1. Sadie owns 5 shares of Megaconglomerate stock. She spent $4,000 to attend the annual shareholders’ meeting.

The expenditure of $4,000 to attend the shareholders’ meeting would not be considered ordinary, nor would it be reasonable.  It would not be ordinary because a prudent business person in the same situation would not make such a large expenditure on such a small investment.  In addition, it is likely that the $4,000 cost is greater than the amount invested, making it an unreasonable amount.

1. Sam runs a successful medical practice. Because he has a substantial investment portfolio, he spent $3,000 to attend a seminar on investing strategies.

The expenditure meets the ordinary, necessary, and reasonable test if Sam’s investment portfolio is large in relation to the expenditure.  However, the costs of attending seminars are deductible only if they are related to the trade or business of the taxpayer (discussed in Chapter 6).

1. Alana is a self-employed tax attorney. She spent $3,000 to attend the American Institute of Certified Public Accountants’ annual conference on income tax developments.

The cost of attending the seminar would meet the ordinary, necessary, and reasonable tests.  The purpose of the expenditure is directly related to Alana’s trade or business as a tax attorney and would be a deductible education expense.

1. Kevin owns a large ranching operation. He is deeply religious and feels it is important that his employees have access to religious counseling.  He hired an ordained minister to live on the ranch and be available to counsel his employees on any religious problems they might have.

The expenditure would not be considered ordinary because it is not a common business practice in the ranching business.  The necessity of the expenditure is also questionable because it does not directly benefit Kevin’s business.  The primary benefit is personal – Kevin gets the satisfaction of having a minister available for himself and his employees.