Mark owns a carpentry business. She "hires" her 2-year old daughter, Maggie, to "manage the office" for the carpentry business. Mark treats Maggie as an employee and pays her $15,000 for her "work" and reports the $15,000 to Maggie on a Form W-2.

Marge deducts the $15,000 in "wages" from her carpentry business income on her tax return. The tax law generally allows taxpayers to deduct business expensesnsuch as wages paid to employees. What tax law doctrine might the IRS and the courts use to disallow Marge's $15,000 deduction for "wages"?


Explain. (Don't worry about Maggie's end of the transaction, just focus on disallowing Marge's $15,000 deduction.)

Answer rating: 100% (QA)

The IRS and the courts might use the Sham Transaction Doctrine to disallow Marges 15000 deduction fo... View the full answer