8. JKL Inc. and Villatoro, Inc. enter into a business transaction. The two corporations are related...
8. JKL Inc. and Villatoro, Inc. enter into a business transaction. The two corporations are related parties for tax purposes. Which of the following statements is true?
A. KL and Villatoro must account for the transaction using the same method of accounting.
B. The IRS has the right to reallocate income from the transaction to prevent distortion.
C.The cash method of accounting must be used to account for such transactions.
D. JKL and Villatoro must request permission from the IRS to engage in the related party transaction.
Homework Answers
8. JKL Inc. and Villatoro, Inc. enter into a business transaction. The two corporations are related parties for tax purposes. Which of the following statements is true?
B. The IRS has the right to reallocate income from the transaction to prevent distortion.
Reason - (The Internal Revenue Service (IRS) examines related-party transactions for any conflicts of interest. If it finds conflicts, then the IRS will not allow any tax benefits claimed from the transaction. In particular, the IRS scrutinizes property sales between related parties and deductible payments between related parties.)
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