ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilker
b b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
Chapter 1 Busi b b
ness Income, Deductions, and Accounting Methods
b b b b b
SOLUTIONS MANUAL b
Discussion Questions b
1. [LOb1]bWhatbisbanb“ordinarybandbnecessary”bbusinessbexpenditure?
“Ordinary”bandb“necessary”bimplybthatbanbexpensebmustbbebcustomarybandbhelpful,brespect
ively.bBecausebthesebtermsbarebsubjective,bthebtestsbarebambiguous.bHowever,bordinarybisbint
erpretedbbybthebcourtsbasbincludingbexpensesbwhichbmaybbebunusualbforbabspecificbtaxpayerb(
butbnotbunusualbforbthatbtypebofbbusiness)bandbnecessarybisbnotbinterpretedbasbonlybessentialbe
xpenses.bTheseblimitsbcanbbebcontrastedbwithbthebreasonableblimitbonbamountsbandbthebbonabfi
debrequirementbforbprofitbmotivation.
2. [LOb1]bExplainbhowbcostbofbgoodsbisbtreatedbwhenbabbusinessbsellsbinventory.
Underbthebreturnbofbcapitalbprinciple,bcostbofbgoodsbsoldbrepresentsbabreductionbinbgrossbinco
mebratherbthanbabbusinessbexpense.bForbexample,bifbabtaxpayerbsellsbinventorybfor
$100,000bandbreportsbabcostbofbgoodsbsoldbofb$40,000,bthebbusiness’sbgrossbincomebis
$60,000b($100,000b–b40,000)bnotb$100,000.
3. [LOb1]bWhetherbabbusinessbexpensebisb“reasonablebinbamount”bisboftenbabdifficultbquestion.b
Explainbwhybdeterminingbreasonablenessbisbdifficultbandbdescribebabcircumstancebwherebrea
sonablenessbisblikelybtobbebquestionedbbybthebIRS.
Reasonablenessbisbanbissuebofbfactbandbcircumstance,bandbextravagancebisbdifficultbtobdeterm
inebbecausebofbthebsubjectivitybandbmultitudebofbfactorsbinvolvedbinbdeterminingbprice.bReaso
nablenessbisbmostblikelybtobbebanbissuebwhenbabpaymentbisbmadebtobabrelatedbindividualborbtheb
taxpayerbenjoysbsomebpersonalbbenefitbincidentalbtobthebexpenditure.
4. [LOb1]bJakebisbabprofessionalbdogbtrainerbwhobpurchasesbandbtrainsbdogsbforbusebbyblawbenf
orcementbagencies.bLastbyearbJakebpurchasedb500bbagsbofbdogbfoodbfrombablargebpetbfoodbc
ompanybatbanbaveragebcostbofb$30bperbbag.bThisbyear,bhowever,bJakebpurchasedb500bbagsbofb
dogbfoodbfrombablocalbpetbfoodbcompanybatbanbaveragebcostbofb$45bperbbag.bUnderbwhatbcirc
umstancesbwouldbthebIRSblikelybchallengebthebcostbofbJake’sbdogbfoodbasbunreasonable?
Abcommonbtestbforbreasonablenessbisbwhetherbthebexpenditurebisbcomparablebtobanbarm'sblen
gthbamountb–
babpricebchargedbbybobjectiveb(unrelated)bindividualsbwhobdobnotbreceivebanybincidentalbpers
onalbbenefits.bHence,bthebIRSbisbmostblikelybtobchallengebthebcostbofbthebdogbfoodbifbJake’sbrel
ativesbcontrolborbownbtheblocalbpetbfoodbcompanybandbwasbbenefitingbfrombthebincreasedbpric
e.
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 1
mynursytest.store
,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilker
b b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
5. [LOb2]bWhatbkindsbofbdeductionsbarebprohibitedbasbabmatterbofbpublicbpolicy? bWhybmightbC
ongressbdeembitbimportantbtobdisallowbdeductionsbforbexpendituresbthatbarebagainstbpublicbpo
licy?
ThebCodeblistsbbribes,bkickbacks,bandb“other”billegalbpaymentsbasbnondeductible.bCongressb
didn’tbwantbthebtaxbbenefitsbassociatedbwithbdeductionsbtobbenefitborbsubsidizebwrongdoing.b
Ofbcourse,bthisbrationalebdoesn’tbreallybexplainbthebprohibitionbagainstbdeductingbpoliticalbc
ontributionsbwhichbisbprobablybbetterbexplainedbbybthebpotentialbperceptionbthatbpoliticalbeff
ortsbarebbeingbsubsidizedbbybtaxpayers.
6. [LOb2]bProvidebanbexamplebofbanbexpensebassociatedbwithbthebproductionbofbtax-
exemptbincome,bandbexplainbwhatbmightbhappenbifbCongressbrepealedbthebprohibitionbaga
instbdeductingbexpensesbincurredbtobproducebtax-exemptbincome.
Twobcommonbexamplesbarebinterestbexpensebassociatedbwithbdebtbusedbtobpurchasebmunicip
albbondsbandblifebinsurancebpremiumsbpaidbonbkeybmanbinsurance.bIfbthisbprohibitionbwerebr
epealed,bthenbtaxpayersbwouldbhavebanbincentivebtobborrowbtobinvestbinbmunicipalbbondsborb
borrowbtobinvestbinbemployeeblifebinsurance.bThisbformerbpracticebwouldbleadbtobhigherbdem
andbforbmunicipalbbondsb(lessbyield)bandblessbrevenuebforbthebgovernment.bTheblatterbpractic
ebwouldbleadbtobhigherbdemandbforbinsuranceb(higherbpremiums?)bandblessbrevenuebforbthebg
overnment.bBothbpracticesbcouldbleadbtobabperceptionbofbinequitybbetweenbthosebtaxpayersba
blebtobutilizebthebtaxbarbitragebtobreducebtaxesbandbthosebwhobcouldbnotbusebthebpractice.
7. [LOb2]b{Research}bPeggybisbabrodeobclown,bandbthisbyearbshebexpendedb$1,000bonbspecialb“
funny”bclothesbandboutfits.bPeggybwouldblikebtobdeductbthebcostbofbthesebclothesbasbwork-
brelatedbbecausebshebrefusesbtobwearbthebclothesbunlessbshebisbworking.bUnderbwhatbcircums
tancesbcanbPeggybdeductbthebcostbofbherbclownbclothes?
Taxpayersbmaybdeductbthebcostbofbuniformsborbspecialbclothingbtheybusebinbtheirbbusinessbwhe
nbthebclothingbisbnotbappropriatebtobwearbasbordinarybclothingboutsidebthebplacebofbbusiness.b
InbPeggy’sbcase,bthebclownbclothesbarebanalogousbtobspecialbuniformsborbprotectivebgarment
sbandbcouldbbebdeductible.bSeebD.bTechner,bTCbMemob1997-
498.bErhardbSeminarbTraining,bTCbMemob1986-
526bprovidesbanbexamplebofbclothesbthatbwerebnotbdeductiblebbecausebtheybwerebappropriateb
forbnormalbwear.bHowever,bthebcostbofbclothingbwouldbnotblikelybbebdeductiblebifbthebclothesb
werebunacceptablebsolelybbecausebofbthebtaxpayer’sbsensebofbfashion.
8. [LOb2]bJimmybisbabsolebproprietorbofbabsmallbdry-
cleaningbbusiness.bThisbmonthbJimmybpaidbforbhisbgroceriesbbybwritingbchecksbfrombthebc
heckingbaccountbdedicatedbtobthebdry-
bcleaningbbusiness.bWhybdobyoubsupposebJimmybisbusingbhisbbusiness bcheckingbaccount bra
therbthanbhisbpersonalbcheckingbaccountbtobpaybforbpersonalbexpenditures?
Jimmybmightbbebtryingbtobreducebhisbbankbchargesbbybusingbonebaccountbforbbothbpersonalba
ndbbusinessbexpenditures,bbutbhebcouldbalsobbebtryingbtobdisguisebpersonalbexpendituresbas
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 2
mynursytest.store
,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilkerb b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
businessbexpenses.bBybcomminglingbbusinessbandbpersonalbexpenditures,bJimmybwillbneedbto
bseparatebpersonalbandbbusinessbexpendituresbbeforebclaimingbanybbusinessbdeductions.
9. [LOb2]bTroyboperatesbanbeditorialbservicebthatboftenbentertainsbprospectivebauthorsbtobencour
agebthembtobusebTroy'sbservice.bThisbyearbTroybpaidb$3,000bforbthebcostbofbmealsband
$6,200bforbthebcostbofbentertainingbauthors.bDescribebthebconditionsbunderbwhichbTroybcanbde
ductbabportionbofbthebcostbofbthebmealsbasbabbusinessbexpense.
Tobdeductb100bpercentbofbthebcostbofbmealsbasbabbusinessbexpense,bthebmealsbmustbbebordinar
ybandbnecessarybtobTroy’sbbusiness,bprovidedbbybabrestaurant,bandbthebamountbmustbbebreaso
nablebunderbthebcircumstances.bInbaddition,bTroyborbanbemployeebmustbbebpresentbwhenbtheb
mealbisbfurnished,bandbthebmealbmustbbebfurnishedbtobanbactualborbpotentialbbusinessbassociat
e.bFinally,bthebcostbofbthebmealsbmustbbebseparatelybstatedb(bybinvoice)bfrombthebcostbofbtheben
tertainmentb(thebcostbofbthebentertainmentbisbnotbdeductible).bIfbthebmealsbandbbeveragesbareb
notbprovidedbbybabrestaurant,bthenbonlyb50bpercentbisbdeductibleb(assumingballbofbthebotherbre
quirementsbarebmet).
10. [LOb2]bSusmitabpurchasedbabcarbthisbyearbandbusesbitbforbbothbbusinessbandbpersonalbpurp
oses.bSusmitabdrovebthebcarb11,000bmilesbonbbusinessbtripsbandb9,000bmilesbforbpersonalbt
ransportation.bDescribebhowbSusmitabwillbdeterminebthebamountbofbdeductiblebexpensesb
associatedbwithbthebauto.
Becausebonlybthebexpensebrelatingbtobbusinessbusebisbdeductible,bthebtaxpayerbmustballocatebt
hebexpensesbbetweenbthebbusinessbandbpersonalbusebportions.bAbcommonbmethodbofballocatio
nbisbrelativebuse.bInbthisbinstance,bSusmitabwouldbcalculatebthebbusinessbportionbbasedbuponbt
hebratiobofbbusinessbmilesbtobtotalbmilesb(11/20borb55bpercent).bShebwouldbthenbdeductbthebcos
tsbofboperatingbthebvehiclebforbbusinessbpurposesbplusbdepreciationbonbthebbusinessbportionb(
55bpercent)bofbthebvehicle’sbtaxbbasis.bAlternatively,binblieubofbdeductingbthesebcosts,bSusmitab
maybelectbtobdeductbabstandardbamountbforbeachbbusinessbmilebshebdrives.bThebstandardbmile
agebrateb(58.5bcentsbperbmilebforbthebfirstbsixbmonthsbofb2022bandb62.6bcentsbforbthebfinalbsixbm
onths)brepresentsbthebper-
milebcostbofboperatingbanbautomobileb(includingbdepreciationborbleasebpayments).bOncebSus
mitabhasbmadebthisbelection,bshebmustbcontinuebtobusebitbthroughoutbtheblifebofbthebauto.
11. [LOb1,bLOb2]bWhatbexpensesbarebdeductiblebwhenbabtaxpayerbcombinesbbothbbusinessbandbp
ersonalbactivitiesbonbabtrip?bHowbdobthebrulesbforbinternationalbtravelbdifferbfrombthebrulesbfo
rbdomesticbtravel?
Ifbthebtaxpayerbhasbbothbbusinessbandbpersonalbmotivesbforbabtrip,bbutbthebprimaryborbdomina
ntbmotivebisbbusiness,bthebtaxpayerbmaybdeductbthebtransportationbcostsbtobgetbtobthebplacebofb
business,bbutbshebmaybdeductbonlybmealsb(50%borb100%bifbprovidedbbybabrestaurant),blodgin
g,btransportationbonbsite,bandbincidentalbexpendituresbforbthebbusinessbportionbofbthebtravel.b
Ifbthebtaxpayer’sbprimarybpurposebforbthebtripbisbpersonal,bthebtaxpayerbmaybnotbdeductbtrans
portationbcostsbtobtravelbtobandbfrombtheblocation,bbutbthebtaxpayerbmaybdeductbmealsb(50%b
orb100%bifbprovidedbbybabrestaurant),blodging,btransportation,bandbincidentalbexpendituresbf
orbthebbusinessbportionbofbthebtrip.bFor
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 3
mynursytest.store
, ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilker b b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
internationalbtravelbinbexcessbofbonebweek,bthebtaxpayerbmustballocatebthebcostbofbthebtranspo
rtationbbetweenbpersonalb(nondeductible)bandbbusinessb(deductible)bactivities.bTaxpayersbge
nerallybdeterminebthebnondeductiblebportionbofbthebtransportationbcostsbbybmultiplyingbthebtr
avelbcostsbbybabratiobofbpersonalbactivitybdaysbtobtotalbdaysbtravelling.bFinally,brememberbtha
tbtravelbdaysbarebconsideredbbusinessbactivitybdaysbforbbothbdomesticbandbinternationalbtravel
.
12. [LOb2]bClydeblivesbandboperatesbabsolebproprietorshipbinbDallas,bTexas.bThisbyearbClydebf
oundbitbnecessarybtobtravelbtobFortbWorthb(aboutb25bmilesbaway)bforblegitimatebbusinessbre
asons.bIsbClyde’sbtripblikelybtobqualifybasb“awaybfrombhome,”bandbwhybwouldbthisbdesign
ationbmatter?
Besidesbthebcostbofbtransportation,bthebdeductionbforbtravelbexpensesbincludesbmealsb(50%bor
b100%bifbprovidedbbybabrestaurant),blodging,bandbincidentalbexpenses.bHowever,btravelbexpen
sesbarebonlybdeductiblebifbthebtaxpayerbisbawaybfrombhomebovernightbwhilebtraveling.bForbthis
bpurpose,babtaxpayerbisbconsideredbtobbebawaybfrombhomebovernightbifbthebtripbisbofbsufficientb
durationbtobrequirebsleepborbrest.bIt’sblikelybthatbClyde’sbtripbwillbnotbsatisfybthisbconditionban
dbthatbhebwillbnotbbebablebtobdeductbcostsbforbmealsbandblodging.
13. [LOb2]bDescribebthebrecord-
keepingbrequirementsbforbdeductingbbusinessbexpenses,bincludingbmixed-
motivebexpenditures.
Taxpayersbmustbkeepbspecific,bwritten,bcontemporaneousbrecordsbofbtime,bamountbofbthebexpe
nditure,bandbbusinessbpurposebofbthebtravel.bNobdeductionsbareballowedbabsentbsufficientbrec
ordsbtobdocumentbbusinessbpurpose.bRecordsbofbthebexpenditurebamount,bhowever,bmaybnotbb
ebnecessarybifbthebtaxpayerbclaimsbperbdiembamounts.
14. [LOb2]bDescribebthebcomputationbofbtheblimitbplacedbonbthebbusinessbinterestbdeduction.bIsbt
hebdisallowedbbusinessbinterestbeverbdeductible?
Thebdeductionbofbbusinessbinterestbexpensebisblimitedbtobthebsumbofbbusinessbinterestbincomebp
lusb30bpercentbofbthebbusiness'sbadjustedbtaxablebincome.bBusinessbinterestbisbdefinedbasbanybi
nterestbpaidbonbdebtballocablebtobabtradeborbbusinessbactivity,bandbadjustedbtaxablebincomebis
btaxablebincomeballocablebtobthebbusinessbactivitybcomputedbbeforebdeductions bforbinterestbex
pensebandbnetboperatingblossbcarryovers.bDisallowedbbusinessbinterestbcanbbebcarriedbforwa
rdbindefinitely.
15. [LOb2]bDescribebthebgrossbreceiptsbtestbandbidentifybhowbthisbtestbrelatesbtobthebbusinessbi
nterestbdeduction.
Thebgrossbreceiptsbtestbisbanbannualbtestbdesignedbtobidentifybsmallbbusinessesbthatb Congressb
intendedbtobexemptbfrombsomebofbthebmorebcomplexbandbonerousbprovisionsbofbtheblaw,bsuchba
sbthebbusinessbinterestbdeduction.bAsbthebnamebimplies,bsizebisbmeasuredbbybwhetherbaverageb
grossbreceiptsbexceedsbabthresholdbamount,bandbbusinessesbwhosebgrossbreceiptsbdobnotbexce
edbthebthresholdbinbanybtaxbyearbarebnotbsubjectbtobthisblimitationbinbthatbyear.bThisbamountbw
asboriginallybsetbatb$25bmillion,bbutbsincebitbisbindexedbforbinflation,bthebamountbinb2022bisbsetb
atb$27bmillion.bThebaveragebgrossbreceiptsbisbdeterminedbusingbthe
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 4
mynursytest.store
b b b b b b b b b b b
n 14th Edition Spilker
b b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
Chapter 1 Busi b b
ness Income, Deductions, and Accounting Methods
b b b b b
SOLUTIONS MANUAL b
Discussion Questions b
1. [LOb1]bWhatbisbanb“ordinarybandbnecessary”bbusinessbexpenditure?
“Ordinary”bandb“necessary”bimplybthatbanbexpensebmustbbebcustomarybandbhelpful,brespect
ively.bBecausebthesebtermsbarebsubjective,bthebtestsbarebambiguous.bHowever,bordinarybisbint
erpretedbbybthebcourtsbasbincludingbexpensesbwhichbmaybbebunusualbforbabspecificbtaxpayerb(
butbnotbunusualbforbthatbtypebofbbusiness)bandbnecessarybisbnotbinterpretedbasbonlybessentialbe
xpenses.bTheseblimitsbcanbbebcontrastedbwithbthebreasonableblimitbonbamountsbandbthebbonabfi
debrequirementbforbprofitbmotivation.
2. [LOb1]bExplainbhowbcostbofbgoodsbisbtreatedbwhenbabbusinessbsellsbinventory.
Underbthebreturnbofbcapitalbprinciple,bcostbofbgoodsbsoldbrepresentsbabreductionbinbgrossbinco
mebratherbthanbabbusinessbexpense.bForbexample,bifbabtaxpayerbsellsbinventorybfor
$100,000bandbreportsbabcostbofbgoodsbsoldbofb$40,000,bthebbusiness’sbgrossbincomebis
$60,000b($100,000b–b40,000)bnotb$100,000.
3. [LOb1]bWhetherbabbusinessbexpensebisb“reasonablebinbamount”bisboftenbabdifficultbquestion.b
Explainbwhybdeterminingbreasonablenessbisbdifficultbandbdescribebabcircumstancebwherebrea
sonablenessbisblikelybtobbebquestionedbbybthebIRS.
Reasonablenessbisbanbissuebofbfactbandbcircumstance,bandbextravagancebisbdifficultbtobdeterm
inebbecausebofbthebsubjectivitybandbmultitudebofbfactorsbinvolvedbinbdeterminingbprice.bReaso
nablenessbisbmostblikelybtobbebanbissuebwhenbabpaymentbisbmadebtobabrelatedbindividualborbtheb
taxpayerbenjoysbsomebpersonalbbenefitbincidentalbtobthebexpenditure.
4. [LOb1]bJakebisbabprofessionalbdogbtrainerbwhobpurchasesbandbtrainsbdogsbforbusebbyblawbenf
orcementbagencies.bLastbyearbJakebpurchasedb500bbagsbofbdogbfoodbfrombablargebpetbfoodbc
ompanybatbanbaveragebcostbofb$30bperbbag.bThisbyear,bhowever,bJakebpurchasedb500bbagsbofb
dogbfoodbfrombablocalbpetbfoodbcompanybatbanbaveragebcostbofb$45bperbbag.bUnderbwhatbcirc
umstancesbwouldbthebIRSblikelybchallengebthebcostbofbJake’sbdogbfoodbasbunreasonable?
Abcommonbtestbforbreasonablenessbisbwhetherbthebexpenditurebisbcomparablebtobanbarm'sblen
gthbamountb–
babpricebchargedbbybobjectiveb(unrelated)bindividualsbwhobdobnotbreceivebanybincidentalbpers
onalbbenefits.bHence,bthebIRSbisbmostblikelybtobchallengebthebcostbofbthebdogbfoodbifbJake’sbrel
ativesbcontrolborbownbtheblocalbpetbfoodbcompanybandbwasbbenefitingbfrombthebincreasedbpric
e.
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 1
mynursytest.store
,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilker
b b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
5. [LOb2]bWhatbkindsbofbdeductionsbarebprohibitedbasbabmatterbofbpublicbpolicy? bWhybmightbC
ongressbdeembitbimportantbtobdisallowbdeductionsbforbexpendituresbthatbarebagainstbpublicbpo
licy?
ThebCodeblistsbbribes,bkickbacks,bandb“other”billegalbpaymentsbasbnondeductible.bCongressb
didn’tbwantbthebtaxbbenefitsbassociatedbwithbdeductionsbtobbenefitborbsubsidizebwrongdoing.b
Ofbcourse,bthisbrationalebdoesn’tbreallybexplainbthebprohibitionbagainstbdeductingbpoliticalbc
ontributionsbwhichbisbprobablybbetterbexplainedbbybthebpotentialbperceptionbthatbpoliticalbeff
ortsbarebbeingbsubsidizedbbybtaxpayers.
6. [LOb2]bProvidebanbexamplebofbanbexpensebassociatedbwithbthebproductionbofbtax-
exemptbincome,bandbexplainbwhatbmightbhappenbifbCongressbrepealedbthebprohibitionbaga
instbdeductingbexpensesbincurredbtobproducebtax-exemptbincome.
Twobcommonbexamplesbarebinterestbexpensebassociatedbwithbdebtbusedbtobpurchasebmunicip
albbondsbandblifebinsurancebpremiumsbpaidbonbkeybmanbinsurance.bIfbthisbprohibitionbwerebr
epealed,bthenbtaxpayersbwouldbhavebanbincentivebtobborrowbtobinvestbinbmunicipalbbondsborb
borrowbtobinvestbinbemployeeblifebinsurance.bThisbformerbpracticebwouldbleadbtobhigherbdem
andbforbmunicipalbbondsb(lessbyield)bandblessbrevenuebforbthebgovernment.bTheblatterbpractic
ebwouldbleadbtobhigherbdemandbforbinsuranceb(higherbpremiums?)bandblessbrevenuebforbthebg
overnment.bBothbpracticesbcouldbleadbtobabperceptionbofbinequitybbetweenbthosebtaxpayersba
blebtobutilizebthebtaxbarbitragebtobreducebtaxesbandbthosebwhobcouldbnotbusebthebpractice.
7. [LOb2]b{Research}bPeggybisbabrodeobclown,bandbthisbyearbshebexpendedb$1,000bonbspecialb“
funny”bclothesbandboutfits.bPeggybwouldblikebtobdeductbthebcostbofbthesebclothesbasbwork-
brelatedbbecausebshebrefusesbtobwearbthebclothesbunlessbshebisbworking.bUnderbwhatbcircums
tancesbcanbPeggybdeductbthebcostbofbherbclownbclothes?
Taxpayersbmaybdeductbthebcostbofbuniformsborbspecialbclothingbtheybusebinbtheirbbusinessbwhe
nbthebclothingbisbnotbappropriatebtobwearbasbordinarybclothingboutsidebthebplacebofbbusiness.b
InbPeggy’sbcase,bthebclownbclothesbarebanalogousbtobspecialbuniformsborbprotectivebgarment
sbandbcouldbbebdeductible.bSeebD.bTechner,bTCbMemob1997-
498.bErhardbSeminarbTraining,bTCbMemob1986-
526bprovidesbanbexamplebofbclothesbthatbwerebnotbdeductiblebbecausebtheybwerebappropriateb
forbnormalbwear.bHowever,bthebcostbofbclothingbwouldbnotblikelybbebdeductiblebifbthebclothesb
werebunacceptablebsolelybbecausebofbthebtaxpayer’sbsensebofbfashion.
8. [LOb2]bJimmybisbabsolebproprietorbofbabsmallbdry-
cleaningbbusiness.bThisbmonthbJimmybpaidbforbhisbgroceriesbbybwritingbchecksbfrombthebc
heckingbaccountbdedicatedbtobthebdry-
bcleaningbbusiness.bWhybdobyoubsupposebJimmybisbusingbhisbbusiness bcheckingbaccount bra
therbthanbhisbpersonalbcheckingbaccountbtobpaybforbpersonalbexpenditures?
Jimmybmightbbebtryingbtobreducebhisbbankbchargesbbybusingbonebaccountbforbbothbpersonalba
ndbbusinessbexpenditures,bbutbhebcouldbalsobbebtryingbtobdisguisebpersonalbexpendituresbas
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 2
mynursytest.store
,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilkerb b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
businessbexpenses.bBybcomminglingbbusinessbandbpersonalbexpenditures,bJimmybwillbneedbto
bseparatebpersonalbandbbusinessbexpendituresbbeforebclaimingbanybbusinessbdeductions.
9. [LOb2]bTroyboperatesbanbeditorialbservicebthatboftenbentertainsbprospectivebauthorsbtobencour
agebthembtobusebTroy'sbservice.bThisbyearbTroybpaidb$3,000bforbthebcostbofbmealsband
$6,200bforbthebcostbofbentertainingbauthors.bDescribebthebconditionsbunderbwhichbTroybcanbde
ductbabportionbofbthebcostbofbthebmealsbasbabbusinessbexpense.
Tobdeductb100bpercentbofbthebcostbofbmealsbasbabbusinessbexpense,bthebmealsbmustbbebordinar
ybandbnecessarybtobTroy’sbbusiness,bprovidedbbybabrestaurant,bandbthebamountbmustbbebreaso
nablebunderbthebcircumstances.bInbaddition,bTroyborbanbemployeebmustbbebpresentbwhenbtheb
mealbisbfurnished,bandbthebmealbmustbbebfurnishedbtobanbactualborbpotentialbbusinessbassociat
e.bFinally,bthebcostbofbthebmealsbmustbbebseparatelybstatedb(bybinvoice)bfrombthebcostbofbtheben
tertainmentb(thebcostbofbthebentertainmentbisbnotbdeductible).bIfbthebmealsbandbbeveragesbareb
notbprovidedbbybabrestaurant,bthenbonlyb50bpercentbisbdeductibleb(assumingballbofbthebotherbre
quirementsbarebmet).
10. [LOb2]bSusmitabpurchasedbabcarbthisbyearbandbusesbitbforbbothbbusinessbandbpersonalbpurp
oses.bSusmitabdrovebthebcarb11,000bmilesbonbbusinessbtripsbandb9,000bmilesbforbpersonalbt
ransportation.bDescribebhowbSusmitabwillbdeterminebthebamountbofbdeductiblebexpensesb
associatedbwithbthebauto.
Becausebonlybthebexpensebrelatingbtobbusinessbusebisbdeductible,bthebtaxpayerbmustballocatebt
hebexpensesbbetweenbthebbusinessbandbpersonalbusebportions.bAbcommonbmethodbofballocatio
nbisbrelativebuse.bInbthisbinstance,bSusmitabwouldbcalculatebthebbusinessbportionbbasedbuponbt
hebratiobofbbusinessbmilesbtobtotalbmilesb(11/20borb55bpercent).bShebwouldbthenbdeductbthebcos
tsbofboperatingbthebvehiclebforbbusinessbpurposesbplusbdepreciationbonbthebbusinessbportionb(
55bpercent)bofbthebvehicle’sbtaxbbasis.bAlternatively,binblieubofbdeductingbthesebcosts,bSusmitab
maybelectbtobdeductbabstandardbamountbforbeachbbusinessbmilebshebdrives.bThebstandardbmile
agebrateb(58.5bcentsbperbmilebforbthebfirstbsixbmonthsbofb2022bandb62.6bcentsbforbthebfinalbsixbm
onths)brepresentsbthebper-
milebcostbofboperatingbanbautomobileb(includingbdepreciationborbleasebpayments).bOncebSus
mitabhasbmadebthisbelection,bshebmustbcontinuebtobusebitbthroughoutbtheblifebofbthebauto.
11. [LOb1,bLOb2]bWhatbexpensesbarebdeductiblebwhenbabtaxpayerbcombinesbbothbbusinessbandbp
ersonalbactivitiesbonbabtrip?bHowbdobthebrulesbforbinternationalbtravelbdifferbfrombthebrulesbfo
rbdomesticbtravel?
Ifbthebtaxpayerbhasbbothbbusinessbandbpersonalbmotivesbforbabtrip,bbutbthebprimaryborbdomina
ntbmotivebisbbusiness,bthebtaxpayerbmaybdeductbthebtransportationbcostsbtobgetbtobthebplacebofb
business,bbutbshebmaybdeductbonlybmealsb(50%borb100%bifbprovidedbbybabrestaurant),blodgin
g,btransportationbonbsite,bandbincidentalbexpendituresbforbthebbusinessbportionbofbthebtravel.b
Ifbthebtaxpayer’sbprimarybpurposebforbthebtripbisbpersonal,bthebtaxpayerbmaybnotbdeductbtrans
portationbcostsbtobtravelbtobandbfrombtheblocation,bbutbthebtaxpayerbmaybdeductbmealsb(50%b
orb100%bifbprovidedbbybabrestaurant),blodging,btransportation,bandbincidentalbexpendituresbf
orbthebbusinessbportionbofbthebtrip.bFor
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 3
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, ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
b b b b b b b b b b b
n 14th Edition Spilker b b b
SolutionsbManual—TaxationbofbBusinessbEntities,bbybSpilkerbetbal.
internationalbtravelbinbexcessbofbonebweek,bthebtaxpayerbmustballocatebthebcostbofbthebtranspo
rtationbbetweenbpersonalb(nondeductible)bandbbusinessb(deductible)bactivities.bTaxpayersbge
nerallybdeterminebthebnondeductiblebportionbofbthebtransportationbcostsbbybmultiplyingbthebtr
avelbcostsbbybabratiobofbpersonalbactivitybdaysbtobtotalbdaysbtravelling.bFinally,brememberbtha
tbtravelbdaysbarebconsideredbbusinessbactivitybdaysbforbbothbdomesticbandbinternationalbtravel
.
12. [LOb2]bClydeblivesbandboperatesbabsolebproprietorshipbinbDallas,bTexas.bThisbyearbClydebf
oundbitbnecessarybtobtravelbtobFortbWorthb(aboutb25bmilesbaway)bforblegitimatebbusinessbre
asons.bIsbClyde’sbtripblikelybtobqualifybasb“awaybfrombhome,”bandbwhybwouldbthisbdesign
ationbmatter?
Besidesbthebcostbofbtransportation,bthebdeductionbforbtravelbexpensesbincludesbmealsb(50%bor
b100%bifbprovidedbbybabrestaurant),blodging,bandbincidentalbexpenses.bHowever,btravelbexpen
sesbarebonlybdeductiblebifbthebtaxpayerbisbawaybfrombhomebovernightbwhilebtraveling.bForbthis
bpurpose,babtaxpayerbisbconsideredbtobbebawaybfrombhomebovernightbifbthebtripbisbofbsufficientb
durationbtobrequirebsleepborbrest.bIt’sblikelybthatbClyde’sbtripbwillbnotbsatisfybthisbconditionban
dbthatbhebwillbnotbbebablebtobdeductbcostsbforbmealsbandblodging.
13. [LOb2]bDescribebthebrecord-
keepingbrequirementsbforbdeductingbbusinessbexpenses,bincludingbmixed-
motivebexpenditures.
Taxpayersbmustbkeepbspecific,bwritten,bcontemporaneousbrecordsbofbtime,bamountbofbthebexpe
nditure,bandbbusinessbpurposebofbthebtravel.bNobdeductionsbareballowedbabsentbsufficientbrec
ordsbtobdocumentbbusinessbpurpose.bRecordsbofbthebexpenditurebamount,bhowever,bmaybnotbb
ebnecessarybifbthebtaxpayerbclaimsbperbdiembamounts.
14. [LOb2]bDescribebthebcomputationbofbtheblimitbplacedbonbthebbusinessbinterestbdeduction.bIsbt
hebdisallowedbbusinessbinterestbeverbdeductible?
Thebdeductionbofbbusinessbinterestbexpensebisblimitedbtobthebsumbofbbusinessbinterestbincomebp
lusb30bpercentbofbthebbusiness'sbadjustedbtaxablebincome.bBusinessbinterestbisbdefinedbasbanybi
nterestbpaidbonbdebtballocablebtobabtradeborbbusinessbactivity,bandbadjustedbtaxablebincomebis
btaxablebincomeballocablebtobthebbusinessbactivitybcomputedbbeforebdeductions bforbinterestbex
pensebandbnetboperatingblossbcarryovers.bDisallowedbbusinessbinterestbcanbbebcarriedbforwa
rdbindefinitely.
15. [LOb2]bDescribebthebgrossbreceiptsbtestbandbidentifybhowbthisbtestbrelatesbtobthebbusinessbi
nterestbdeduction.
Thebgrossbreceiptsbtestbisbanbannualbtestbdesignedbtobidentifybsmallbbusinessesbthatb Congressb
intendedbtobexemptbfrombsomebofbthebmorebcomplexbandbonerousbprovisionsbofbtheblaw,bsuchba
sbthebbusinessbinterestbdeduction.bAsbthebnamebimplies,bsizebisbmeasuredbbybwhetherbaverageb
grossbreceiptsbexceedsbabthresholdbamount,bandbbusinessesbwhosebgrossbreceiptsbdobnotbexce
edbthebthresholdbinbanybtaxbyearbarebnotbsubjectbtobthisblimitationbinbthatbyear.bThisbamountbw
asboriginallybsetbatb$25bmillion,bbutbsincebitbisbindexedbforbinflation,bthebamountbinb2022bisbsetb
atb$27bmillion.bThebaveragebgrossbreceiptsbisbdeterminedbusingbthe
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLLC. 4
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