Question: A taxpayer owns two separate companies Company A is in
A taxpayer owns two separate companies. Company A is in the 35% marginal tax bracket and company B is in the 15% tax bracket. Company A sells all its output to B at cost, and B sells to outsiders at a markup of 50%. Company A’s revenues total $ 2 million, whereas company B’s revenues total $ 3 million. What are the tax implications of this arrangement? How will the IRS react?
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