Discussion:Form 1120 Schedule K Question 3
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| 12 May 2008 | |
| Can someone tell me the significance of question #3 on Schedule K of Form 1120 ?
I am doing the tax returns of two C corporations. Corp #1 is owned by two individuals 50%/50% (Mr. A and B). Corp #2 is owned 50% by Corp #1 and 50% by individual #3 (Mr. C being different from Mr. A and Mr. B in Corp #1). Based on my research, the corporations are not considered to be in a controlled group or affiliated group. The answer to question #4 on Schedule K of form 1120 is therefore, no. There are considerable amount of consulting services being offered by Corp #1 to Corp #2, payments are made to corp #1 by corp #2 for those services. I am not aware of any tax rules that will disallow corp #2 from deducting those payments as expenses. Of course corp #1 will declare those monies as income. Since I am relatively new in handling C corp's, I just want to double check. Thank you very much. | |
| 12 May 2008 | |
| It looks to me that Corp #2 would answer "yes" to question 3. They don't look to be a controlled group, but they may be affiated groups for retirement plan purposes. The answer to this question has no significance to the deductions taken.
I am curious though. I don't know the significance of these questions & have never been concerned. I've always answered them & gone on. I'm wondering if anyone else knows. | |
| 12 May 2008 | |
| Thank you, Marcillo. Anyone else knows why the IRS wants to know? Do I need to watch out for any related party rules that may apply to transactions between the two corporations?! Any feedback is greatly appreciated. | |
RoyDaleOne (talk|edits) said: | 12 May 2008 |
| If you answer yes, to that question, what do you do? | |
