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?

Question

Quizplus · Accepted Answer

The IRS likely disallowed the deduction based on the Business Purpose Concept, which requires that expenses claimed for tax deductions must be ordinary and necessary for the operation of the business. Hiring a four-year-old as an office manager does not meet this criterion, as it is not a reasonable or necessary business expense.

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