Here’s the Problem
Many business owners think that forming multiple corporations means multiple tax breaks—one for each company. More Section 179 expensing. More tax credits.
Wrong!
The IRS convinced Congress to close that loophole years ago. The rules preventing it are outlined in Section 1563 of the Internal Revenue Code.
If ownership or control ties your corporations together, the tax code lumps them into one taxpayer.
The “one taxpayer” is known in the tax code as a controlled group, and it’s a tax trap many never see coming—until the IRS politely informs them that they don’t have three deductions. They have only one.
Technical note. The one taxpayer (controlled group) faces tax code limits on certain deductions and tax credits, such as those for retirement plans, Section 179 deductions, research and development (R&D) tax credits, and others. Each controlled corporation files its own tax return but is subject to group limits.
How do you escape this trap or avoid it altogether? Let’s find out.
The Controlled Group Rules You Can’t Ignore
It doesn’t matter how many corporations you have on paper. What matters is who owns them and how.
Under Section 1563, if related corporations meet certain ownership ... Log in to view full article.
