Doug and Heather, related parties, are landlord and tenant as to certain business property. If the IRS questions the amount of rent Heather is paying to Doug, this is an illustration of the:
A) Arm's length concept.
B) Continuity of interest concept.
C) Tax benefit rule.
D) Substance over form concept.
E) None of the above.

Question

Quizplus · Accepted Answer

The question is referring to the Arm's length concept, which requires that transactions between related parties be conducted as if they were unrelated parties, with no special relationship or influence. In this case, the IRS is questioning whether the rent amount being paid is consistent with market rates, which is necessary to ensure that the transaction is at arm's length.

Doug and Heather, Related Parties, Are Landlord and Tenant as to Certain