The Internal Revenue Service has told UnitedHealth Group that it underpaid its taxes for four years by shifting money through a foreign subsidiary, and the company says the IRS is wrong. The probe, first reported by STAT, began with notices of proposed adjustment that arrived in March and were disclosed in UnitedHealth's securities filings this month. The IRS's initial determination covers 2017 through 2020, and the agency is seeking to significantly increase the company's taxable income for those years, with the possibility of more for the years after. UnitedHealth, one of the five largest companies in the world by revenue, says it disagrees with the proposed adjustments and intends to fight them through the IRS's process and, if necessary, the courts.
Stories like this get read as a dispute about a number: how much did UnitedHealth owe, and how much will it have to pay? That framing is backward. The number does not exist yet, and it cannot until a different fight is settled. The actual dispute is about a price, a hypothetical price for transactions that never happened on any open market, and the outcome will be decided by which benchmark the government and the company can convince a court to accept. The tax bill is downstream of the benchmark, and the benchmark is the whole war.
The dispute is about a price that never occurred
The transactions at the center of the case are intercompany transfers: money, services, or rights moving between UnitedHealth and its own foreign subsidiary, both parts of a single corporate family. From the tax system's perspective, the question is what those internal transfers should be treated as having been worth. That is the transfer-pricing question, and it is strange the moment you look closely. There is no market price for these transactions, because there was no market: the subsidiary did not shop the parent's business to competing bidders, and the parent did not negotiate with independent suppliers. The only price that ever existed was the price the company itself wrote down on its own books.
American tax law has an answer for this, and the answer is that related companies must transact at arm's length: at the price independent parties would have agreed to under comparable circumstances. The statute, Section 482 of the Internal Revenue Code, gives the IRS authority to reallocate income between related companies when their internal pricing does not match that standard. So the entire dispute reduces to a comparison against something that never happened. Nobody ever paid the arm's-length price, because the transaction was internal; the "correct" price is a reconstruction built from what unrelated companies paid for similar things, and every dollar of the tax bill follows from which reconstruction is accepted.
The method choice is the whole fight
Taxpayers and the IRS both know that the arm's-length price cannot be observed, so both sides reach for methods that approximate it, and this is where the case will be won and lost. The regulations under Section 482 require the taxpayer to use the "best method," defined as the one that produces the most reliable measure of an arm's-length result, and they lay out a menu: compare the internal price directly to comparable uncontrolled prices; compare profit margins to those of similar independent companies; or split the combined profit between the related parties according to their contributions. Each method points to a different number, and they can disagree by enormous margins.
That is why transfer-pricing litigation so often turns on methodology. In the long-running Medtronic case, for example, the taxpayer defended its pricing using one method and the IRS argued for another, and the court battle was essentially a war over which benchmark was more reliable, with each side bringing its own economists and comparables. The facts of the business were not in dispute; the method was the dispute. The same structure will govern the UnitedHealth case. The government will say that its benchmark shows the subsidiary should have been paid less and the parent taxed on more; the company will say its benchmark shows the opposite, and the four years of adjustments the IRS is proposing, plus whatever follows for later years, will hang on which set of comparables the courts find more persuasive. The number in the headlines is just the trailing indicator.
The company's own books show a fight that has been building
UnitedHealth's filings make clear that this is not a surprise to anyone inside the company. The company's gross unrecognized tax benefits, the amounts set aside because some part of its tax positions may not survive scrutiny, have been climbing: about $3.7 billion at the end of 2023, $4.1 billion at the end of 2024, and $5.6 billion at the end of 2025. That reserve is the company's own estimate of the range of possible losses, its own act of benchmark-setting, and it has grown for years while the positions aged toward the IRS's audit window.
The company's response to the notices has been to say that its tax positions are properly supported, that its reserves are adequate, and that it "intends to vigorously contest" the IRS's position through all available administrative and judicial remedies. That is worth reading literally. A vigorous contest in transfer pricing does not mean disputing what happened; the transactions happened and both sides have the same documents. It means contesting the price, fought with economists, comparables, and method memos. The company's own reserve, meanwhile, says even UnitedHealth's internal judgment assigns real probability to losing parts of this fight, meaning the benchmark the IRS will propose is not so far outside the range of reasonable outcomes that the company expects to dismiss it.
The four-year window is a trial run for a method
The most important thing about the 2017 through 2020 window is that it is the smallest version of the question. The IRS has said it may seek adjustments for years after 2020 as well, and in transfer pricing that is close to an inevitability once a method is contested. The parties will fight over a method and a set of comparables for the audited years, but a benchmark, once accepted, does not apply to only four years of history. It describes how the internal relationship should be priced going forward, which means the real stakes are not the four years in the notices but the ongoing tax rate that the case will establish for one of the largest companies in the world, for as long as the structure it uses remains in place.
That is also why the process will take years and will not look like an ordinary audit. Transfer-pricing cases move through IRS appeals and, if unresolved, into the Tax Court, where the record is built from competing expert testimony about what independent companies would have done. The IRS's own enforcement posture treats transfer pricing as a priority area precisely because the sums are so large and the outcomes so contestable. For a company of UnitedHealth's scale, the difference between the benchmarks is the difference between a tax bill in the hundreds of millions and one in the billions, and both numbers are defensible readings of the same facts.
Neither side is obviously wrong
Fairness requires stating the limits of what the reporting establishes. The IRS's initial determination is exactly that: an initial determination, the opening position of an examination with decades of precedent for being adjusted, appealed, and settled. A notice of proposed adjustment is the government's benchmark, not a verdict, and UnitedHealth's disagreement is not defiance but the ordinary posture of a taxpayer in a system that expects pushback. The arm's-length standard is a judgment standard, and two teams of qualified experts can reach opposite conclusions from the same documents without either committing an error. This analysis takes no position on which benchmark is correct, a question that will be resolved, if at all, by a court weighing expert testimony years from now. What can be said now is structural: the fight is about method rather than misconduct, and the outcome will turn on which reconstruction of a hypothetical transaction the system accepts.
The largest tax bills are arguments about imaginary prices
There is a broader point in this case, and it is not specific to UnitedHealth. At the top of the corporate economy, the tax a company owes increasingly depends on the price that is written on internal paperwork rather than the price anyone pays. The money moved years ago, and the description of the move is what is being contested now. The IRS is not claiming that a transaction failed to occur; it is claiming that the transaction should be described at a different value, and the company is claiming the opposite, and the bill for the difference runs to whatever benchmark wins.
So the right way to read the story is not as a dispute over a number but as a dispute over who gets to set the price. The number follows from the price, the price follows from the method, and the method follows from which comparables the court believes. For everyone watching, the notices in March are the beginning of a long process whose end is unknowable, which is why even UnitedHealth's own accountants keep raising the reserve while its lawyers prepare the contest. The tax bill will be decided by the benchmark, the benchmark is a reconstruction of a transaction that never happened, and the armies of experts now assembling are there to argue about a price nobody ever paid.
Primary sources
- STAT's exclusive reporting by Bob Herman on the IRS probe, for the news that the IRS is seeking to significantly increase UnitedHealth's taxable income for 2017 through 2020 based on transfers to a foreign subsidiary, that the notices arrived in March and were disclosed in the company's regulatory filings, that the IRS may seek adjustments for later years, and that examinations of this type are rare for companies of this scale.
- UnitedHealth's securities filings, as summarized in secondary coverage, for the company's statement that it disagrees with the proposed adjustments, believes its positions are properly supported, and intends to vigorously contest them, and the unrecognized tax benefit figures of roughly $3.7 billion, $4.1 billion, and $5.6 billion at the end of 2023, 2024, and 2025.
- Section 482 of the Internal Revenue Code and the transfer-pricing regulations under it, for the arm's-length standard, the best-method rule, and the menu of pricing methods.
- General reporting and commentary on transfer-pricing controversy, including the Medtronic litigation and the IRS's enforcement emphasis in this area.