As tariffs proliferate, multinational companies continue to wrangle with reconciling customs and transfer pricing valuation approaches. In a private letter ruling (PLR 202552012), released on December 26, 2025, the Internal Revenue Service (IRS) provides guidance on this longstanding issue. The PLR addresses the application of Section 1059A when a taxpayer uses the deductive value method to determine the customs value of imported goods purchased from related parties. The IRS concluded that, in certain circumstances, Section 1059A does not cap a taxpayer’s transfer pricing inventory cost or basis at the final customs value.
Summary of the PLR
Section 1059A is intended to prevent the U.S. Treasury from being “whipsawed” by taxpayers that report a value for customs purposes that is lower than the value claimed for federal income tax purposes for the same imported goods. To address this concern, the statute establishes a ceiling based on the costs taken into account in computing customs value. Costs taken into account in determining the tax basis or inventory cost of imported property may not exceed the amount of those same costs taken into account in computing the customs value of the property. Importantly, the statute does not impose a ceiling by reference to the customs value itself.
In the ruling, the taxpayer imported finished goods from a foreign parent and determined its transfer pricing using a residual profit split method under Section 482. For customs purposes, the taxpayer was required to apply the deductive value method. Under the deductive value method, customs value is not determined by reference to the importer’s purchase price or manufacturing cost. Instead, it begins with the constructed resale price paid by unrelated third parties in the United States after importation and then works backward by subtracting certain post‑importation items such as selling expenses, general and administrative expenses, transportation costs, duties, and profits. In transfer pricing terms, this approach is often described as the “resale minus” or “work‑back” method.
The IRS’s Analysis and Conclusion
The IRS concluded that the final customs value produced by the deductive value method does not reflect a cost “taken into account” in computing customs value within the meaning of Section 1059A. Because the deductive value method starts with a resale price rather than a cost paid by the importer, the resulting customs value is a derived figure rather than an aggregation of importer costs. As a result, Section 1059A does not operate to treat that bottom‑line customs value as a ceiling on the taxpayer’s inventory cost or basis for transfer pricing purposes.
The ruling makes clear, however, that Section 1059A can still apply to specific adjustments used in the deductive value calculation to the extent those adjustments reflect costs that are also taken into account for income tax purposes. When the same costs are reflected in both calculations, those costs must be reported consistently.
Broader Context
The ruling addresses an area of uncertainty for companies that import goods and use different valuation methodologies for customs and income tax purposes. Transfer pricing rules, including the “best method” rule, often result in related parties applying profit‑based methods that evaluate overall economic results, while U.S. customs law applies a strict hierarchy of transaction‑focused valuation methods. The deductive value method can produce a customs value that bears little resemblance to the transfer price determined under Section 482.
Before this ruling, taxpayers faced the risk that customs values derived using the deductive value method could be asserted as a hard ceiling on transfer pricing inventory cost, even though those customs values were not built up from importer costs. The IRS’s conclusion in the PLR confirms that Section 1059A was not intended to produce that result.
The PLR is also notable because Section 1059A has historically been treated as an area in which the IRS “ordinarily will not rule,” meaning taxpayers were generally unable to obtain advance guidance absent unique and compelling reasons. On January 5, 2026, the IRS released Rev. Proc. 2026-7, 2026-2 I.R.B. 316, which removed Section 1059A from the list of areas on which the IRS ordinarily will not rule. The fact that the IRS agreed to rule on this issue illustrates the importance of reconciling customs valuation and transfer pricing, especially in an environment of heightened tariffs and increased scrutiny of cross‑border supply chains.
Practical Insights
For companies that use (or are required to use) the deductive value method for customs purposes, the PLR provides reassurance that inventory costs or basis for transfer pricing are not automatically constrained by customs values that are derived from resale prices rather than costs. It reinforces the principle that Section 1059A’s focus is on consistency in the treatment of overlapping costs, not on aligning the different valuation methods.
At the same time, the ruling highlights the importance of understanding how specific cost components flow through both customs and income tax calculations. Taxpayers should carefully evaluate whether any adjustments used in customs valuation reflect costs that are also included in inventory or basis for income tax purposes, since those items remain subject to Section 1059A’s limitations.
The ruling also illustrates the value of proactive planning and coordination between customs and transfer pricing teams. As tariffs and customs duties become a more significant component of overall costs, companies should ensure that their valuation methods are well documented, consistent, and defensible across regimes.
Finally, the IRS's willingness to issue guidance in this area suggests that taxpayers with complex or high‑stakes fact patterns may be able to seek certainty through the PLR process. For companies facing material exposure or audit risk at the intersection of customs and transfer pricing, advance engagement with the IRS may be an attractive option.
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