This case concerned a tax scheme where taxable income was eliminated using factoring and management fees to shift profits.
The Tax Court held that the scheme was in essence an attempt to eliminate the taxes. Factoring and management fees were not deductible expenses but rather disguised distributions of corporate profits and generally currently taxable to the individual shareholders as constructive dividends or as income improperly assigned to the corporations.
In the TC Memo interesting views on the arm’s length nature of factoring and management fees is elaborated upon.
TC memo 2018-131US vs Pacific management Group 20aug 2018 TC memo 2018-131