Version 1 1
, ⊚ true
⊚ false
3. The phrase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct
of a business.
⊚ true
⊚ false
4. Reasonable in amount means that expenditures can be exorbitant if the activity is motivated by profit.
⊚ true
⊚ false
5. The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length"
amount.
⊚ true
⊚ false
6. Illegal bribes and kickbacks are not deductible business expenses, but fines imposed by a governmental unit are
deductible as long as the fines are incurred in the ordinary course of business.
7. Although expenses associated with illegal activities are not deductible, political contributions can be
deducted if the donation is not made to a candidate for public office.
⊚ true
⊚ false
8. When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the
taxpayer on the debt will not be deductible.
⊚ true
⊚ false
Version 1 2
, ⊚ true
⊚ false
9. A business can deduct the cost of uniforms supplied to employees if the uniforms are not suitable for normal wear.
⊚ true
⊚ false
10. Only half the cost of a business meal is deductible even if the meal is extravagant.
⊚ true
⊚ false
11. Taxpayers must maintain written contemporaneous records of business purpose when traveling to claim a
deduction for the expenditures.
⊚ true
⊚ false
12. Ralph borrowed $4 million and used the proceeds in his Internet business. The interest on this debt is not subject to
an interest limitation if Ralph's business has average annual gross receipts of $26 million or less for the prior three taxable years.
Version 1 3
, ⊚ true
⊚ false
13. Adjusted taxable income for calculating the business interest limitation is defined as taxable income of the
taxpayer computed without regard to any item of income, gain, deduction, or loss that is not properly allocable to a trade or
business.
⊚ true
⊚ false
14. The deduction for business interest expense is limited to the sum of (1) business interest income and (2) 30
percent of the adjusted taxable income of the taxpayer for the taxable year.
⊚ true
⊚ false
15. The deduction for business interest expense is limited to the sum of (1) business interest income and (2) the
adjusted taxable income of the taxpayer for the taxable year.
⊚ true
⊚ false
16. A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.
⊚ true
⊚ false
17. All taxpayers must account for taxable income using a calendar year.
⊚ true
⊚ false
18. A short tax year can end on any day of any month other than December.
Version 1 4
, ⊚ true
⊚ false
3. The phrase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct
of a business.
⊚ true
⊚ false
4. Reasonable in amount means that expenditures can be exorbitant if the activity is motivated by profit.
⊚ true
⊚ false
5. The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length"
amount.
⊚ true
⊚ false
6. Illegal bribes and kickbacks are not deductible business expenses, but fines imposed by a governmental unit are
deductible as long as the fines are incurred in the ordinary course of business.
7. Although expenses associated with illegal activities are not deductible, political contributions can be
deducted if the donation is not made to a candidate for public office.
⊚ true
⊚ false
8. When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the
taxpayer on the debt will not be deductible.
⊚ true
⊚ false
Version 1 2
, ⊚ true
⊚ false
9. A business can deduct the cost of uniforms supplied to employees if the uniforms are not suitable for normal wear.
⊚ true
⊚ false
10. Only half the cost of a business meal is deductible even if the meal is extravagant.
⊚ true
⊚ false
11. Taxpayers must maintain written contemporaneous records of business purpose when traveling to claim a
deduction for the expenditures.
⊚ true
⊚ false
12. Ralph borrowed $4 million and used the proceeds in his Internet business. The interest on this debt is not subject to
an interest limitation if Ralph's business has average annual gross receipts of $26 million or less for the prior three taxable years.
Version 1 3
, ⊚ true
⊚ false
13. Adjusted taxable income for calculating the business interest limitation is defined as taxable income of the
taxpayer computed without regard to any item of income, gain, deduction, or loss that is not properly allocable to a trade or
business.
⊚ true
⊚ false
14. The deduction for business interest expense is limited to the sum of (1) business interest income and (2) 30
percent of the adjusted taxable income of the taxpayer for the taxable year.
⊚ true
⊚ false
15. The deduction for business interest expense is limited to the sum of (1) business interest income and (2) the
adjusted taxable income of the taxpayer for the taxable year.
⊚ true
⊚ false
16. A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.
⊚ true
⊚ false
17. All taxpayers must account for taxable income using a calendar year.
⊚ true
⊚ false
18. A short tax year can end on any day of any month other than December.
Version 1 4
