Deduction split between 2 entities

Having a discussion with a CPA for 2019 deduction.

Owner has a corp and also a partnership sponsoring the plan, it is a controlled group.

Salary from corp was 180k and the K-1 income was 500k plus.

DB deduction is 200k and DC deduction is 50k. Neither deduction can be achieved just by 180k salary.

The so called salary total for 2018 is 280k (thankfully, the k-1 income high enough) and I suggested to split the deductions by using the fraction of 180/280 for the corporation and 100/280 for the LLC.

CPA is reluctant to do so and wants the full deduction on the corp books which I do not agree but not my decision.

IRS, if I recall correctly, does not have a set rule on this (may be misremembering) but consistency is important i.e. once you start one way, you continue that way.

I am aware that there are required contribution requirement/lack of income for the LLC, but this purpose, let's ignore it.

Any comments?

Thank you

1 hour ago, Jakyasar said:

Having a discussion with a CPA for 2019 deduction.

Owner has a corp and also a partnership sponsoring the plan, it is a controlled group.

Salary from corp was 180k and the K-1 income was 500k plus.

DB deduction is 200k and DC deduction is 50k. Neither deduction can be achieved just by 180k salary.

The so called salary total for 2018 is 280k (thankfully, the k-1 income high enough) and I suggested to split the deductions by using the fraction of 180/280 for the corporation and 100/280 for the LLC.

CPA is reluctant to do so and wants the full deduction on the corp books which I do not agree but not my decision.

IRS, if I recall correctly, does not have a set rule on this (may be misremembering) but consistency is important i.e. once you start one way, you continue that way.

I am aware that there are required contribution requirement/lack of income for the LLC, but this purpose, let's ignore it.

Any comments?

Thank you

While I agree with you as to splitting it, we don't have guidance that says what you must do.  Why have you allocated the larger portion to the smaller overall income?  I think you can easily justify 180/680 (assuming net Sched C was $500k) and 500/680 as the ratios.  Though, the accountant can pretty much do what he wants, because I think it fair to say that I have never seen an IRS auditor give a damn about how the allocation among the two entities is done because they tend to look at HOW MUCH was deducted in total, never looking at the math of the allocation.  I think you can also justify a 50/50 split of the $280k comp.  In other words, not worth fighting the accountant; it is his/her/their call, not ours.

I totally agree with you but it bothers me that they will take a deduction for the corporation for a benefit that is generated from the LLC portion.

I left it with them anyway. I can only suggest.

Thank you for your insight/comment as usual.

3 minutes ago, Larry Starr said:

While I agree with you as to splitting it, we don't have guidance that says what you must do.  Why have you allocated the larger portion to the smaller overall income?  I think you can easily justify 180/680 (assuming net Sched C was $500k) and 500/680 as the ratios.  Though, the accountant can pretty much do what he wants, because I think it fair to say that I have never seen an IRS auditor give a damn about how the allocation among the two entities is done because they tend to look at HOW MUCH was deducted in total, never looking at the math of the allocation.  I think you can also justify a 50/50 split of the $280k comp.  In other words, not worth fighting the accountant; it is his/her/their call, not ours.

Not that it matters, but your ratios are backwards as far as what the accountant wants. Or at least backwards in the wrong direction!

8 minutes ago, Mike Preston said:

Not that it matters, but your ratios are backwards as far as what the accountant wants. Or at least backwards in the wrong direction!

Of course the acct wants that (as stated in the original posting).  I'm just pointing out how WE might give him the allocation breakdown, and then I don't care what he does (but I think my allocation makes more sense than the 180/280 allocation because I can't justify that at all). But if the IRS should ever challenge (have you EVER seen such a challenge?  I have not ever), at least we told him that something else might be appropriate. FWIW.