Mr. Bearne paid $50,000 to a local spiritual healer and deducted the payment as a business expense of his sole proprietorship. The healer provided personal counseling to Mr. and Mrs. Bearne. Upon audit of the sole proprietorship's accounting records, the IRS agent disallowed the deduction by applying the:

Question

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The Business Purpose Doctrine states that any expense deducted as a business expense must have a bona fide business purpose. In this case, the payment to the spiritual healer was for personal counseling rather than for a legitimate business purpose, and therefore, the deduction was disallowed.

Mr Bearne Paid $50,000 to a Local Spiritual Healer and Deducted