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amended 50 Fed. Reg. 46006, 46013 (Nov. 6, 1985), provides that
an employer may take a deduction for expenses incurred in
providing the benefit if the value of the noncash fringe benefit
is includable in the recipient employee’s gross income. See also
sec. 1.61-21(b), Income Tax Regs. (employee is required to
include in gross income the value of any fringe benefit
received). The employer may not deduct the amount included by
the employee as compensation but is required to deduct the
employer’s costs incurred in providing the benefit to the
employee. See sec. 1.162-25T, Temporary Income Tax Regs., supra.
Some deductions previously allowable under section 162 were
disallowed by the enactment of section 274, among other sections.
Section 274 was enacted to eliminate or curb perceived abuses
with respect to business expense deductions for entertainment and
travel expenses and for gifts. See H. Rept. 1447, 87th Cong., 2d
Sess. (1962), 1962-3 C.B. 402, 423; S. Rept. 1881, 87th Cong., 2d
Sess. (1962), 1962-3 C.B. 703, 730-731. Section 274(a)(1)(A)
generally provides for the disallowance of deductions, otherwise
allowable under chapter 1 of the Internal Revenue Code, involving
an entertainment, amusement, or recreation activity. Section
274(a)(1)(B) disallows the deduction of otherwise allowable
expenses incurred with respect to a facility used in connection
with such an activity. See Harrigan Lumber Co. v. Commissioner,
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