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Tax: unreasonable compensation; expense for medical, taxes

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1). Anita, the controlling shareholder and an employee of Southwest Corporation, receives an annual salary of $750,000. Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably-sized corporations, the IRS contends that Anita's salary should be no higher than $600,000. The Court upheld the IRS' position. As a result, which of the following is true?
a. $600,000 is deductible by the corporation; $600,000 is taxable to Anita.
b. $600,000 is deductible by the corporation; $750,000 is taxable to Anita.
c. $750,000 is deductible by the corporation; $750,000 is taxable to Anita.
d. $750,000 is deductible by the corporation; $600,000 is taxable to Anita.

2). All of the following are deductible as medical expenses except
a. vitamins and health foods that improve a taxpayer's general health.
b. payments to Christian Science practitioners for treatment of a specific medical condition.
c. payments to a hospital for laboratory fees and X-rays for diagnosis of a medical problem.
d. cosmetic surgery necessary to correct a deformity arising from a congenital abnormality.

3). The following items are deductible as taxes under Section 164 with the exception of
a. sales taxes.
b. federal income taxes.
c. foreign real property taxes.
d. local personal property taxes.

4). Ted incurs $2,100 interest on his automobile loan, $120 interest on a loan to purchase stereo equipment, and $630 interest on credit cards, and $1,100 investment interest. Ted has net investment income of $750. Ted's deductible interest is
a. $750.
b. $1,100.
c. $2,100.
d. $2,850.

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Solution Preview

1. The IRS has determined that Anita's salary was unreasonable for amounts over 600,000. The corporation will only be allowed to deduct 600,000 and the remaining 150,000 will be a ...

Solution Summary

The solution gives the reasons and explanations to support the answers to the four tax problems.

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