Entertainment 50%

[Snaggletooth]

My largest corporate customer has annual sales of $8Million. As is often the case, there is plenty of money to splash around for purposes of polishing the image, but infrastructure expenditures are another story. Very much like banks.

The latest is the purchase of a luxury suite at the stadium of the Tennessee Titans - costing some $51,000. I have told customers that advertising and promotion is 100% deductible, whereas entertainment is 50% and charity is entirely conditional on profits.
Sometimes there is a fine line between what defines what.

I have already told him this is clearly entertainment. He is asking what he can do to turn "entertainment" into "promotion." He has offerred to spend even more money to lavish his corporate name onto all the chairs, and furnish screens where customers can watch videos about the corporate success story, etc.

I don't see any way around the $51,000. If he wants to spend more money for this other stuff, the excess would be promotional material.

Does anyone have any ideas? I don't have a problem telling him the 50% must be enforced on the stadium suite, but I want to make sure I've explored other opportunities, if they exist.

[jainen]

telling him that

>>I don't have a problem telling him the 50% must be enforced on the stadium suite<<

You should have a problem with telling him that, because the allowable percentage for an entertainment facility like that is ZERO.

[Snaggletooth]

Don't See How

Don't See How it is not a deduction if used for the entertainment of customers.

[Bees Knees]

TTB, page 8-1, Meals and Entertainment, Extra cost of private luxury box seats...0% deductible.

The cost of box seats would be subject to the 50% limit. The extra cost to get a private box suite is not deductible at all.

Also, the taxpayer or an employee of the taxpayer has to be their with a potential customer, otherwise it is also 0% deductible.

I would assume that having a sign painted on the outside of the private box so that the fans can see the company name would cost extra money. That would clearly be advertising, but that doesn't solve your problem of deducting the basic cost of the private box seats.

[jainen]

Clients think anything

>>Don't See How it is not a deduction if used for the entertainment of customers.<<

Clients think anything they can attach a business label to, automatically becomes 100% deductible. The tax code is not so generous.

The season tickets can be deducted (at 50%) to the extent that each time they are used it is directly related to or associated with the conduct of business, with appropriate documentation. Food and other costs have the same rules, assuming they are not extravagant. No deduction is allowed for the luxury box rental itself regardless of use.

Advertising costs are deductible 100% even in such an entertainment setting, but they must bear a reasonable relationship to the business. Be careful of the term "promotion" because that implies an offer to the general public, which is probably not your client's purpose in renting the luxury box.

I suppose your next discussion with the client will be uncomfortable. No doubt he will claim that someone he knows is deducting it all and never has any problem. Maybe he can convince you that they don't even watch the games -- it's just a very convenient, centrally-located conference room!

[Snaggletooth]

Stretching it

Yes, Jainen, I've had these kinds of conversations with this customer before, and yes he always knows someone who tells him he deducts everything. And this "someone" never turns out to be a CPA, EA, or anyone with reason to know better -- it's always a vendor, a customer, or one of his cronies.

The classic comeback for this customer is "I wouldn't have bought it if I had known I couldn't deduct it." They whine, but funny that they never ask ahead of time. Fact of the matter, this suite would have been bought no matter what, so he can parade around with customers and cronies in such lavish luxury.

It's amazing how much this happens. How many times has someone said, "I'm leasing this new car because the salesman told me I would have tax advantages."

Thanks for the input.

[erchess]

Hmmmmm

I am hearing that a "regular seat" and a "box seat" are potentially normal business meal and entertainment expenses if proper records are kept but that the excess of "luxury box seat" over the cost of a "box seat" is never a business expense. Now that I think about it, I knew that. However, what defines the three sorts of seats? Is it simply what they are called, and if so, why does any team call its product a "luxury box"?

[OldJack]

What might rub salt into the wound is if the IRS says your lavish client friend has taken a taxable dividend since this might be considered his personal expenditure rather than any real business purpose. Not likely, but even if not deducting he should still document the business requirements of who, what, where, when, and why.

[Bees Knees]

However, what defines the three sorts of seats? Is it simply what they are called, and if so, why does any team call its product a "luxury box"?

Keep in mind for tax purposes, any car with a FMV worth over $15,200 is considered a luxury car for the lease inclusion rules. I don't think calling a luxury box seat something else is going to help.

[George Boutwell]

Credit where credit is due

OldJack's tag line: “Insanity is hereditary. You catch it from your kids”. President Ronald Reagan.

That line came from Sam Levenson. Reagan simply wrote it in his diary, parts of which were released recently.

>>Trouble with his kids was a painful experience that Reagan, who died at 93 in June 2004, often chronicled in his diaries. He referred at one point in early 1987 to a call he made to then-Education Secretary Bill Bennett about Ron. [Bennett, it should be recalled, is the virtuous politician with a gambling problem.]

"Told him I was sure someone had apprised him of our son Ron's article on AIDS in People mag. Ron gave both of us h--l. He can be stubborn on a couple of issues & won't listen to anyone's argument. Bill volunteered to have a talk with him. I hope it can be worked out."

At another point, Reagan notes: "Ron called this evening all exercised because S.S. (Secret Service) agents had gone into their apartment while they were in California to fix an alarm on one of his windows. I tried to reason with him that this was a perfectly O.K. thing for them to do. ... I told him quite firmly not to talk to me that way & he hung up on me. Not a perfect day."

A few weeks later, Reagan wrote, "Nancy phoned --- very upset. Ron casually told S.S. he was going to Paris for a few days. I don't know what it is with him. He refuses to cooperate with them. (Redaction). I'm not talking to him until he apologizes for hanging up on me."

In an April 1984 entry, he wrote that "Patti screamed & complained so much we took the S.S. detail away at her request." "Now, S.S. went to her & asked if she would accept it for no more than a week until they could get this information out of Lebanon & check the story (about an apparent threat). She said yes. But today's the 4th day & she's screaming again about her invasion of her privacy & last night she abused the agents terribly. I said take them away from her so she's again without protection. Insanity is hereditary. You catch it from your kids." <<

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