Research Problem 2. Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company’s operations, and he is the only person working at the company that holds a real estate broker’s license. Sean works 12-hour days and takes few days off. Corporate records indicate the following.

Year Gross Receipts Net Income 1 $376,453 $122,605 2 405,244 161,660 3 518,189 231,454 Sean and his wife, Kim, filed joint Federal income tax returns, but they did not report any wages or salaries on their returns. During year 3, Sean transferred $240,000 from Streetz to his personal account.

You are an expert witness for the IRS. Identify the items that you would present to the U.S. Tax Court with respect to the amount of Sean’s compensation that is subject to employment taxes and any other taxes due for year 3 (especially the additional Medicare net investment income tax). Hint: This is a reasonable compensation issue.