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Taking into account all aspects of Landmark Hall, we
allocate to ATV and Mr. Cutts 89 percent and 11 percent of
Landmark Hall, respectively.
Section 274(a) generally disallows a deduction for
entertainment expenses that are not directly related to or
associated with the active conduct of a trade or business.
Section 274(d) disallows a deduction under section 162 or 212 for
entertainment expenses unless the taxpayer substantiates each
element of an expenditure or use of property by “adequate
records” or by “sufficient evidence corroborating the taxpayer’s
own statement”. Under section 274(a), which applies to the costs
of a swimming pool, taxpayers can deduct expenses for
recreational, social, or similar activities (including facilities
therefor) primarily for the benefit of employees, provided there
is no discrimination in favor of officers, shareholders or other
owners, or highly compensated employees. Sec. 274(e)(4); sec.
1.274-2(f)(2)(v), Income Tax Regs.
The pool was simply used for employee entertainment and was
not directly related to or associated with ATV’s trade or
business. Even if the pool satisfies the proviso under section
274(e)(4), ATV did not provide any records or documents to
substantiate use of the pool by employees other than officers,
shareholders or other owners, or highly compensated employees.
Ms. Harrington was an officer of ATV, and there is no information
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