Amanda and KC both operate illegal businesses. Amanda operates a gambling business that involveshigh stakes poker games, and an exclusive clientele in the northeastern U.S. KC operates anunlicensed whisky distillery on her property in the Louisiana bayou and sells "under the counter" tobars in New Orleans. Both businesses have gross revenues of $500,000. The businesses incur thefollowing expenses.
|
|
Amanda
|
KC
|
|
|
$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 Amanda nor KC can deduct any of the above items in calculating the businessprofit.
b. Amanda should report profit from her business of $250,000.
c. KC should report profit from her business of $500,000.
d. KC should report profit from her business of $250,000.
e. None of the above.