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Congress needs to do more to protect taxpayers in the wake of the Supreme Court’s decision in the Commissioner of the Internal Revenue Service v. Zuch, National Taxpayer Advocate stated in a recent blog post.

Congress needs to do more to protect taxpayers in the wake of the Supreme Court’s decision in the Commissioner of the Internal Revenue Service v. Zuch, National Taxpayer Advocate stated in a recent blog post.

NTA Erin Collins noted in the post that Congress in 1998 created the collection due process (CDP) “to give taxpayers a meaningful opportunity to contest proposed levies and Notices of Federal Tax Lien,” allowing them to request a hearing with appeals and possibly petition the tax court.

The Supreme Court decision, according to Collins, “adopted a narrow view of the Tax Court’s review in a CDP case, holding that the Tax Court’s jurisdiction under IRC Sec. 6330(d)(1) terminates once the lien or levy is no longer at issue.” She cited Justice Neil Gorsuch’s dissent noting that “under this approach, the IRS can cut off Tax Court review by choosing when and how to collect. He also noted that telling taxpayers to file a refund suit instead is often unrealistic, especially when strict refund claim deadlines have expired while CDP and Tax Court proceedings are still pending.”

Collins noted that the Supreme Court decision and an earlier Tax Court order “reveal serious gaps in the protections Congress intended CDP to provide. They make CDP and Tax Court an unreliable path to a merits-based solution. A taxpayer can do everything right: request a CDO hearing, raise issues with Appeals, and timely petition the Tax Court yet still never receive a final determination on what they owe if, for example, the IRS fully collects through offsets or accepts an OIC and then declares that a levy is no longer warranted.”

She added that “the fallback remedy of refund litigation may not grant a taxpayer full relief … which is an unrealistic option for many small businesses and individuals. … Zuch raises due process concerns when collection action is withdrawn. A taxpayer typically receives only one CDP hearing for a given tax period and type of collection action. If the IRS abandons collection after that hearing and later restarts collection on the same liabilities, the taxpayer may not get a second CDP hearing with Tax Court review, but only an IRS ‘equivalent hearing,’ which does not provide a right to Tax Court review.”

Collins noted that Congress has begun to take steps to remedy this with the House of Representatives’ introduction of the Taxpayer Due Process Enhancement Act (H.R. 6506), including clarifying and expanding Tax Court jurisdiction in CDP cases, ensuring that jurisdiction over a properly underlying liability challenges whether the collection is abandoned, protects refund rights, and prohibits the IRS from crediting the overpayment against other liabilities without taxpayer consent.

However, she is calling for more Congressional action to address the “one hearing” limitation.

“Congress should create an exception to the ‘one hearing’ limitation for cases when the IRS withdraws or abandons collection,” Collins stated in the blog. “If the IRS has effectively reset the collection episode by withdrawing or abandoning the prior levy or lien and later initiates the same collection action for the same tax period, taxpayers should be entitled to a new CDP hearing with the full protections of IRC Sec. 6330, including Tax Court review.”

She added that Congress “should also ensure that taxpayers are not permanently barred from CDP when the IRS withdraws and later restarts collection and the Tax Court has clear authority to grant meaningful relief when the IRS has already collected more than the correct amount.”

The IRS has provided interim guidance addressing the special 100 percent bonus depreciation allowance for qualified production property enacted by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The interim guidance provides the definition of qualified production property, qualified production activities, and other related terms. It also establishes a safe harbor for property placed in service in 2025, provides instructions for the time and manner for electing the 100-percent depreciation allowance, and addresses recapture and certain special rules. Taxpayers may rely on the interim guidance until the Treasury Department issues proposed regulations.

The IRS has provided interim guidance addressing the special 100 percent bonus depreciation allowance for qualified production property enacted by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The interim guidance provides the definition of qualified production property, qualified production activities, and other related terms. It also establishes a safe harbor for property placed in service in 2025, provides instructions for the time and manner for electing the 100-percent depreciation allowance, and addresses recapture and certain special rules. Taxpayers may rely on the interim guidance until the Treasury Department issues proposed regulations.

Background

OBBBA enacted Code Sec. 168(n), which allows taxpayers to elect to take a 100 percent bonus depreciation allowance for qualified production property constructed after January 19, 2025, and before January 1, 2029, and placed in service after July 4, 2025, and before January 1, 2031.

Qualified Production Property Defined

Qualified production property is generally defined as new MACRS nonresidential real property that is (or will be once placed in service) as an integral part of a qualified production activity. Qualified production property must be placed in service in the United States, or its territories. Each building, including its structural components, is a single unit of property and any improvement of structural component that the taxpayer later places in service is a separate unit of property. A special rule is available for integrated facilities. For purposes of determining whether used property is acquired after January 19, 2025, and before January 1, 2029, a taxpayer applies rules consistent with Reg. § 1.168(k)-2(b)(5).

Under the interim guidance satisfies the integral part requirement if the qualified production activity takes place within the physical space of the property. The guidance provides a de minimis rule that permits a taxpayer to elect to treat the entire property as qualified production property if 95 percent or more of the physical space of a property satisfies the integral part requirement.

Although leased property that is owned by the taxpayer and used by a lessee does not qualify, the guidance provides an exception for consolidated groups, commonly controlled pass-through entities, and certain sole proprietorships, partnerships, or corporations of which 50 percent or more is owned, directly or by attribution by the lessor.

Under the guidance, a taxpayer may use any reasonable method to allocate a property’s unadjusted depreciable basis between eligible property and ineligible property. Each allocation method must be applied consistently and reflect the property’s facts and circumstances. In the case of property that contains infrastructure that serves both eligible property and ineligible property, a taxpayer may allocate the basis of such property between eligible property and ineligible property using any reasonable method.

Qualified Production Activity Defined

Generally, a qualified production activity means the manufacturing, production, or refining of a qualified product. The guidance provides specific definitions of production, qualified product, manufacturing, refining, agricultural production, chemical production, and substantial transformation of the property comprising a qualified product.

Under the guidance, a related business activity will not fail to be a qualified production activity if the related activity occurs within the same property. Such activities include: oversight and management of activities, material selection of vendors or materials related to the qualified product, developing product design and other intellectual property used in conducting a manufacturing, production, or refining activity that results in a substantial transformation of the property comprising the qualified product.

Safe Harbor for Qualified Production Property Placed in Service in 2025

For property placed in service after July 4, 2025, and on or before December 31, 2025, a taxpayer’s trade or business activity will be treated as a qualified production activity if the principal business activity code that the taxpayer, or the relevant trade or business of the taxpayer, used on its most recently filed Federal income tax return filed before February 19, 2026, is listed under sectors 31, 32, or 33, or under subsectors 111 or 112, that appear in the North American Industry Classification System (NAICS), United States, 2022, published by the Office of Management and Budget (OMB), Executive Office of the President. In addition, the activity must result in, or is otherwise essential to, the substantial transformation of the property comprising a qualified product.

Recapture

Recapture of the 100-percent bonus depreciation taken on qualified production property if a change in use occurs within 10 years after qualified production property is placed in service. Under the guidance a change in use occurs if the qualified production property ceases to satisfy the integral part requirement. A change in use has not occurred if a taxpayer begins to use qualified production property in a different qualified production activity. Property that has been placed in service but is temporarily idle does not cease to satisfy the integral part requirement.

Making the Election

A taxpayer may elect to treat property as qualified production property by attaching a statement to its Federal income tax return for the taxable year in which the eligible property is placed in service. The statement must include the following information: the name and taxpayer identification number of the taxpayer making the election; the street address, city, state, zip code, and a description of the property; the unadjusted depreciable basis of the property; the dollar amount of the unadjusted depreciable basis of eligible property the taxpayer is designating as qualified production property. Separate instructions are available for taxpayers applying the de minimis rule. A election may be revoked only by filing a request for a private letter ruling and obtaining the written consent of the IRS.

Request for Comments

The IRS requests comments on the interim guidance provided in Notice 2026-16. Comments must be submitted by the date, and in the form and manner, specified in Section 10.02 of Notice 2026-16.

Notice 2026-16

IR 2026-25

The Treasury Department and the IRS have extended the deadline for amending individual retirement arrangements (IRAs), SEP arrangements, and SIMPLE IRA plans to comply with the SECURE 2.0 Act of 2022. The new deadline is December 31, 2027. The extension does not apply to qualified plans such as 401(k) and 403(b) plans.

The Treasury Department and the IRS have extended the deadline for amending individual retirement arrangements (IRAs), SEP arrangements, and SIMPLE IRA plans to comply with the SECURE 2.0 Act of 2022. The new deadline is December 31, 2027. The extension does not apply to qualified plans such as 401(k) and 403(b) plans.

Under section 501 of the SECURE 2.0 Act (P.L. 117-328), retirement plans and contracts had until the end of the first plan year beginning on or after January 1, 2025, or by a later date prescribed by the Secretary, to adopt plan amendments reflecting changes made by the SECURE Act, the SECURE 2.0 Act, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020. In the absence of model language from the IRS, IRA custodians have requested more time to ensure proper amendments. Notice 2026-9 gives stakeholders until the end of 2027 to complete the necessary changes.

The extension applies to governing instruments of IRAs under Code Sec. 408(a) and (h), annuity contracts under Code Sec. 408(b), SEP arrangements under Code Sec. 408(k), and SIMPLE IRA plans under Code Sec. 408(p). Further, the IRS is developing model language to be used by IRA trustees, custodians, and issuers to amend an IRA for compliance with the legislation.

Notice 2026-9

The IRS issued answers to frequently asked questions (FAQs) about the implementation of Executive Order 14247, Modernizing Payments to and from America’s Bank Account. The order described advancing the transition to fully electronic federal payments both to and from the IRS. The purposes of said order were to (1) defend against financial fraud and improper payments; (2) increase efficiency; (3) reduce costs; and (4) enhance the security of federal transactions.

The IRS issued answers to frequently asked questions (FAQs) about the implementation of Executive Order 14247, Modernizing Payments to and from America’s Bank Account. The order described advancing the transition to fully electronic federal payments both to and from the IRS. The purposes of said order were to (1) defend against financial fraud and improper payments; (2) increase efficiency; (3) reduce costs; and (4) enhance the security of federal transactions.

The FAQs discussed included:

Tax Refunds and Tax Filing

The IRS stopped issuing paper refund checks for individual taxpayers after September 30, 2025. The Service would publish all guidance for filing 2025 tax returns before opening the 2026 tax filing season.

Further, direct deposit into a bank account would remain the primary method for issuing refunds. Alternative electronic payment methods, mobile apps and prepaid debit cards, would also be available. Limited exceptions to the paper check phase-out would also be established.

Alternative to Providing Direct Deposit Information

It is not mandatory for taxpayers to provide electronic payment information. However, if no exception applies, their refunds could take longer to process.

Sunset of Enrollment to EFTPS

Effective October 17, 2025, individual taxpayers are no longer able to create new enrollments via EFTPS.gov. Individual taxpayers not enrolled in the Electronic Federal Tax Payment System (EFTPS).gov by October 17, 2025 can instead create an IRS Online Account for Individual taxpayers or use the IRS Direct Pay guest path.

FS-2026-2

IR 2026-13

The IRS has encouraged all taxpayers to create an IRS Individual Online Account to access tax account information securely and help protect against identity theft. It emphasized that this digital resource is available to anyone who can verify their identity. Thus, the IRS highlighted how taxpayers have used the account with the same convenience as online banking to view adjusted gross income, check refund statuses, and request identity protection PINs.

The IRS has encouraged all taxpayers to create an IRS Individual Online Account to access tax account information securely and help protect against identity theft. It emphasized that this digital resource is available to anyone who can verify their identity. Thus, the IRS highlighted how taxpayers have used the account with the same convenience as online banking to view adjusted gross income, check refund statuses, and request identity protection PINs.

Further, the IRS supported collaboration between taxpayers and tax professionals through the use of digital authorizations. When taxpayers utilize Individual Online Accounts, they are able to approve power of attorney and tax information authorization requests entirely online. This digital process has allowed tax professionals to use their own Tax Pro Accounts to complete authorized actions on their clients’ behalf more efficiently. Tax professionals have supported this effort by encouraging clients to receive and view over 200 digital notices.

Additionally, the IRS expanded the account’s capabilities in early 2025 to allow taxpayers to view and download certain tax documents. It has made forms such as the W-2, 1095-A, and various 1099s available for the 2023, 2024, and 2025 tax years. These documents provide essential information return data reported by employers and financial institutions to help taxpayers file their returns. Consequently, the IRS advised individuals to visit IRS.gov to learn more about accessing records and managing payment plans.

IR 2026-21

These days, both individuals and businesses buy goods, services, even food on-line. Credit card payments and other bills are paid over the internet, from the comfort of one's home or office and without any trip to the mailbox or post office.

Now, what is probably your biggest "bill" can be paid on-line: your federal income taxes.

There are three online federal tax payment options available for both businesses and individuals: electronic funds withdrawal, credit card payments and the Electronic Federal Tax Payment System. If you are not doing so already, you should certainly consider the convenience -and safety-- of paying your tax bill online.  While all the options are now "mainstream" and have been used for at least several years, safe and convenient, each has its own benefits as well as possible drawbacks. The pros and cons of each payment option should be weighed in light of your needs and preferences.

Electronic Funds Withdrawal

Electronic funds withdrawal (or EFW) is available only to taxpayers who e-file their returns. EFW is available whether you e-file on your own, or with the help of a tax professional or software such as TurboTax. E-filing and e-paying through EFW eliminates the need to send in associated paper forms.

Through EFW, you schedule when a tax payment is to be directly withdrawn from your bank account. The EFW option allows you to e-file early and, at the same time, schedule a tax payment in the future. The ability to schedule payment for a specific day is an important feature since you decide when the payment is taken out of your account. You can even schedule a payment right up to your particular filing deadline.

The following are some of the tax liabilities you can pay with EFW:

• Individual income tax returns (Form 1040)
• Trust and estate income tax returns (Form 1041)
• Partnership income tax returns (Forms 1065 and 1065-B)
• Corporation income tax returns for Schedule K-1 (Forms 1120, 1120S, and 1120POL)
• Estimated tax for individuals (Form 1040)
• Unemployment taxes (Form 940)
• Quarterly employment taxes (Form 941)
• Employers annual federal tax return (Form 944)
• Private foundation returns (Form 990-PF)
• Heavy highway vehicle use returns (Form 2290)
• Quarterly federal excise tax returns (Form 720)

For a return filed after the filing deadline, the payment is effective on the filing date. However, electronic funds withdrawals can not be initiated after the tax return or Form 1040 is filed with the IRS. Moreover, a scheduled payment can be canceled up until two days before the payment.

EFW does not allow you to make payments greater than the balance you owe on your return. Therefore, you can't pay any penalty or interest due through EFW and would need to choose another option for these types of payments. While a payment can be cancelled up to two business days before the scheduled payment date, once your e-filed return is accepted by the IRS, your scheduled payment date cannot be changed. Thus, if you need to change the date of the payment, you have to cancel the original payment transaction and chose another payment method. Importantly, if your financial institution can't process your payment, such as if there are insufficient funds, you are responsible for making the payment, including potential penalties and interest. Finally, while EFW is a free service provided by the Treasury, your financial institution most likely charges a "convenience fee."

Credit Card Payments

Do you have your card ready? The Treasury Department is now accepting American Express, Discover, MasterCard, and VISA.

Both businesses and individual taxpayers can make tax payments with a credit card, whether they file a paper return or e-file. A credit card payment can be made by phone, when e-filing with tax software or a professional tax preparer, or with an on-line service provider authorized by the IRS. Some tax software developers offer integrated e-file and e-pay options for taxpayers who e-file their return and want to use a credit card to pay a balance due.

However, there is a convenience fee charged by service providers. While fees vary by service provider, they are typically based on the amount of your tax payment or a flat fee per transaction. For example, you owe $2,500 in taxes and your service provider charges a 2.49% convenience fee. The total fee to the service provider will be $62.25. Generally, the minimum convenience fee is $1.00 and they can rise to as much as 3.93% of your payment.

The following are some tax payments that can be made with a credit card:

• Individual income tax returns (Form 1040)
• Estimated income taxes for individuals (Form 1040-ES)
• Unemployment taxes (Form 940)
• Quarterly employment taxes (Form 941)
• Employers annual federal tax returns (Form 944)
• Corporate income tax returns (Form 1120)
• S-corporation returns (Form 1120S)
• Extension for corporate returns (Form 7004)
• Income tax returns for private foundations (Form 990-PF)

However, as is the case is with the EFW option, if a service provider fails to forward your payment to the Treasury, you are responsible for the missed payment, including potential penalties and interest.

Electronic Federal Tax Payment System

EFTPS is a system that allows individuals and businesses to pay all their federal taxes electronically, including income, employment, estimated, and excise taxes. EFTPS is available to both individuals and businesses and, once enrolled, taxpayers can use the system to pay their taxes 24 hours a day, seven days a week, year round. Businesses can schedule payments 120 days in advance while individuals can schedule payments 365 days in advance. With EFTPS, you indicate the date on which funds are to be moved from your account to pay your taxes. You can also change or cancel a payment up to 2 business days in advance of the scheduled payment date.

EFTPS is an ideal payment option for taxpayers who make monthly installment agreement payments or quarterly 1040ES estimated payments. Businesses should also consider using EFTPS to make payments that their third-party provider is not making for them.

EFTPS is a free tax payment system provided by the Treasury Department that allows you to make all your tax payments on-line or by phone. You must enroll in EFTPS, however, but the process is simple.

We would be happy to discuss these payment options and which may best suit your individual or business needs. Please call our office learn more about your on-line federal tax payment options.

In order to be tax deductible, compensation must be a reasonable payment for services. Smaller companies, whose employees frequently hold significant ownership interests, are particularly vulnerable to IRS attack on their compensation deductions.

In order to be tax deductible, compensation must be a reasonable payment for services. Smaller companies, whose employees frequently hold significant ownership interests, are particularly vulnerable to IRS attack on their compensation deductions.

Reasonable compensation is generally defined as the amount that would ordinarily be paid for like services by like enterprises under like circumstances. This broad definition is supplemented, for purposes of determining whether compensation is deductible as an ordinary and necessary expense, by a number of more specific factors expressed in varying forms by the IRS, the Tax Court and the Circuit Courts of Appeal, and generally relating to the type and extent of services provided, the financial concerns of the company, and the nature of the relationship between the employee and the employer.

Why IRS Is Interested

A chief concern behind the IRS's keen interest in what a company calls "compensation" is the possibility that what is being labeled compensation is in fact a constructive dividend. If employees with ownership interests are being paid excessive amounts by the company, the IRS may challenge compensation deductions on the grounds that what is being called deductible compensation is, in fact, a nondeductible dividend.

Another area of concern for the IRS is the payment of personal expenses of an employee that are disguised as businesses expenses. There, the business is trying to obtain a business expense deduction without the offsetting tax paid by the employee in recognizing income. In such cases, a business and its owners can end up with a triple loss after an IRS audit: taxable income to the individual, no deduction to the business and a tax penalty due from both parties.

Factors Examined

The factors most often examined by the IRS in deciding whether payments are reasonable compensation for services or are, instead, disguised dividend payments, include:

1. The salary history of the individual employee
2. Compensation paid by comparable employers to comparable employees
3. The salary history of other employees of the company
4. Special employee expertise or efforts
5. Year-end payments
6. Independent inactive investor analysis
7. Deferred compensation plan contributions
8. Independence of the board of directors
9. Viewpoint of a hypothetical investor contemplating purchase of the company as to whether such potential investor would be willing to pay the compensation.

Failure to pass the reasonable compensation test will result in the company's loss of all or part of its deduction. Analysis and examination of a company's compensation deductions in light of the relevant listed factors can provide the company with the assurance that the compensation it pays will be treated as reasonable -- and may in the process prevent the loss of its deductions.

Note: In the case of publicly held corporations, a separate $1 million dollar per person cap is also placed on deductible compensation paid to the CEO and each of the four other highest-paid officers identified for SEC purposes. (Certain types of compensation, including performance-based compensation approved by outside directors, are not included in the $1 million limitation.)

The S Corp Enigma

The opposite side of the reasonable compensation coin is present in the case of some S corporations. By characterizing compensation payments as dividends, the owners of these corporations seek to reduce employment taxes due on amounts paid to them by their companies. In these cases, the IRS attempts to recharacterize dividends as salary if the amounts were, in fact, paid to the shareholders for services rendered to the corporation.

Caution. In the course of performing the compensation-dividend analysis, watch out for contingent compensation arrangements and for compensation that is proportional to stock ownership. While not always indicators that payments are distributions of dividends instead of compensation for services, their presence does suggest the possibility. Compensation plans should not be keyed to ownership interests. Contingent and incentive arrangements are also scrutinized by the IRS. The courts have frequently ruled that a shareholder has a built-in interest in seeing that the company is successful and rewarding him for increasing the value of his own property is inappropriate. Similar to the reasonable compensation test, however, this rule is not hard and fast. Accordingly, the rules followed in each jurisdiction will control there.

Conclusions

Determining whether a shareholder-employee's compensation is reasonable depends upon many variables, such as the contributions that employee makes to your business, the compensation levels within your industry, and whether an independent investor in your company would accept the employee's compensation as reasonable.

Please call our office for a more customized analysis of how your particular compensation package fits into the various rules and guidelines. Further examination of your practices not only may help your business better sustain its compensation deductions; it may also help you take advantage of other compensation arrangements and opportunities.

If someone told you that you could exchange an apartment house for a store building without recognizing a taxable gain or loss, you might not believe him or her. You might already know about a very valuable business planning and tax tool: a like-kind exchange. In some cases, if you trade business property for other business property of the same asset class, you do not need to recognize a taxable gain or loss.

Not a sale

An exchange is a transfer that is not a sale. Essentially, it is a trade of like property.

In an exchange, property is relinquished and property is received. If the transaction includes money or property that is not of a like kind (referred to as "boot"), the transaction does not automatically become a sale. Any gain realized in the transaction, however, is recognized in that tax year to the extent of boot received.

In a like-kind exchange, the basis in the property received is the same as the basis in the property relinquished, with some adjustments. Any unrecognized gain or loss on the relinquished property is carried over to the replacement property. At a future time, the gain or loss will be recognized. If there is boot in the exchange and the gain is recognized, basis is increased by the amount of recognized gain.

The like-kind rules also require that property must be business or investment property. The taxpayer must hold both the property traded and the property received for productive use in its trade or business or for investment. Additionally, most stocks, bonds and other securities are not eligible.

Example

Jesse owns an office supply company and wants to expand his business. Carmen owns a restaurant and also wants to expand her business. Both individuals own parcels of land for investment that would benefit their respective expansion plans. The adjusted basis of both properties is $250,000. The fair market value of both properties is $400,000. Jesse and Carmen engage in a like-kind exchange. Neither Jesse nor Carmen would report any gain or loss.

More than two properties

Like-kind exchanges can involve more than two properties. While the rules are complicated, the basic approach is to combine properties into groups consisting of the same kind or class. If you are interested in a like-kind exchange involving more than two properties, we can help you.

Timing

The exchange does not have to take place at a given moment. If property is relinquished, the replacement property can be identified and received anytime within a specific period. Replacement property must be identified within 45 days after property is relinquished. The replacement property has to be received within 180 days after the transfer but sooner if the tax return is due before the 180 days are over (although the due date takes into account any extension that is permitted).

Reporting

A like-kind exchange must be reported to the IRS. The report must be made even if no gain is recognized in the transaction.  Again, our office can help you make sure that everything that needs to be reported to the IRS is reported.

Whether a parent who employs his or her child in a family business must withhold FICA and pay FUTA taxes will depend on the age of the teenager, the amount of income the teenager earns and the type of business.

FICA and FUTA taxes

A child under age 18 working for a parent is not subject to FICA so long as the parent's business is a sole proprietorship or a partnership in which each partner is a parent of the child (if there are additional partners, the taxes must be withheld). FUTA does not have to be paid until the child reaches age 21. These rules apply to a child's services in a trade or business.

If the child's services are for other than a trade or business, such as domestic work in the parent's private home, FICA and FUTA taxes do not apply until the child reaches 21.

The rules are also different if the child is employed by a corporation controlled by his or her parent. In this case, FICA and FUTA taxes must be paid.

Federal income taxes

Federal income taxes should be withheld, regardless of the age of the child, unless the child is subject to an exemption. Students are not automatically exempt, though. The teenager has to show that he or she expects no federal income tax liability for the current tax year and that the teenager had no income tax liability the prior tax year either. Additionally, the teenager cannot claim an exemption from withholding if he or she can be claimed as a dependent on another person's return, has more than $250 unearned income, and has income from both earned and unearned sources totaling more than $800.

Bona fide employee

Remember also, that whenever a parent employs his or her child, the child must be a bona fide employee, and the employer-employee relationship must be established or the IRS will not allow the business expense deduction for the child's wages or salary. To establish a standard employer-employee relationship, the parent should assign regular duties and hours to the child, and the pay must be reasonable with the industry norm for the work. Too generous pay will be disallowed by the IRS.