O’Reilly Inc. considered the probability of its recent tax position taken related to the deductibility of certain expenses of $100,000. O’Reilly Inc. is more than 50% certain that its tax position supporting the deductibility of the $100,000 will hold if the company is audited by the taxing authorities. Based upon the information available, the company believes that it will have to settle with the taxing authorities for less than 100% of the $100,000 of tax deductions taken. As a result, O’Reilly Inc. recorded a liability of $10,000 in addition to income taxes payable of $280,000, which factored in $100,000 of deductions. O’Reilly Inc.’s tax rate is 25%.

In the following year, O’Reilly Inc. was audited by the taxing authorities and based upon the settlement, O’Reilly recorded income tax expense of $7,500.

What was the dollar amount of allowable deductions based upon the settlement?

$40,000

• $90,000
• $30,000
• $70,000
• $60,000
• None of the above