Joseph A. and Sari F. Deihl - Page 46

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          presentations.  Concerning the deductibility of such items, the             
          parties focused their discussion and arguments at trial and on              
          brief on the following categories:  Cash, items purchased at                
          Neiman Marcus, items purchased at Landmark Jewelers Ltd. (other             
          than Rolex watches), Rolex watches, items purchased at Saba’s               
          Western Wear,9 and Boss Day Planners.                                       
               As relevant here, the proper standard for determining the              
          deductibility of the various items given away by petitioners’               
          corporations depends upon which of two broad characterizations is           
          applicable to each item.  See, e.g., Dobbe v. Commissioner, T.C.            
          Memo. 2000-330, affd. 61 Fed. Appx. 348 (9th Cir. 2003); Jordan             
          v. Commissioner, T.C. Memo. 1991-50; McCue v. Commissioner, T.C.            
          Memo. 1983-580; St. John v. Commissioner, T.C. Memo. 1970-238.              
               Deductions for business gifts within the meaning of section            
          274 are flatly disallowed to the extent that the expense for                
          gifts to a particular individual exceeds $25 for the taxable                
          year.  Sec. 274(b)(1); sec. 1.274-3(a), Income Tax Regs.  The               
          term “gift” for purposes of this section is defined as “any item            
          excludable from gross income of the recipient under section 102             
          which is not excludable from his gross income under any other               


               9 Due to the abbreviations and other simplification used in            
          many of the documents in the record, the precise name of various            
          of the establishments at which claimed expenditures were incurred           
          is unclear.  The Court therefore has sought merely to enable a              
          reasonable identification of the vendors based on available                 
          information in the record.                                                  




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