When the IRS Audits a Tax Return, It Is Most

question 71

Multiple Choice

When the IRS audits a tax return, it is most likely to scrutinize the tax consequences of a/an:

• A) Related party transaction
• B) Private market transaction
• C) Public market transaction
• D) Arm's length transaction

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Definitions:

Salary Allowance

A mechanism for dividing earnings of a partnership based on personal services provided by the partners (not an expense).

Interest Allowance

A mechanism for dividing earnings of a partnership based on a percentage of capital balances of the partners (not an expense).

Net Income

The total profit of a company after all expenses and taxes have been subtracted from total revenue.

Profit and Loss Ratio

A financial metric that compares the gains and losses of a business over a specific period, often used to assess profitability.