Airline Club Membership

[peggysioux]

If employer purchased a airline club membership for an employee due to extensive travel so that employee can have a place to work, meet clients, etc would the fee still be considered non-deductible under reg. 274(a)(3)?? There is no entertainment value for employee and I would see the availability of the club as a legitimate business expense. But, the reg. states club dues are non-deductible; is there some grey area. Does not logically make sense to me if the club is truly being used for business. Can someone help me understand why expense would not be deductible?

Much appreciated.

[JohnH]

TTB - Page 8-10 says "no".
It specifically lists airline clubs in the examples.

[Jesse]

I agree with John H

http://www.irs.gov/businesses/corporations/article/0,,id=134943,00.html

Club Memberships – Effective since calendar year 1994, § 274(a)(3) provides that no deduction is permitted for club dues. This includes all types of clubs, including social, athletic, sporting, luncheon clubs, airline and hotel clubs and “business” clubs for all amounts paid or incurred after 1993. Regulations § 1.274-2(a)(2)(iii) and (e)(3) (ii)(b) clarifies that the purposes and activities of a club, and not its name, determine whether it is covered under the disallowance provision. The employer has the choice of either including the value of the club membership in the employee’s income or forgoeing any deduction for the club dues. IRC § 274(e)(2). Put another way, the company can deduct the cost if it treats the club dues as compensation includable in gross income and wages. However, if the employer’s deduction for club dues is disallowed by § 274(a)(3), Regulations § 1.132-5(s) provides that the amount, if any, of an employee’s working condition fringe benefit relating to the emplo yer provided membership in the club is determined without regard to the application of § 274(a) to the employee. To be excludible as a working condition fringe, however, the amount must otherwise qualify for deduction by the employee under § 162(a). Note that the requirements of § 274(d) must still be met (i.e., time, place and business purpose must be established. See Regulations § 1.132-5(s)(3) for examples applying these rules.

Although many corporations are aware of the law regarding the deductibility of club dues and membership fees, they will often make such e xpenditures and disguise the deduction. Club memberships have been distributed to departing executives through severance agreements. The value of a club membership distributed to executives upon departure is wages. Close scrutiny should be afforded employment contracts and severance agreements for executives.

[JohnH]

I'll add that my personal opinion is that airline club memberships should be deductible. For most business travelers, the clubs are just another ordinary and necessary business expenditure. They just aren't the same animal as your regular old country club membership providing access to the golf course, tennis courts, etc.

[Gary2]

I'll add that my personal opinion is that airline club memberships should be deductible. For most business travelers, the clubs are just another ordinary and necessary business expenditure. They just aren't the same animal as your regular old country club membership providing access to the golf course, tennis courts, etc.

I'll buy the ordinary part. Where does the "necessary" come in? I can't say that I've done a huge amount of business travel, but airline clubs never figured into the limited amount I've done.

[JohnH]

Well, when you rent a car on a business trip, is it necessary to rent something bigger than a compact? Nobody questions the additional cost of a mid-size or full size car as being necessary. And why is is necessary to dine at Ruth's Chris when the food at McDonald's will satisfy your hunger? Or why is a room at the Hilton necessary when there's a Motel 6 just across the street?

Airline clubs provide a place to relax, get special help with ticketing problems & delays, and a comfortable place to work while on layover. They serve a valid business purpose for the business traveler. So I think a pretty good case can be made for the clubs being both ordinary and necessary. That's how I used them when I used to travel on business.

[OtisMozzetti]

It seems that the airline club genuinely is an ordinary and necessary business expense, but that runs up against the specific statutory provision. I would have to think that the Tax Court would rule in favor of the specific statutory provision, or at least I wouldn't want to be fighting the issue. Another topic of concern is that the employee who gets the airline club membership is quite likely going to make some use of the membership for nonbusiness purposes.

[Burke]

I feel the IRC should allow these as a travel expense. They do allow first class airfare, and that is not "necessary." I have never seen them used (I've been in plenty) as a "place to meet clients," but to discuss business with accompanying business travelers, or on the phone and on the computer is quite common. Some travelers also use them for R&R and sleep time. They are simply a stopover location between flights for the most part, and travelers frequently make use of the agents to book flights for missed connections, seat selection, etc.