Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company’s operations, and he is the only person working at the company that holds a real estate broker’s license. Sean works 12-hour days and takes few days off. During 2014 and 2015, Streetz’s gross receipts and net income figures were reported as follows.

Sean and his wife, Kim, filed joint Federal income tax returns, but they did not report any wages or salaries on line 7 of their returns. During 2016, Moon transferred $240,000 from the S corporation to his personal account.

You are an expert witness for the IRS. Identify the items you would present to the U.S. Tax Court with respect to the amount of Moon’s compensation that is subject to employment taxes and any other taxes due for the year 2016 (especially the Medicare net investment income tax). Hint: This is a reasonable compensation issue.

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Year Gross Receipts Net Income 2014 2015 2016 $376,453 405,244 518,189 $122,605 161,660 231,454