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Travel and Entertainment Expenses
Mrs. Kerrigan claimed a Schedule C deduction for travel and
entertainment expenses in the amount of $16,834.12. Respondent
allowed a deduction of $177.
Mrs. Kerrigan claimed expenses in 1985 for 259 meals for a
total cost of $6,931. Petitioners argue that these meals were
consumed during meetings Mrs. Kerrigan had with her business
clients and associates.
Section 274 disallows deductions for entertainment expenses
unless the taxpayer is able to establish that the item is related
to, or associated with, the active conduct of his or her trade or
business. Sec. 274(a)(1)(A). At the same time, section 274(d)
imposes substantiation requirements for these deductions which
are even more exacting than the requirements under section 162
for ordinary and necessary business expense deductions. A
taxpayer generally must substantiate each expenditure by
producing adequate records or sufficient evidence to corroborate
his or her own statements. Sec. 1.274-5(c)(1), Income Tax Regs.
The "adequate records" standard, in turn, requires that a
taxpayer maintain an account book, which contains contemporaneous
entries which clearly indicates the requisite business purpose.
Sec. 1.274-5(c)(2)(i) and (ii), Income Tax Regs. In addition, a
taxpayer must generally supply documentary evidence, such as
receipts or paid bills. Sec. 1.274-5(c)(2)(iii), Income Tax
Regs. Alternatively, taxpayers who are unable to satisfy the
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