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Test Bank for McGraw Hill’s Taxation of Business Entities 2024 Edition, 13th Edition, Brian Spilker, Benjamin Ayers, John Barrick, Troy Lewis, John Robinson, Connie Weaver, Ronald Worsham TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary." ⊚ true ⊚ false 2) Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits. ⊚ 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.