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(including business meetings at a convention or
otherwise), that such item was associated with,
the active conduct of the taxpayer’s trade or
business, * * *
Respondent does not dispute that the expenses at issue are
directly related to the active conduct of petitioners’ business.
There is also no dispute that the events were critical to the
success of the Kentucky Derby and the Breeders’ Cup. Some of the
expenses at issue were required to be provided under the contract
between petitioners and BCL.
Respondent argues that the deductions of the expenses at
issue are limited by section 274(n). Section 274(n) allows only
a portion of entertainment expense to be deducted. That section
provides:
SEC. 274(n). Only 50 Percent of Meal and
Entertainment Expenses Allowed as Deduction.--
(1) In general.--The amount allowable as a
deduction under this chapter for--
(A) any expense for food or beverages, and
(B) any item with respect to an activity
which is of a type generally considered to
constitute entertainment, amusement, or
recreation, or with respect to a facility used
in connection with such activity,
shall not exceed 50 percent of the amount of such
expense or item which would (but for this paragraph) be
allowable as a deduction under this chapter.
The Secretary was granted authority to promulgate
regulations to carry out the purposes of section 274. See sec.
274(o). Regulations were promulgated to clarify what type of
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