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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3911
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Also, If you have an insurance broker that does business lunches

Resolved Question:

Also, If you have an insurance broker that does business lunches and does not eat but gives a presentation while the guests have their lunch/dinner, would this expense be 50% deductible or 100%. Having a disagreement with IRS.
Submitted: 9 months ago.
Category: Tax
Expert:  Lane replied 9 months ago.

Lane :

Hi,

Lane :

If this is for marketing ... if these are sales presentations ... then this should be 100% deductible

Lane :

Don't present this to IRS as a lunch, that's probably where the problem started ... it should be documented as a business presentation where you provided the meal as part of the package

Lane :

Here are some places where the cost is 100% deductible:

Lane :

Employee Parties: Meals and entertainment provided primarily for the benefit of rank and file employees are 100% deductible. Think company picnics, banquets, holiday parties, that sort of thing. If you are self-employed, including 2-person partenrships, with no employees, then your function still falls under the 50% rule.


Office Snacks: The cost of providing free coffee, soda, bottled water, donuts, fruit, etc to employees to be consumed at the office are 100% deductible.


Office Meals: Meals served at the office are 100% deductible if there is both a valid business reason and are primarily for the convenience of the employer (such as dinner provided so that employees can work late and meet that important deadline, or lunch served during a work meeting or employee training).


Steak at the 19th Hole: Meals served as part of a charity sporting event are 100% deductible if volunteers put on the event, and the proceeds go to a 501(c)3 charity. Dinners served at golf tournaments are the classic example here.


There's No Place Like Home: If you hold a business function at your home, for employees or for business prospects where you might give a sales presentation or a seminar, you can take a 100% deduction if you can properly document the purpose of the event and the attendees.

Lane :

The last one is, I'm guessing, closest to your situation

Customer:

He is giving presentation for new items. He specializes in teachers. And sells insurance and investing products/services. So yes I would say it would be marketing. We listed it as meeting expense and the agent is not wanting to allow 100%. Any advise as to where I could find a ruling or something to prove our point.

Lane :

Yes, this is simply a section 162 (ordinary and neccessary) - especially in HIS business - marketing expense ... let me see what I can get for you, but simply7 documenting that this was a sales presentation should be enough

Lane :

just a sec:

Customer:

Yes the last option would probably fit the best. Is there somewhere where I can pull a ruling or regulation ?

Lane :

Here's the basic statute law from Internal Revenue Code TITLE 26, USCA

Lane :
a) In general.--There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business,


26 U.S.C.A. § 162 (West)

Lane :

What this will turn on is showing that this is ordinary and neccesary ... his being paid on commission AND the fact that these presentations are a convention in his business is enough

Lane :

The problem here was listing it as meeting expenses ... this was advertising, marketing, a line item business expenses befor business expense on hos (schedule C, I'm guessing)

Lane :

I presented dinner seminars for American Express Financial Advisors for Years. The advisor always deducted all costs, never a problem ... VERY conventional in that business

Customer:

Yes. It should and will be in the future listed as marketing expense. I will try to look this up so I can print it out and submit it to the IRS with a written explanation as to how this works. I appreciate your help tremendously. Hoping this will be enough for the IRS.

Customer:

Thanks for your assistance. Do you know if there is anyway to print out what you have told me?

Lane :

It will be ... just be sure to stick on the §162 ordinary and necessary piece .. also gather a little data (don't think you'll need it) backup of the fact that this is expencted of the agent to drive commissions and ordinary in the business

Lane :

Yes, just file print from your browser OR, after you rate, just save this as a favorite (bookmark(

Customer:

Hey he also gives away tickets to sporting events, Cardinal baseball games and college football, does not attend himself, do you think these should be 100% deductible.?

Lane :

Yes IF he gives them away (and the best practice would be to document this as advertising as well) with the expectation of generating clients and commissions from those clients

Lane :

Just be sure to call it what it is... advertising

Lane :

Is this person a sole proprietor? (Schedule C)

Lane :

Here's a direct quote for IRS publication 535:

Lane :

Advertising expenses. You generally can deduct reasonable advertising expenses that are directly related to your business activities. Generally, you cannot deduct amounts paid to influence legislation (i.e., lobbying). See Lobbying expenses, later. You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U.S. Savings Bonds, or to participate in similar causes is usually deductible.

Lane :

Key statements there are (1) You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future ... and ... (2) You generally can deduct reasonable advertising expenses that are directly related to your business activities

Customer:

Yes he is a sole proprietor. We listed this as promotional. Again another goof on our part I guess. Any ruling or code on this?

Lane :

This is all part of IRC §162 Ordinary and Necessary ... (that's the tax law) ... and the underlined statements above are the IRS publications that reflect it. Again, fro IRS pub 535: Key statements there are (1) You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future ... and ... (2) You generally can deduct reasonable advertising expenses that are directly related to your business activities

Lane :

If yuu look at his schedule C, you'll see that ADVERTISING is the first line item of section II (regular expenses that come out before profit) ... there's no adjustment

Lane :

Line 8, I believe

Lane :

Here's another supporting citation:

Lane :


n the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year--




(1) for the production or collection of income;






26 U.S.C.A. § 212 (West)

Customer:

Ok thanks a lot. I need to look up and print out some of this to get ready for IRS again. Thanks you have been really helpful.

Lane :

Heres one more:


As a general rule, advertising expenditures are deductible1 provided they are reasonable, and bear a reasonable relationship to the taxpayer's business activities.2


47A C.J.S. Internal Revenue § 152

Lane :

2.





Love Box Co., Inc. v. C.I.R., 842 F.2d 1213, 88-1 U.S. Tax Cas. (CCH) P 9246, 61 A.F.T.R.2d 88-944 (10th Cir. 1988).



I.R.S. Tax Guide for Small Business, I.R.S. Pub. 334, p. 61.



Deductibility of expenses incurred for production of income, see § 193.






47A C.J.S. Internal Revenue § 152

Lane :

Go get em

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3911
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 9 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  Lane replied 9 months ago.

Hi terry good luck.

To recap:.Treas. Reg. § 1.162-1(a).

26 U.S.C.A. § 212 (West)

and 47A C.J.S. Internal Revenue § 152

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3911
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 9 months ago.
Hi terry ... had a colleague add something that will give you even more ammunition:

We covered this, generally but there has been specific clarification as well, in a private letter ruling:

 

 

 

See the explanation in PLR(NNN) NNN-NNNNat

http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irla1ab/1/doc

 

"Section 274(n)(2) provides that the provisions of § 274(n)(1) shall not apply to any expense if such expense is described in § 274(e)(2), (3), (4), (7), (8), or (9).
Section 274(e)(7) provides that subsection (a) shall not apply to expenses for goods, services, and facilities made available by the taxpayer to the general public."

Expert:  Lane replied 9 months ago.
Hi Terry,


I'm just following up with you to see how everything is going. Did my answer help?


Let me know,
Lane
Expert:  Lane replied 9 months ago.

Thanks for the rating terry!

DO note that last Private Letter Ruling that specifically states that the meals aren't limited to 50% in the promotional circumstance; PLR(NNN) NNN-NNNNbr/>
Lane

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