William, a CPA, owns a 75% interest in Burglar Concrete Company (BCC). BCC is organized as a partnership. During the current year, William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return.
I.BCC cannot deduct the $300 fee because of the related party rules.
II.William must recognize the $300 fee as income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

William, a CPA, owns a 75% interest in Burglar Concrete Company (BCC). BCC is organized as a partnership. During the current year, William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return.
I.BCC cannot deduct the $300 fee because of the related party rules.
II.William must recognize the $300 fee as income.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Statement II is correct. As a partner who provides accounting services to the partnership, William must recognize the $300 fee as income on his personal tax return. However, Statement I is incorrect because BCC can deduct the $300 fee as an ordinary and necessary business expense. Although William is a related party, the fee he charged BCC is reasonable for the services provided and therefore deductible.

William, a CPA, Owns a 75% Interest in Burglar Concrete