Sutherland Lumber-Southwest, Inc. - Page 1

                                   114 T.C. No. 14                                    

                               UNITED STATES TAX COURT                                

                  SUTHERLAND LUMBER-SOUTHWEST, INC., Petitioner v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

                    Docket No. 23936-97.     Filed March 28, 2000.                    

                    P provided its employees with the use of the                      
               company-owned aircraft for nonbusiness flights.  P                     
               notified its employees to report the value of the                      
               flights as imputed income.  P deducted the expenses                    
               incurred in providing the flights.  R, relying on sec.                 
               274(e)(2), I.R.C., determined that deductions for                      
               expenses incurred in providing employees with                          
               nonbusiness flights on a company-owned airplane are                    
               limited to the amount reported as imputed income to the                
               recipient employees.  P contends that its expense                      
               deductions are not subject to sec. 274, I.R.C., or, in                 
               the alternative, if subject to sec. 274, I.R.C., are                   
               excepted from the restriction of sec. 274, I.R.C., by                  
               application of sec. 274(e)(2), I.R.C.                                  
                    Held:  Sec. 274(e)(2), I.R.C., excepts from the                   
               effect of sec. 274, I.R.C., deductions of an employer’s                
               expenses in connection with an entertainment facility                  
               and does not limit or peg the amount deductible to the                 
               amount reportable by employees; i.e., the value of the                 
               benefit received.                                                      

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