[thih9]

Note that we’re talking about two companies exchanging services.

When two companies undervalue the services that they offer to each other, they pay lower taxes. This is the illegal part.

[tstenner]

If the expense is tax deductable, it mostly doesn't matter whether you have $10 earnings vs $10 business expenses or $10K.

[thih9]

Good luck explaining that to the IRS.

[gamblor956]

The IRS would be fine worth it if taxable income is unchanged.

Businesses are taxed on their net income, not get gross.

[thih9]

You mean they are fine with the things they won’t notice? Perhaps that is true.

[gamblor956]

No, depending on your accounting method the transaction we're discussing may be disregarded, so the net economic position of the taxpayers is no different. As a result the IRS is generally indifferent...so long as you maintain that method of accounting for future similar transactions.