Instructions : Please provide 2-3 sentence brief explanation and choose the best
ID: 2564271 • Letter: I
Question
Instructions : Please provide 2-3 sentence brief explanation and choose the best multiple choice answer. All sources must be noted. SHOW ALL WORK.
____ 16. Bob operates an illegal marijuana business and had the following expenses:
Salaries
$ 65,000
Illegal kickbacks
20,000
Internet bill
20,000
Bribes to ICE
25,000
Cost of goods sold
110,000
Lease
9,000
Interest
11,000
Car Insurance
7,000
Which of the above amounts reduces his taxable income?
a.
$0.
b.
$160,000.
c.
$110,000.
d.
$324,000.
e.
None of the above.
Salaries
$ 65,000
Illegal kickbacks
20,000
Internet bill
20,000
Bribes to ICE
25,000
Cost of goods sold
110,000
Lease
9,000
Interest
11,000
Car Insurance
7,000
Explanation / Answer
Section 280E provides:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
Hence correct answer is a) 0.