AM I ETHICAL?
Anna Nguyen, a successful real estate investor, owns several 20-unit apartment buildings. All of these buildings are located near a major college campus. Every building has an on-site manager who receives free rent and a $370 monthly sum for assisting tenants and maintaining building safety.
Anna's son James is about to start college, and Anna intends to employ him as an on-site manager. James will perform the same duties as the other building managers, but Anna plans to give her son free rent and pay him $500 monthly. Anna intends to deduct this wage payment as a business expense on her tax return. She justifies paying her son more than the other managers because he is “especially diligent and motivated to maintain building safety and profitability.”
Is it ethical for Anna to claim the wages paid to James as a business expense?
- Yes, because the entire $500 amount paid fairly reflects what a comparable manager would earn
- Yes, as long as Anna only claims wage expense equal to the customary $370 monthly sum paid to unrelated managers
- No, because Anna is trying to deduct a personal expenditure that she otherwise would make to subsidize her son's college living expenses
- No, because it is fraudulent to claim tax deductions for amounts paid to family members, unless this fact is “prominently and conspicuously” disclosed on a tax return
The SOLUTION is revealed at the end of the chapter.