For example, Chatham does invoicing, accounts payable, payroll, etc. services for Madison Inc, Peter’s Publishing LLC, and Hudson Services, Inc. where all the entities are under common ownership. Using a management company can make accounting simpler and more efficient. It can also result in state tax savings if the entities do business in more than one state. In Wiley M. Elick et ux. et al. (T.C. Memo. 2013-139) the taxpayer had a professional practice and set up a management company to perform services for his practice. There was a contract between the practice and the management company specifying the work to be performed and the payments to be received. The IRS argued that the management fees were unnecessary because the management company provided no services. The Court found the taxpayer failed to show the management company rendered any services. Further the taxpayer acknowledged that third parties provided such services that the management company was to provide. There was no indication the management company performed the requirements of the contract, not even providing the taxpayer with monthly invoices for work performed. The Tax Court disallowed the deduction for the management fees.
