DB#$1$ Business Expense

$$Ordinary and necessary$$ business expenditure

$$Ordinary$$ and $$necessary$$ imply that an expense must be customary and helpful, respectively. Because these terms are subjective, the tests are ambiguous. However, "ordinary" is interpreted by the courts as including expenses which may be unusual for a specific taxpayer $($but not unusual for that type of business$)$ and "necessary" is not interpreted as only essential expenses. These limits can be contrasted with the reasonable limit on amounts and the bona fide requirement for profit motivation.

$1.$ Whether a business expense is $$reasonable in amount$$ is often a difficult question. Explain why determining reasonableness is difficult, and describe a circumstance where reasonableness is likely to be questioned by the IRS.

$2.$ Jake is a professional dog trainer who purchases and trains dogs for use by law enforcement agencies. Last year Jake purchased $500$ bags of dog food from a large pet food company at an average cost of $$30$ per bag. This year, however, Jake purchased $500$ bags of dog food from a local pet food company at an average cost of $$45$ per bag. Under what circumstances would the IRS likely challenge the cost of Jake$$s dog food as unreasonable?