Terry and Jim Are Both Involved in Operating Illegal Businesses

question 94

Multiple Choice

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.
Terry
Jim
Employee salaries
$200,000
$200,000
Bribes to police
25,000
25,000
Rent and utilities
50,000
50,000
Cost of goods sold
-0-
125,000
Which of the following statements is correct?

• A)Neither Terry nor Jim can deduct any of the above items in calculating the business profit.
• B)Terry should report profit from his business of $250,000.
• C)Jim should report profit from his business of $500,000.
• D)Jim should report profit from his business of $250,000.
• E)None of the above.

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