What are the tax implications of the arrangement, Taxation

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What are the tax implications of the arrangement

Problem

A taxpayer owns two separate companies. Company A is fully taxable at 21%, and company B has substantial tax loss carryforwards. Company A sells all its output to B at cost, and B sells to outsiders at a markup of 50%. Company A's revenues total $2 million, whereas company B's revenues total $3 million. What are the tax implications of this arrangement? How will the IRS react?

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