- 12 -
Those same congressional materials also contain an example of a
manufacturer’s allowing use of an entertainment facility by a
nonemployee dealer. It provides that, as long as all reporting
requirements are met, “the manufacturer will not be subject to
these [deduction] limitations if the value of the entertainment
facilities are includible in income of the dealer”. Id. at 546.
In other words, section 274 does not apply, and any restrictions
are removed with respect to otherwise allowable deductions by
employers as long as the value of the benefit is included in the
nonemployee dealer’s income.
Respondent also seeks support in the legislative history.
Respondent contends that his interpretation of section 274(e) is
supported by the purpose stated for section 274. We have already
pointed out that section 274 was intended to curb the perceived
abuses occurring with expense accounts and the resulting
substantial tax-free benefits conferred on the recipients. H.
Rept. 1447, supra, 1962-3 C.B. at 423. Respondent argues that
the difference between the value and cost here confers benefits
not intended by the enactment of section 274. Respondent’s
argument misses the mark for several reasons. Firstly,
irrespective of section 274, the employees are being taxed in
accord with the Internal Revenue Code for the benefits received,
a fact with which respondent agrees. Secondly, petitioner, as
employer, received no tax-free benefit. Thirdly, although
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