The IRS has the authority to impose penalties on companies that significantly

underpay taxes as a result of inappropriate transfer pricing. Acme Company,

a U$.$S$.$ taxpayer, transfers a product to a foreign affiliate at $$15$ per unit, and

the IRS determines the correct price should have been $$65$ per unit. The

adjustment results in an increase in U$.$S$.$ tax liability of $$1,250,000.$ Due to

this change in price, what amount of penalty for underpayment of taxes will

Acme Company pay? the soulthin is The IRS may impose a penalty equal to $40\%$ of the amount of underpayment in the case of a gross valuation misstatement. A gross valuation misstatement exists when the transfer price is less than $25\%$ of the correct price. The correct price is $$65,25\%$ of which is $$16\mathrm{.}25.$ Because the actual transfer price was $$15,$ a gross valuation misstatement exists. The penalty is $40\%$ x $$1,250,000=$ $$500,000.$ Acme$$s total tax liability is $$1,250,000+$ $$500,000=$ $$1,750,000.$ why and the raters we used based on what $?$