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(3) there is an item (including an expenditure) with respect to
the facility, section 274(a)(1)(B) bars a deduction for that item
irrespective whether the requirements of section 274(a)(1)(A) are
satisfied. Petitioner contends that the expenses for the hunting
lease constitutes an activity under section 274(a)(1)(A) and that
it satisfied the provisions of that subsection. Respondent, on
the other hand, contends that the lease constitutes a facility
and the heavier gun of section 274(a)(1)(B) applies.
The term "facility" is not defined in the statute; however,
the regulations provide that:
Any item of personal or real property owned, rented, or
used by a taxpayer shall * * * be considered to
constitute a facility * * *. Examples of facilities
which might be used for, or in connection with,
entertainment include yachts, hunting lodges, fishing
camps, swimming pools, tennis courts, bowling alleys,
automobiles, airplanes, apartments, hotel suites, and
homes in vacation resorts. [Sec. 1.274-2(e)(2)(i),
Income Tax Regs.; emphasis added.]
An objective test is used to determine whether an activity
constitutes entertainment,4 and if an activity is generally
considered to be entertainment, it will constitute entertainment
within the meaning of the statute, regardless of whether the
expenditure could be described otherwise. Sec. 1.274-
2(b)(1)(ii), Income Tax Regs. Operating costs, such as rent,
4 Under the regulations the term "entertainment" means
"any activity which is of a type generally considered to
constitute entertainment, amusement, or recreation, such as
entertaining * * * [inter alia] on hunting * * * trips". Sec.
1.274-2(b)(1)(i), Income Tax Regs.
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Last modified: May 25, 2011