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fide transaction for an adequate and full consideration
in money or money’s worth is not subject to the
limitations on allowability of deductions provided for
in paragraphs (a) through (e) of this section. Thus,
the cost of producing night club entertainment (such as
salaries paid to employees of night clubs and amounts
paid to performers) for sale to customers or the cost
of operating a pleasure cruise ship as a business will
come within * * * [the section 274(e)(8)] exception.
Thus, despite the fact that a facility might meet the definition
of an entertainment facility and be subject to the general rule
of section 274(a)(1)(A), expenses relating to its operation will
not constitute “entertainment” expenses if that facility is
legitimately involved in “selling” entertainment.
Additionally, section 1.274-2(e)(3)(iii), Income Tax Regs.,
provides that expenses (exclusive of operating costs and other
expenses referred to in section 1.274-2(e)(3)(i), Income Tax
Regs.) incurred at the time of an entertainment activity, even
though in connection with the use of a facility for entertainment
purposes, such as expenses for food and beverages, or expenses
for catering, or expenses for gasoline and fishing bait consumed
on a fishing trip, shall not be considered to constitute
expenditures with respect to a facility used in connection with
entertainment.
In Churchill Downs, Inc. v. Commissioner, 115 T.C. 279
(2000), affd. 307 F.3d 423 (6th Cir. 2002), this Court held that
a racetrack operator’s expenses for hosting press parties,
winners’ parties, and other entertainment events did not qualify
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