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: Of these expenditures, Rex may deduct:

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: Of these expenditures, Rex may deduct:
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: 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 cannot deduct illegal expenses related to his illegal bingo operation. Therefore, he cannot deduct the expenses related to the illegal bingo games or the bribe paid to the local police. However, he can deduct the expenses related to the lobbying efforts to legitimize the bingo games, as those expenses are not illegal. Thus, the total deductible expenses are $247,000.

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