Terry and jim are both involved in operating illegal businesses. terry operates a gambling business and jim operates a drug running business. both businesses have gross revenues of $500,000. the businesses incur the following expenses.
terry

jim

employee salaries

$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 and why (1-3 sentence justification)?

a.

neither terry nor jim can deduct any of the above items in calculating the business profit.

b.

terry should report profit from his business of $250,000.

c.

jim should report profit from his business of $500,000.

d.

jim should report profit from his business of $250,000.

e.

none of the above.