If company A pays taxable fringe benefits to employees of company B for?

Question

services that the employees rendered for company B but doesn't pay payroll taxes. They argue that since the employees are not employees of company A, they don't need to pay payroll taxes. Since the fringe benefit amounts are less than required for a 1099, they don't issue 1099s. However, no services were rendered by company B's employees to Company A. In fact, company B paid for company A's employees. These are obviously related organizations. Is this really an ingenious way of avoiding payroll taxes? It doesn't sound right to me to set up two companies and one pays the other's employees without receiving any services or goods in return and avoids payroll taxes.

Answer 1

The employees are employees of both companies. Payroll taxes must be paid by both companies.

This is so obviously a scam that it's not funny. The IRS would NOT be amused.