Patrick E. Catalano - Page 5

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          that petitioner was required to report on his individual Federal            
          income tax returns for the years in issue.3                                 
               In general, section 162 provides for the deductibility of              
          all ordinary and necessary expenses paid or incurred during the             
          taxable year in carrying on a trade or business.  However,                  
          section 274 prohibits deductions otherwise allowable for expenses           
          paid with respect to a facility used in connection with an                  
          activity generally considered to constitute entertainment,                  
          amusement, or recreation.  Sec. 274(a)(1)(B); sec. 1.274-                   
          2(a)(2)(i), Income Tax Regs.  The provision of section 274                  
          applicable to entertainment facilities (section 274(a)(1)(B)) was           
          specifically amended by section 361(a) of the Revenue Act of                
          1978, Pub. L. 95-600, 92 Stat 2847, to provide a flat prohibition           
          on deductions for such facilities--that is, deductions for                  
          entertainment facilities are prohibited without regard to whether           
          the taxpayer can establish that the expenditure was directly                
          related to or associated with the active conduct of his trade or            
               The test of whether an activity is an activity which “is of            
          a type generally considered to constitute entertainment,                    
          amusement, or recreation” for purposes of the statute is an                 

               3 By operation of a statutory formula, the increase in the             
          amount of petitioner's income also caused a decrease in the                 
          amount of allowable itemized deductions for 1991 and 1992.                  

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