[leglock]

I understand our CPA studies regarding the GAAP treatment for intra-entity transactions. I.E., if you have sig influence you don’t consolidate and this is usually between 20-50% ownership. More than 50% or control you do consolidate. However, this if for books.

For tax purposes, how does an entity handle intra-entity transactions and how does it differ from GAAP treatment and what are the % thresholds.

Does anyone have real world experience with this?

Thanks for any help.

[confusedcandidate]

I'm a tax associate at a midsized regional firm. I did a corporate group during season this year with tons of intercompany transactions. If I recall, I basically made a reconciliation to eliminate intercompany sales, payables, and receivables from income. It all mostly cancelled out except for an extra few hundred bucks unaccounted for which the partner said was immaterial. (Maybe I shouldn't say that?) They were relatively small companies, 2 s corps and a c corp with a few million revenue each, so I don't think it had to be gaap. I'm still green and don't completely understand it either, but I'm pretty sure that's how it went down.

Weekends are meaningless to a CPA candidate

[leglock]

@confusedcandidate:

Thank you for the reply.

When you say you made a reconciliation to eliminate all intercompany sales, payable, and receivables from income, do you mean that that for tax purposes you basically just eliminated any intercompany sales, etc (which is basically what GAAP wants you to do also) or do you mean on your books you had eliminated them and then for tax purposes you basically reversed the elimination.

I'm not sure, but it sounds like for tax purposes, the requirement is to handle them similar to the GAAP method.

Thanks for any clarification.

[confusedcandidate]

I believe I just threw together an excel table as a workpaper reference and then made adjustments in each entity's trial balance as needed, then prepared the tax return accordingly. I'll have to look in the file when I get a chance because it was ~9 months ago and I don't completely remember. I haven't worked on many corporate groups with inter-entity transactions like that, and consolidations are confusing as hell, so maybe someone else can chime in.

Weekends are meaningless to a CPA candidate

[leglock]

Thanks for taking a crack at it, sounds like the gaap and tax treatment are similar. Hopefully someone else can chime in to confirm

[Anonymous]

Look up transfer pricing. That basically creates MORE intra-company transactions to lower tax bills.

[wr8280]

Cancel out inter-company transactions, add dividends to taxable income, take the dividend received deduction. Am I missing something?

Also had a situation for a company that wasn't a VIE or SPE, but there was some common ownership, we ended up recognizing the “intercompany revenue” for tax purposes at Company 1 and taking an expense for the amount paid at Company 2. This is what our CPA firm recommended.

FAR- 82
REG- 93
AUD- 89
BEC- 88

You are smarter, more focused, and more brilliant than you give yourself credit for. Believe in yourself and truly know in your heart that you can do it.

[Author]

Replies