More context:
Existing S-corp A has capital to fund the business of new S-corp B. Business B purchases real estate in its own name but the down payment is paid by Business A. The intent of Business B is to rent the property in a short term fashion. After the purchase, Business A pays the expenses each month (mortgage, utilities, insurance, etc.) and also funded improvements made to the property. Plans changed for the purchased property in that it was never actually rented as intended, therefore no income has been produced to date. Even though Business B has an EIN and has S-corp status, it has so far done nothing but purchase an asset.
Every penny spent by Business A on behalf of Business B has been tracked so that classification can be adjusted if needed.
I also thought about this from another angle. Since the capital in Business A had already been handled as income via K1s anyway, would the circumstances been different if the funds had been taken out of the business (cash distribution to officers) and then sent to Business B as owner's contribution? Is that essentially what was done here?
