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recipient employee’s gross income. Sec. 1.162-25T, Temporary
Income Tax Regs., 50 Fed. Reg. 755 (Jan. 7, 1985), amended 50
Fed. Reg. 46013 (Nov. 6, 1985); see sec. 1.61-21(b), Income Tax
Regs. (employee is required to include in gross income the value
of any fringe benefit received). The employer may not deduct the
value reported to an employee as compensation; rather, the
employer is required to deduct its costs incurred in providing
the benefit to the employee. Sec. 1.162-25T, Temporary Income
Tax Regs., supra.
Some deductions previously allowable under section 162 were
disallowed by the enactment of section 274. Section 274(a)(1)(A)
generally provides for the disallowance of deductions involving
an entertainment, amusement, or recreation activity. Section
274(a)(1)(B) disallows the deduction of otherwise allowable
expenses incurred with respect to a facility used in connection
with such activity. However, section 274(e)(2) provides that the
general disallowance provision of section 274(a) will not apply
to:
Expenses treated as compensation.--Expenses for goods,
services, and facilities, to the extent that the
expenses are treated by the taxpayer, with respect to
the recipient of the entertainment, amusement, or
recreation, as compensation to an employee on the
taxpayer’s return of tax under this chapter and as
wages to such employee for purposes of chapter 24
(relating to withholding of income tax at source on
wages).
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Last modified: May 25, 2011