S-Corp Related Party Transaction

[TaxesTech]

An individual is the common 100% shareholder of two S-Corps, both in the e-commerce industry.  S-Corp A pays for all advertisement bills and receives reimbursement from S-Corp B. S-Corp A writes off 100% bill payments and recognizes income when receiving S-Corp B's allocated expenses.  

When we prepare the two Form 1120S, are we required to disclose related party transactions or the existence of the controlled group and the members within?  If so, how can we report this?  

Thank you!

[Strongsilence-CPA]

Schedule B, Question 4a

There might be other questions on that page too.

[TaxesTech]

Thank you for the guidance!  The Schedule B question is worded as:

"4. At the end of the tax year, did the corporation:

     a. Own directly 20% or more, or own, directly or indirectly, 50% or more of the total stock issued and outstanding of any foreign or domestic corporation? For rules of constructive ownership, see instructions. If "Yes," complete (i)through (v) below"

The S-Corp A and S-Corp B are sister companies that do not own each other's shares.  Can the attribution rule apply here, that they own 100% of each other indirectly through the individual shareholder?  I guess I am shaky on these concepts....thank you!!

[rkamm@taxestech.]

Oh!  I just remembered that S-Corp cannot have LLC and other corporation shareholders!  So I guess no need to consider the attribution rules here!  I really appreciate the discussion - it is helpful to accumulate the little things bit by bit!  

[sjrcpa]

Yes the attribution rules apply to compute the indirect ownership %.

This has nothing to do with who are permitted owners of S Corps, unless you actually have a nonpermitted owner, in which case you are no longer an S Corp..

[rkamm@taxestech.]

That makes sense. Thank you. Should we understand that S-Corp A and S-Corp B indirectly own 100% shares of each other through the individual shareholder? I am having a hard time understanding this logic. In the absence of the common individual shareholder, how do we understand whether the S-Corp would either benefit from/inherit the shares or fit into the voting power picture?  

[sjrcpa]

"Should we understand that S-Corp A and S-Corp B indirectly own 100% shares of each other through the individual shareholder?"  Yes 

"how do we understand whether the S-Corp would either benefit from/inherit the shares or fit into the voting power picture?  " That's not applicable for the question on the returns.