This administrative fee was set by TP-1 with contributions from its legal and tax advisors. The OV and MC did not retain a professional advisor to determine the amount of administrative costs or to provide advice for adequate compensation. The taxpayer presented the testimony of an industry expert who was not an evaluation expert and an expert opinion in evaluation. The evaluation expert took into account comparable data for the remuneration of companies in an independent sector, an analysis of remuneration based on hourly statements made and an investigation into executive compensation. The court did not accept these methods. This reduced the deduction of administrative costs for existing S businesses from $10.7 million to $3.7 million. ouch! It is also important to resist the urge to collect a levy on the basis of general information and estimates. The rating agency will look for concrete evidence of how your administrative costs were determined. You should consider keeping backup copies of the time records of the employees doing the work and a detailed description of the work done for the other company. The important point that we should bear in mind here is that, if not, reasonable fees could be denied if there were not enough documentation to guarantee the fees collected. In response, the rating agency often verifies the deductibility of these fees. Indeed, they are known to send management royalty questionnaires to companies that deduct these fees as part of their review.
It should be noted that if the rating agency does not allow the deduction of administrative costs in a unit, the fees may continue to be taxed as income from the company that received the fees, effectively resulting in double taxation. However, the credit rating agency has an administrative position allowing a compensatory adjustment in the recipient company if it has not authorized a deduction of intercompany management fees in the payment company, in accordance with a general policy not to impose the same amount twice. Note that this request to the credit rating agency must be made in writing by the recipient company and that the recipient company must reimburse the subject an amount equal to the unauthorized fees. The rating agency may also authorize an adjustment by other means to avoid double taxation, but in general, the rating agency will carefully review transactions between related or related entities. Therefore, if the rating agency asks for details, you will want to be prepared to prove that your fees are good faith management fees with the appropriate documentation. As an alternative position, the IRS found that mc should not be considered fiscally as a ticket, as it had no legitimate commercial purpose and no economic substance, in which case no portion of the administrative costs would be deductible. The TRA found that the administrative costs are unrelated to the trust`s revenues. As a result, administrative costs were not deductible from the trust. The IRS issued a notice of defaults to taxpayers, in which it did not allow deductions on administrative expenses paid by COs to MC on their respective returns (on Form IRS 1120S). When the credit rating agency conducts a royalty review or audit, it will generally look for the following means as evidence of good faith administrative costs: Section 6.