Masonry Magazine October 1963 Page. 10
Questions and Answers
FOR THE BUSINESSMAN
Travel, Entertainment, and Gift Expenses
The purpose of this Revenue Ruling is to answer a series of questions relating to the provisions of the income tax regulations promulgated under section 274 (except for subsection (d) thereof) of the Internal Revenue Code of 1954, added by the Revenue Act of 1962. Each question is designed to present, in relatively simple terms, a point of law of general interest to taxpayers, and individual questions should be read in the context of other questions and answers which follow or precede.
This month's MASONRY continues the Question & Answer series relating to provisions of the income tax regulations. If you did not receive the September issue with the first 26 Q & A's write to MASONRY and we'll send a copy to you.
# Question 27
Question: If a taxpayer entertains a business customer under circumstances where the cost of entertaining the customer is an ordinary and necessary business expense and is not disallowed under the new rules, and the customer's wife joins the taxpayer and the customer during the entertainment because it is impracticable under the circumstances to entertain the customer without his wife, is the cost of entertaining the customer's wife deductible as an ordinary and necessary business expense?
Answer: Yes. Such a case might arise, for example, if the customer was from out-of-town and had his wife traveling with him.
# Question 28
Question: Assuming the same facts as in the preceding question and answer, but, in addition the taxpayer's wife joins them during the entertainment because the customer's wife was present, would the cost of entertainment allocable to the taxpayer's wife be considered an ordinary and necessary expense?
Answer: Yes.
# Question 29
Question: Are the travel expenses of a taxpayer's wife deductible if they are ordinary and necessary business expenses as under prior law?
Answer: Yes. However, regulations under prior law which are still in effect provide that "Where a taxpayer's wife accompanies him on a business trip, expenses attributable to her travel are not deductible unless it can be adequately shown that the wife's presence on the trip has a bona fide business purpose. The wife's performance of some incidental service does not cause her expenses to qualify as deductible business expenses."
# Question 30
Question: Are travel expenses for a taxpayer's wife who accompanies him on a business trip in order to assist him in entertaining business associates at the destination generally considered ordinary and necessary business expenses?
Answer: Generally not. When this question has been presented to the courts under prior law, the courts have generally found that the wife's travel to perform such duties, even though helpful to the taxpayer's business, is not necessary within the meaning of the statute.
Personal Portion of Business Meals
# Question 31
Question: Several of these questions and answers refer to the cost of a taxpayer entertaining a business customer at lunch or dinner. To what extent is the cost of taxpayer's own meal deductible?
Answer: Judicial decisions under established applying the statutory rules that deductions are not allo for personal expenses, hold that a taxpayer cannot ob a deduction for the portion of his meal cost which c not exceed an amount he would normally spend on him. The Internal Revenue Service practice has been to an this rule largely to abuse cases where taxpayers claim ductions for substantial amounts of personal living penses. The Service does not intend to depart from this practice.
Conventions
# Question 32
Question: How is entertaining at a convention affected by the new rules?
Answer: Generally, expenses incurred directly before or after officially scheduled meetings at a bona convention for entertainment of others attending the convention are not disallowed by the new rules, provided expenses qualify as ordinary and necessary business penses deductible under prior law.
Directly Related Entertainment
# Question 33
Question: How would a taxpayer show that er tainment is directly related to the active conduct of business?
Answer: Generally, a taxpayer must show that he had more than a general expectation of deriving incc or other specific business benefit (other than the gooc of the person entertained), at some indefinite future t (2) he did engage in business during the entertainm period; and (3) the principal character or aspect of combined business and entertainment was the transac of business.
# Question 34
Question: Is it necessary that income actually re from each and every entertainment expenditure for w a deduction is claimed?
Answer: No.
# Question 35
Question: How do you determine that the princ character or aspect of the combined business and er tainment was the transaction of business?
Answer: All the facts will be considered, inclu the nature of the business transacted during the enter ment and the reasons for conducting business durir period of entertainment. A business discussion whic only incidental in relation to the entertainment does not qualify. However, it is not necessarily required that time be devoted to business than to entertainment.