Corporation P owns 85 percent of the outstanding stock of Corporation R This year, employees of Corporation R performed extensive management services for Corporation P In return for the services, Corporation P paid a $250,000 fee to Corporation R, which Corporation P reported as a deductible busine...

a Because Corporation P owns a controlling stock in ...

Corporation P owns 85 percent of the outstanding stock of Corporation R. This year, employees of Corporation

Question:

P owns 85 percent of the outstanding stock of R. This year, employees of R performed extensive management services for P. In return for the services, P paid a $250,000 fee to R, which P reported as a deductible business expense.
a. Is the consulting arrangement an arm’s-length transaction?
b. If the IRS challenges the validity of P’s deduction, what facts might the offer as evidence of the validity of the payment?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...