Discuss whether the following expenditures meet the ordinary, necessary, and reasonable requirements:
a. The Brisbane Corporation is being sued in connection with allegations that it produced a faulty product. Brisbane has hired an expert witness to testify that the product was not faulty. The expert’s standard fee is $200 per day plus expenses.
Brisbane has agreed to pay her standard fee plus expenses and a bonus of $5,000 if the company wins the lawsuit.
b. Shannon is a professor who teaches film study at Burwood College. Her annual salary is $45,000. She maintains an extensive library of films and books at her home. During the year, she spends $15,000 on new material for her library. Most of the material is available at the university library.
c. Francis operates a video store and rents the building from his aunt Shirley, who acquired it last year. He paid the previous owner $600 a month in rent. When Francis’s lease expires, his aunt increases the rent to $750. Rent for a comparable building in the area is $850.
d. Max owns a dairy farm in Wisconsin. During the year, he makes 10 phone calls to his sister Ruby, who is an accountant. The calls, which total $150, are for financial and business advice. Ruby prepares Max’s business and personal tax returns.