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A multi-member partnership (LLC) made expense allocations to…

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A multi-member partnership (LLC) made...
A multi-member partnership (LLC) made expense allocations to two of its c-corp subsidiaries. Thus, there are three legal entities with their own set of books. For example, the parent incurred $1500 in marketing expenses. The parent allocated $500 to each of the two C-corps and left $500 on its books. I understand that each entity needs to file its own tax return because the LLC did not elect to be taxed like a C-corp. Do I need to adjust the books for the expense allocations from the parent to the subsidiaries so that each legal entity is only reporting its actual expenses for the tax returns? So back to the example, do I need to reverse the $500 on the two C-corp books so that they have a marketing expense of ZERO and the parent has the full $1500 as an expense for tax purposes. I hope that make sense.
Submitted: 1 month ago.Category: Tax
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3/10/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 1 month ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 943
Experience: Former IRS Revenue Agent
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I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 1 month ago

Dear Customer,

Yes, they need to be reversed. The expenses need to be each entity's own expenses.

Or you can have the actual money change hand between the companies. Expenses cannot be a book transfer only, in your described situation. It is suggested that inter company fund transfer needs to be established. The actual money needs to be transferred even for reimbursement of the other company's expenses paid for us or on our behalf.

Regards,

Fiona

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Customer reply replied 1 month ago
Great but what if each company sets up a payable or receivable from one entity to another for the expenses? Is this an option for the book transfer of expenses?
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 1 month ago

Dear Customer,

Payable and receivable are fine as long as the expenses is only deducted once in one of the companies. Also, actual money needs to change hand and not just book entries.

Regards,

Fiona

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