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:

Business Managers

Individuals responsible for overseeing the operational, financial, and strategic management of a company or a specific department.

Operating Activity

Financial activities directly related to the core business operations, including cash flows from selling goods and services.

Statement of Cash Flows

This financial document summarizes the cash and cash equivalents entering and leaving a company, highlighting cash flows from operating, investing, and financing activities.

Investing Activity

Financial actions related to the purchase and sale of long-term assets and other investments not considered cash equivalents.