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unfairly permits taxpayers who can arrange business
settings for personal consumption to receive, in
effect, a Federal tax subsidy for such consumption that
is not available to other taxpayers. The taxpayers who
benefit from deductibility under present law tend to
have relatively high incomes, and in some cases the
consumption may bear only a loose relationship to
business necessity. For example, when executives have
dinner at an expensive restaurant following business
discussions and then deduct the cost of the meal, the
fact that there may be some bona fide business
connection does not alter the imbalance between the
treatment of those persons, who have effectively
transferred a portion of the cost of their meal to the
Federal Government, and other individuals, who cannot
deduct the cost of their meals.
The significance of this imbalance is heightened
by the fact that business travel and entertainment
often may be more lavish than comparable activities in
a nonbusiness setting. For example, meals at expensive
restaurants and season tickets for luxury boxes at
sporting events are purchased to a significant degree
by taxpayers who claim business deductions for these
expenses. This disparity is highly visible, and
contributes to public perceptions that the tax system
is unfair. Polls indicate that the public identifies
the deductibility of normal personal expenses such as
meals to be one of the most significant elements of
disrespect for and dissatisfaction with the present tax
system.
In light of these considerations, the committee
bill reduces by 20 percent the amount of otherwise
allowable deductions for business meals and
entertainment. This reduction rule reflects the fact
that meals and entertainment inherently involve an
element of personal living expenses * * *. [H. Rept.
99-426, supra at 120-121, 1986-3 C.B. (Vol. 2) at
120-121.]
See also S. Rept. 99-313, supra at 67-68, 1986-3 C.B. (Vol. 3)
at 67-68.
Respondent’s proffered interpretation of section 274(n)(1)
stands in marked contrast to the abusive situations that spawned
that section. In contrast with the abuses that the Congress
meant to address in enacting section 274(n)(1), we see no abuse
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