Business Entertainment and Its Motivation as a Tax Problem

by Persis Emmett, Charles Rockwood



Current intensified interest in the question of whether business entertainment constitutes an appropriate expense deduction for federal income tax purposes arose from U.S. President John F. Kennedy's proposal in 1961 that certain entertainment activities be disallowed as tax deductible expenses. Subsequent Congressional hearings and a continuing Internal Revenue Service crackdown heightened awareness of the problem and stirred considerable controversy. Entertainment and related expenses have an association with the needs of business, they nevertheless confer substantial taxfree personal benefits to the recipients. In other cases, deductions are obtained by disguising personal expenses as business outlays. But under present law, it is extremely difficult to separate out and disallow such pseudobusiness expenditures. New legislation is needed to deal with the problem. Thus the schism develops. On the one hand there is the argument that business entertainment expense has become so infiltrated with abuse that certain categories no longer should be permitted. On the other hand is the view that there are sound business motives for most entertainment expenditures and that such expenditures should be allowed. Each point of view, if it is at all reasonable, must concede some merit to the other.

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