National Bancorp of Alaska, Inc. - Page 5

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          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.  Sec. 1.162-25T, Temporary               
          Income Tax Regs., 50 Fed. Reg. 755 (Jan. 7, 1985), amended 50               
          Fed. Reg. 46013 (Nov. 6, 1985); see 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           
          value reported to an employee as compensation; rather, the                  
          employer is required to deduct its costs incurred in providing              
          the benefit to the employee.  Sec. 1.162-25T, Temporary Income              
          Tax Regs., supra.                                                           
               Some deductions previously allowable under section 162 were            
          disallowed by the enactment of section 274.  Section 274(a)(1)(A)           
          generally provides for the disallowance of deductions 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 activity.5  However, section 274(e)(2) provides that              

               5For purposes of this analysis, we assume without deciding,            
          that the Gulfstream was a facility within the meaning of sec.               
          274(a)(1)(B).  The parties dispute whether the Gulfstream was a             
          “facility” used in connection with “an activity which is of a               
          type generally considered to constitute entertainment, amusement,           
          or recreation”.  Sec. 274(a)(1)(A) and (B).  However, as we noted           
          in Sutherland Lumber-Southwest, Inc. v. Commissioner, 114 T.C.              
          197, 202 n.3 (2000), affd. per curiam __ F.3d __ (8th Cir., July            
          3, 2001), we need not decide this because sec. 274(e)(2) removes            
          petitioner’s deduction from the reach of sec. 274 and “provides a           
          universal answer to the controversy between the parties here.”              

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