Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law.During 2017, a bill designated H.R.9 is introduced into the state legislature which, if enacted, would legitimize bingo games.In 2017, Rex had the following expenses:a $$\begin{array} { l r }
\text { Operating expenses in conducting bingo games } & \$ 247,000 \
\text { Payoff money to state and local police } & 24,000 \
\text { Newspaper ads supporting H.R. 9 } & 3,000 \
\text { Political contributions to legislators who support H.R. 9 } & 8,000
\end{array}$$ Of these expenditures, Rex may deduct:
A)$247,000.
B)$250,000.
C)$258,000.
D)$282,000.
E)None of the above.

Question

Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law.During 2017, a bill designated H.R.9 is introduced into the state legislature which, if enacted, would legitimize bingo games.In 2017, Rex had the following expenses:a $$\begin{array} { l r } 
\text { Operating expenses in conducting bingo games } & \$ 247,000 \
\text { Payoff money to state and local police } & 24,000 \
\text { Newspaper ads supporting H.R. 9 } & 3,000 \
\text { Political contributions to legislators who support H.R. 9 } & 8,000
\end{array}$$ Of these expenditures, Rex may deduct:
A)$247,000.
B)$250,000.
C)$258,000.
D)$282,000.
E)None of the above.

Quizplus · Accepted Answer

Rex may deduct $247,000 for operating expenses in conducting bingo games. Payoff money to state and local police, newspaper ads supporting H.R. 9, and political contributions to legislators who support H.R. 9 are not deductible expenses for tax purposes. Payoffs are illegal and thus not deductible, while political contributions and expenses to support legislation are specifically excluded from being deductible under tax laws.

Rex, a Cash Basis Calendar Year Taxpayer, Runs a Bingo