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contends the entire cost of the golf clubs is deductible as an
ordinary and necessary business expenditure because it purchased
the golf clubs as a sales incentive and for services rendered by
Mr. Heemskerk. Respondent argues the golf clubs are
characterized more properly as a gift than as compensation; thus,
pursuant to section 274(b), the deduction should be limited to
$25, and the remaining cost of the golf clubs should be
disallowed.
Section 274(b) provides that no deduction shall be allowed
under section 162 or section 212 for any expense for gifts made
directly or indirectly to any individual to the extent that the
expense exceeds $25. Section 274(b) and related regulations
flatly disallow deductions for business gifts greater than $25.
See Sanford v. Commissioner, 50 T.C. 823, 830 (1968), affd. 412
F.2d 201 (2d Cir. 1969). The requirements imposed by section
274(b) are in addition to the requirements imposed by section
162(a). Holland America has the burden of proving initially that
its expenditure was an ordinary and necessary expense, was
proximately related to its trade or business, and was not for a
business gift subject to the restrictions of section 274(b). See
sec. 274(d); Sanford v. Commissioner, supra at 826. Whether the
golf clubs were given to Mr. Heemskerk as a gift or for services
rendered must be determined from all the facts and circumstances.
See St. John v. Commissioner, T.C. Memo. 1970-238.
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