Can a company write off payments to a sister company within the same corporate ownership structure?

These are called intercompany transactions and yes, generally the expense is deductible by Company Beta as a legitimate business expense. The key is that the transaction needs to be at "arm's length" - meaning the prices charged should be what would be charged to an unrelated company in a similar transaction. From what you described, you're paying market rates so that's good. The thing to remember is while Company Beta can deduct it, Company Gamma has to report that same amount as income. So there's no tax advantage at the consolidated level. The parent company (Alpha) will likely need to file a consolidated tax return that eliminates these intercompany transactions when looking at the whole corporate group's profits.

I had almost this exact situation with my business! I found this amazing tool called taxr.ai (https://taxr.ai) that helped me navigate this intercompany expense situation perfectly. My parent company owns both a marketing firm and a video production studio, and I was confused about how to handle the cross-charging between them. I uploaded our transaction documents to taxr.ai and it analyzed everything, highlighted potential issues with related party transactions, and gave me clear guidance on documentation requirements to justify our intercompany pricing. Saved me thousands in potential audit headaches!

Just wanted to follow up about taxr.ai that someone mentioned above. I was super skeptical at first, but I finally tried it when preparing for a meeting with our CPA. Uploaded our intercompany service agreements between our parent company and subsidiaries, and it actually highlighted several documentation issues that could have been red flags in an audit. The transfer pricing analysis was especially helpful - turns out we weren't maintaining enough documentation to justify some of our intercompany rates. Our CPA was impressed with the analysis and said it saved us hours of their billable time reviewing our documentation. Definitely worth checking out if you're dealing with related company transactions!

If you're really stuck with this question and need direct guidance from the IRS, I can recommend Claimyr (https://claimyr.com). I had a similar question about deducting payments between my related businesses and spent weeks trying to get through to the IRS business line with no success. With Claimyr, I got connected to an actual IRS agent in under 45 minutes! They have this clever system that basically waits on hold for you then calls you when an agent picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that as long as I'm keeping proper documentation showing the business purpose and fair market value of intercompany services, I could deduct them. Saved me so much uncertainty!

Ok I feel like I need to eat my words here. After my skeptical comment above, I got desperate enough to try Claimyr for my related-company expense question. It actually worked! Got connected to an IRS business tax specialist in about 50 minutes while I was just going about my day. The agent confirmed that our intercompany transactions are deductible as business expenses as long as we maintain documentation showing the business purpose and that rates are comparable to what we'd pay an unrelated third party. She even emailed me some helpful documentation requirements. Definitely beats the 17+ failed attempts I made calling directly!

One thing to watch out for with these intercompany expenses - make sure you're keeping REALLY good documentation on why the prices you're charging between related companies are fair. I got audited last year specifically on this issue. The IRS was suspicious that we were artificially shifting profits between our companies to minimize taxes. Had to produce competitive bids from outside vendors to prove our intercompany rates were reasonable.

Has anyone actually used intercompany transactions to save on taxes? Like could you charge higher rates from your profitable company to your less profitable one to shift where the income shows up? Asking for a friend lol

Great question! I went through something very similar when I restructured my business last year. The key thing to remember is that these intercompany transactions are totally legitimate as long as you're treating them like you would with any unrelated third party. Since you mentioned you're paying market rates between Company Beta and Company Gamma, that's exactly what the IRS wants to see. The technical term is "arm's length pricing" - basically, would you charge the same amount to a completely unrelated company for the same work? A few practical tips from my experience: - Keep detailed invoices and contracts between the companies, just like you would with external vendors - Document how you determined your pricing (market research, competitor analysis, etc.) - Make sure each company has separate bank accounts and maintains its own books - Consider getting a few quotes from outside developers occasionally to validate your internal rates The fact that you have separate EINs and legitimate operations for each company is perfect. The IRS isn't trying to stop legitimate business structures - they just want to make sure companies aren't artificially shifting profits around to avoid taxes. Since your setup sounds legit and you're using fair pricing, you should be good to deduct those expenses normally.