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and accordingly, they should not be subject to the restrictions
of section 274(n) with respect to expenses they incur in the
course of providing that entertainment. Alternatively,
petitioners argue the expenses at issue are excluded from the
provisions of section 274 by application of section 274(e),
paragraphs (7) and (8), and section 274(n)(2)(A).3
Section 162(a) allows a deduction for all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Section 274 disallows a
deduction in certain instances for expenses which would otherwise
be deductible under section 162. Section 274(a) provides in
part:
SEC. 274(a). Entertainment, Amusement, or
Recreation.--
(1) In general.--No deduction otherwise
allowable under this chapter shall be allowed
for any item--
(A) Activity.--With respect to an activity
which is of a type generally considered to
constitute entertainment, amusement, or
recreation, unless the taxpayer establishes that
the item was directly related to, or, in the case
of an item directly preceding or following a
substantial and bona fide business discussion
3 Sec. 274(n)(2) provides:
Exceptions.--Paragraph (1) shall not apply to any
expense if--
(A) such expense is described in paragraph (2),
(3), (4), (7), (8), or (9) of subsection (e).
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Last modified: May 25, 2011