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88 T.C. 1562, 1564-1565 (1987), affd. without published opinion
851 F.2d 362 (11th Cir. 1988).
Although section 274(a) is designed generally to prohibit
deductions for certain entertainment-related expenses, section
274(e)(2) provides that the deduction disallowance provision of
section 274(a) will not apply to:
Expenses treated as compensation.--Expenses for goods,
services, and facilities, to the extent that the
expenses are treated by the taxpayer, with respect to
the recipient of the entertainment, amusement, or
recreation, as compensation to an employee on the
taxpayer’s return of tax under this chapter and as
wages to such employee for purposes of chapter 24
(relating to withholding of income tax at source on
wages). [Emphasis added.]
Petitioner argues that the “to the extent” language acts to
except its deduction, as claimed, from the reach of section 274.
Conversely, respondent argues that the “to the extent” language
acts to limit petitioner’s deduction to the amount includable as
income by its employees.
Respondent agrees that, but for section 274, petitioner’s
claimed deduction would be allowable in full. In addition,
respondent does not challenge petitioner’s fringe benefit income
value calculations under section 61. Even on the assumption that
section 274 applies, if we hold that subsection 274(e)(2) removes
petitioner’s deduction from the reach of section 274, then
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