17.A doctor pays his children $100,000 each year for "consulting services". The IRS plans to disallow that amount as a deduction on the doctor's business tax return (Form 1120). The children reported the income they received as wage income. However, the income is taxed at a relatively modest marginal income tax rate. Are there any steps that should be taken to protect the doctor and his children?
17.A doctor pays his children $100,000 each year for "consulting services". The IRS plans to disallow that amount as a deduction on the doctor's business tax return (Form 1120). The children reported the income they received as wage income. However, the income is taxed at a relatively modest marginal income tax rate. Are there any steps that should be taken to protect the doctor and his children?
Chapter1: An Introduction To Taxation And Understanding The Federal Tax Law
Section: Chapter Questions
Problem 48DQ
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Transcribed Image Text:17.A doctor pays his children $100,000 each
year for "consulting services". The IRS plans to
disallow that amount as a deduction on the
doctor's business tax return (Form 1120). The
children reported the income they received as
wage income. However, the income is taxed
at a relatively modest marginal income tax
rate. Are there any steps that should be taken
to protect the doctor and his children?
a.Nothing at this time. Plan to vigorously
contest the deduction disallowance.
b.Extend the statute of limitations on
assessment of the Form 1120, thus delaying
any action on the children's tax returns.
c.File Form 1040X on behalf of the children
making a protective refund claim of the
income tax the children paid. Also request a
refund of any employment tax.
d.File an amended Form 1120X protecting the
parties and reallocating the payments to the
children as a loan to the doctor/shareholder.
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