Accounting : Which of the following statements is/are false

Subject: Business / Accounting
Question
TXX5768

1)Which of the following statements is/are false?

A.
What constitutes a “reasonable salary” depends upon the nuances of the facts and circumstances of each individual case.

B.
As a practical matter, the issue of reasonable compensation arises often where the business entity paying the salary and the employee are related parties.

C.
The IRS has come up with some set formulas for determining reasonable salaries that have been upheld by the Courts.

D.
If a C corporation pays an unreasonable salary to an employee who is also a major stockholder, the unreasonable portion of the salary that was not for services may be reclassified as a non-deductible constructive dividend assuming the corporation has earnings and profits.

E.
All the above are true.

F.
Both C & D are false.

2)Which of the following statements is/are false?

A.
There are no tax disadvantages to making family members employees of an incorporated real estate business.

B.
Employing the business owners’ children in the real estate business can achieve tax saving by the wages escaping taxation up to the child’s standard deduction. Salary above the standard deduction will probably be taxed at a lower rate than the parents marginal tax rate if the children have no other source of income.

C.
Usually, paying a spouse out of the family real estate business does not save any income tax expense if the spouses are filing a joint income tax return.

D.
All of the above are true.

3)Which of the following statements is/are false?

A.
Independent Contractors’ compensation is not subject to federal income tax withholding and such taxpayers are responsible for both the employer and employee portion of social security taxes assessed on their compensation.

B.
If a business controls what services the worker performs as well as how the work is performed, then such a worker may be classified as an independent contractor.

C.
Generally, when licensed real estate agents receive payments that are directly related to sales and the services are specified as performed by a non-employee in a written contract, the real estate agents are treated as independent contractors and not employees.

D.
If a partner performs services for a partnership, the payment should meet the requirements to be classified as a guaranteed payment under IRC §707(c) to insure the partnership’s deduction for the payment; otherwise the payment could be construed by the IRS to be a non-deductible distribution to the partner.

E.
All of the above are true.

4)Which of the following statements is/are false?

A.
A legal fee paid to negotiate the terms of a long-term lease are currently deductible under IRC§162 because they were paid to make it possible to collect taxable income.

B.
Generally, guaranteed payments are payments made by a partnership to a partner for either services rendered to the partnership or use of capital, and are made without regard to the income of the partnership.

C.
Commissions paid by a non-dealer to sell real estate reduce the amount realized on the sale and thus reduce gain or increase the loss reportable on the sale.

D.
Real estate commissions paid to acquire real estate are not currently deductible and must be capitalized as part of the acquisition cost of the property.

E.
All of the above are true.

5)Which of the following statements is/are false?

A.
Legal fees can, in some instances, be classified as start-up expenses under IRC§195.

B.
Legal fees paid to preserve an existing business or which aid in the collection of taxable income are currently deductible under IRC §162 as ordinary and necessary trade or business expenses.

C.
Illegal kickbacks, in the nature of fees or commissions, are deductible, if they fall into the category of an ordinary and necessary trade or business expense under IRC§162.

D.
The courts have ruled that impact fees paid by developers for the approval and recordation of plats are currently deductible as a trade or business expense.

E.
All of the above are true.

F.
Both C & D are false.

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