quarterly filings.
The IRS notices cover the 2017 through 2020 tax years and seek to 'significantly increase taxable income' for each of those years. The agency could pursue similar adjustments for later years as well. Neither filing names the subsidiary, identifies its country of incorporation, describes the transactions at issue, or attaches a dollar figure to the government's claim.
UnitedHealth is not backing down. In its August filing, the company said it believes its tax positions are properly supported and plans to 'vigorously contest' the IRS's proposed adjustments. A company spokesperson confirmed the matters 'remain subject to further review and discussions.'
A Notice of Proposed Adjustment is a proposal, not a final determination, assessment, or penalty. Companies that disagree can contest it through an administrative process, and unresolved disputes can reach federal court.
A well-worn IRS playbook. At issue is transfer pricing — the price a company sets on transactions between its own units in different countries. Because those prices affect where profits are booked, they also affect where taxes are paid. Section 482 of the tax code gives the IRS authority to adjust taxable income when it believes intercompany transactions were not fairly priced.
Reuven S. Avi-Yonah, the Irwin I. Cohn Professor of Law at the University of Michigan Law School, told Fortune the scrutiny is not unusual. 'This is quite common because the IRS has, since the Obama administration, increased its scrutiny of transfer pricing by U.S. based multinationals who are trying to shift profits out of the U.S. to their foreign subsidiaries,' he said. 'The IRS has won some of these cases and lost others and the sums involved are usually in the billions.'
The precedents are sobering in scale. Coca-Cola's transfer-pricing dispute could ultimately involve roughly $20 billion in tax and interest; the company has already paid the IRS $6 billion covering tax years 2007 through 2009 while it appeals. Meta is contesting an IRS notice asserting $15.89 billion in additional tax, plus interest and penalties, for its 2017 through 2019 tax years. Medtronic's fight began with its 2005 and 2006 tax years and only entered settlement talks this March — after two trips to a federal appeals court. Avi-Yonah has written that the Medtronic case will likely take more than 20 years to resolve.
None of those cases predicts where UnitedHealth's dispute will land. The company has disclosed no dollar figure, and the IRS has not made its position public beyond the examination notices.
The bottom line for investors and taxpayers. Transfer-pricing disputes are notoriously hard to size and even harder to time. The rule is simple to state but, as Avi-Yonah noted, 'notoriously hard to apply' — two sides can examine the same intercompany transactions and reach different conclusions. For UnitedHealth shareholders, the open question is magnitude: without a disclosed figure, the contingent liability sits in the filing as an asterisk, not a line item.
For the broader market, the case is a reminder that the administrative state's longest arm is often the tax code. Capital rewards clear rules; multi-year battles over intercompany pricing, with outcomes measured in billions and timelines measured in decades, are precisely the kind of regulatory uncertainty that weighs on investment decisions and corporate planning. UnitedHealth says it is ready to fight. The clock, and the meter, are already running.
