Fay "Hires" Her Four-Year-Old Son to Be the Office Manager

question 140

Multiple Choice

Fay "hires" her four-year-old son to be the office manager of her real estate firm. She deducts his $20,000 annual salary as a business expense. The IRS disallows the deduction upon examination of Fay's tax return. Which of the following supports the IRS position?

• A)All-Inclusive Income Concept.
• B)Annual Accounting Period Concept.
• C)Entity Concept.
• D)Realization Concept.
• E)Business Purpose Concept

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Definitions:

Normative

In economics and philosophy, refers to statements or propositions that express values, ethics, or moral prescriptions, indicating how things ought to be.

Positive

Characterized by or indicating the presence or affirmative action of a feature, condition, or outcome.

Tax

A mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Economic Wants

Desires for goods and services that can be satisfied through market transactions or consumption, including basic needs and luxuries.