USA Intercompany Purchases between two commonly owned entities

[BillLumbergh]

Good Morning,

I have a question regarding Company A purchasing goods for use in Company B.

The logistics:

Company A purchased an item that will be used by Company B for testing purposes.

My instinct is to do the following:
Record this on Company A's books as a due to Company B entry
Record this on Company B's books as a debit to r&d expense and a credit to Due from Company A

I met with our tax team recently and they said we need to markup items if Company A is purchasing items for company B. However, we aren't selling this particular item, only using it for testing.

The Questions: Does Company B need to purchase the items from Company A, and does Company A need to charge a markup? Company A is a Corporation and Company B is an LLC, but they are both owned by the same person.

Thanks in advance,

Bill

 

[Amit Aggarwal]

Not aware about US tax laws but i am drawing consensus taking an instances from Indian tax (base concept should be same)
If invoice of those goods is in name of Company A, then it should be considered as purchase of goods from company A by company B.

Best way to negotiate with a problem is:

(only applicable if item in question is in nature of Capital Asset):
=> Give that item on lease to company B instead of selling it. Company B will book an expense (thereby saving tax) and Company A will book Income (thereby paying tax equivalent to tax saved in company B).