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Level 3
December 9, 2025

S-Corporation renting from a "sister organization

  • December 9, 2025
  • 2 replies
  • 9 views

I have customers who are members of a S-Corp that want to reduce taxable income, and have decided to begin paying rent to a Sister organization, meaning the same 4 members are also partners of the sister organization. I don't feel this will accomplish what they are hoping to do.  Is there a benefit to this action?  I want to meet with them and see if there is another option if this isn't what they need.

I hope this makes sense 🙂

 

2 replies

IRonMaN
Level 15
December 9, 2025

I'm not sure how taking money from your left pocket to put it into your right pocket is going to save taxes. 

Slava Ukraini!
Level 3
December 9, 2025

I agree.  I just wondered if I was somehow missing something.  My suggestion is to provide employees with a flex account, HSA or something similar.

BobKamman
Level 15
December 9, 2025

Can't really answer without knowing whether Sister is also an S.  

Level 3
December 9, 2025

Currently it is a partnership.  They want to start a SEP, but not include employees (restaurant), so they will use the partnership to open a SEP for the partners.  I believe they will need to restructure the partnership to S-Corp so they can pay salaries.  I would be interested if anyone here can offer any advice in this matter.  I just spoke to one of the members and this is what she told me.

Thanks,.

sjrcpa
Level 15
December 10, 2025

For the new partnership, how would they turn rental income into self-employment income?

And what would the partnership own that it would rent to the S Corp?

Also, have them look into the pension rules for commonly controlled businesses and/or affiliated service groups.

The more I know the more I don’t know.