26 USC 274 - Disallowance of certain entertainment, etc., expenses

U.S Code last checked for updates: Nov 22, 2024

§ 274.

Disallowance of certain entertainment, etc., expenses

(a)

Entertainment, amusement, recreation, or qualified transportation fringes

(1)

In general

No deduction otherwise allowable under this chapter shall be allowed for any item—

(A)

Activity

(B)

Facility

(2)

Special rules

For purposes of applying paragraph (1)—

(A)

Dues or fees to any social, athletic, or sporting club or organization shall be treated as items with respect to facilities.

(B)

An activity described in section 212 shall be treated as a trade or business.

(3)

Denial of deduction for club dues

(4)

Qualified transportation fringes

(b)

Gifts

(1)

Limitation

No deduction shall be allowed under section 162 or section 212 for any expense for gifts made directly or indirectly to any individual to the extent that such expense, when added to prior expenses of the taxpayer for gifts made to such individual during the same taxable year, exceeds $25. For purposes of this section, the term “gift” means any item excludable from gross income of the recipient under section 102 which is not excludable from his gross income under any other provision of this chapter, but such term does not include—

(A)

an item having a cost to the taxpayer not in excess of $4.00 on which the name of the taxpayer is clearly and permanently imprinted and which is one of a number of identical items distributed generally by the taxpayer, or

(B)

a sign, display rack, or other promotional material to be used on the business premises of the recipient.

(2)

Special rules

(A)

In the case of a gift by a partnership, the limitation contained in paragraph (1) shall apply to the partnership as well as to each member thereof.

(B)

For purposes of paragraph (1), a husband and wife shall be treated as one taxpayer.

(c)

Certain foreign travel

(1)

In general

(2)

Exception

Paragraph (1) shall not apply to the expenses of any travel outside the United States away from home if—

(A)

such travel does not exceed one week, or

(B)

the portion of the time of travel outside the United States away from home which is not attributable to the pursuit of the taxpayer’s trade or business or an activity described in section 212 is less than 25 percent of the total time on such travel.

(3)

Domestic travel excluded

(d)

Substantiation required

No deduction or credit shall be allowed—

(1)

under section 162 or 212 for any traveling expense (including meals and lodging while away from home),

(2)

for any expense for gifts, or

(3)

with respect to any listed property (as defined in section 280F(d)(4)),

unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement (A) the amount of such expense or other item, (B) the time and place of the travel or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit. The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations. This subsection shall not apply to any qualified nonpersonal use vehicle (as defined in subsection (i)).

(e)

Specific exceptions to application of subsection (a)

Subsection (a) shall not apply to—

(1)

Food and beverages for employees

(2)

Expenses treated as compensation

(A)

In general

(B)

Specified individuals

(i)

In general

(ii)

Specified individual

For purposes of clause (i), the term “specified individual” means any individual who—

(I)

is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to the taxpayer or a related party to the taxpayer, or

(II)

would be subject to such requirements if the taxpayer (or such related party) were an issuer of equity securities referred to in such section.

For purposes of this clause, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).

(3)

Reimbursed expenses

Expenses paid or incurred by the taxpayer, in connection with the performance by him of services for another person (whether or not such other person is his employer), under a reimbursement or other expense allowance arrangement with such other person, but this paragraph shall apply—

(A)

where the services are performed for an employer, only if the employer has not treated such expenses in the manner provided in paragraph (2), or

(B)

where the services are performed for a person other than an employer, only if the taxpayer accounts (to the extent provided by subsection (d)) to such person.

(4)

Recreational, etc., expenses for employees

(5)

Employees, stockholder, etc., business meetings

(6)

Meetings of business leagues, etc.

(7)

Items available to public

(8)

Entertainment sold to customers

(9)

Expenses includible in income of persons who are not employees

For purposes of this subsection, any item referred to in subsection (a) shall be treated as an expense.

(f)

Interest, taxes, casualty losses, etc.

(g)

Treatment of entertainment, etc., type facility

(h)

Attendance at conventions, etc.

(1)

In general

In the case of any individual who attends a convention, seminar, or similar meeting which is held outside the North American area, no deduction shall be allowed under section 162 for expenses allocable to such meeting unless the taxpayer establishes that the meeting is directly related to the active conduct of his trade or business and that, after taking into account in the manner provided by regulations prescribed by the Secretary—

(A)

the purpose of such meeting and the activities taking place at such meeting,

(B)

the purposes and activities of the sponsoring organizations or groups,

(C)

the residences of the active members of the sponsoring organization and the places at which other meetings of the sponsoring organization or groups have been held or will be held, and

(D)

such other relevant factors as the taxpayer may present,

it is as reasonable for the meeting to be held outside the North American area as within the North American area.

(2)

Conventions on cruise ships

In the case of any individual who attends a convention, seminar, or other meeting which is held on any cruise ship, no deduction shall be allowed under section 162 for expenses allocable to such meeting, unless the taxpayer meets the requirements of paragraph (5) and establishes that the meeting is directly related to the active conduct of his trade or business and that—

(A)

the cruise ship is a vessel registered in the United States; and

(B)

all ports of call of such cruise ship are located in the United States or in possessions of the United States.

With respect to cruises beginning in any calendar year, not more than $2,000 of the expenses attributable to an individual attending one or more meetings may be taken into account under section 162 by reason of the preceding sentence.

(3)

Definitions

For purposes of this subsection—

(A)

North American area

(B)

Cruise ship

(4)

Subsection to apply to employer as well as to traveler

(A)

Except as provided in subparagraph (B), this subsection shall apply to deductions otherwise allowable under section 162 to any person, whether or not such person is the individual attending the convention, seminar, or similar meeting.

(B)

This subsection shall not deny a deduction to any person other than the individual attending the convention, seminar, or similar meeting with respect to any amount paid by such person to or on behalf of such individual if includible in the gross income of such individual. The preceding sentence shall not apply if the amount is required to be included in any information return filed by such person under part III of subchapter A of chapter 61 and is not so included.

(5)

Reporting requirements

No deduction shall be allowed under section 162 for expenses allocable to attendance at a convention, seminar, or similar meeting on any cruise ship unless the taxpayer claiming the deduction attaches to the return of tax on which the deduction is claimed—

(A)

a written statement signed by the individual attending the meeting which includes—

(i)

information with respect to the total days of the trip, excluding the days of transportation to and from the cruise ship port, and the number of hours of each day of the trip which such individual devoted to scheduled business activities,

(ii)

a program of the scheduled business activities of the meeting, and

(iii)

such other information as may be required in regulations prescribed by the Secretary; and

(B)

a written statement signed by an officer of the organization or group sponsoring the meeting which includes—

(i)

a schedule of the business activities of each day of the meeting,

(ii)

the number of hours which the individual attending the meeting attended such scheduled business activities, and

(iii)

such other information as may be required in regulations prescribed by the Secretary.

(6)

Treatment of conventions in certain Caribbean countries

(A)

In general

For purposes of this subsection, the term “North American area” includes, with respect to any convention, seminar, or similar meeting, any beneficiary country if (as of the time such meeting begins)—

(i)

there is in effect a bilateral or multilateral agreement described in subparagraph (C) between such country and the United States providing for the exchange of information between the United States and such country, and

(ii)

there is not in effect a finding by the Secretary that the tax laws of such country discriminate against conventions held in the United States.

(B)

Beneficiary country

(C)

Authority to conclude exchange of information agreements

(i)

In general

(ii)

Nondisclosure of qualified confidential information sought for civil tax purposes

An exchange of information agreement need not provide for the exchange of qualified confidential information which is sought only for civil tax purposes if—

(I)

the Secretary of the Treasury, after making all reasonable efforts to negotiate an agreement which includes the exchange of such information, determines that such an agreement cannot be negotiated but that the agreement which was negotiated will significantly assist in the administration and enforcement of the tax laws of the United States, and

(II)

the President determines that the agreement as negotiated is in the national security interest of the United States.

(iii)

Qualified confidential information defined

(iv)

Civil tax purposes

(D)

Coordination with other provisions

(E)

Determinations published in the Federal Register

The following shall be published in the Federal Register—

(i)

any determination by the President under subparagraph (C)(ii) (including the reasons for such determination),

(ii)

any determination by the Secretary under subparagraph (C)(ii) (including the reasons for such determination), and

(iii)

any finding by the Secretary under subparagraph (A)(ii) (and any termination thereof).

(7)

Seminars, etc. for section 212 purposes

(i)

Qualified nonpersonal use vehicle

(j)

Employee achievement awards

(1)

General rule

(2)

Deduction limitations

The deduction for the cost of an employee achievement award made by an employer to an employee—

(A)

which is not a qualified plan award, when added to the cost to the employer for all other employee achievement awards made to such employee during the taxable year which are not qualified plan awards, shall not exceed $400, and

(B)

which is a qualified plan award, when added to the cost to the employer for all other employee achievement awards made to such employee during the taxable year (including employee achievement awards which are not qualified plan awards), shall not exceed $1,600.

(3)

Definitions

For purposes of this subsection—

(A)

Employee achievement award

(i)

In general

The term “employee achievement award” means an item of tangible personal property which is—

(I)

transferred by an employer to an employee for length of service achievement or safety achievement,

(II)

awarded as part of a meaningful presentation, and

(III)

awarded under conditions and circumstances that do not create a significant likelihood of the payment of disguised compensation.

(ii)

Tangible personal property

For purposes of clause (i), the term “tangible personal property” shall not include—

(I)

cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or

(II)

vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.

(B)

Qualified plan award

(i)

In general

(ii)

Limitation

(4)

Special rules

For purposes of this subsection—

(A)

Partnerships

(B)

Length of service awards

(C)

Safety achievement awards

An item provided by an employer to an employee shall not be treated as having been provided for safety achievement if—

(i)

during the taxable year, employee achievement awards (other than awards excludable under section 132(e)(1)) for safety achievement have previously been awarded by the employer to more than 10 percent of the employees of the employer (excluding employees described in clause (ii)), or

(ii)

such item is awarded to a manager, administrator, clerical employee, or other professional employee.

(k)

Business meals

(1)

In general

No deduction shall be allowed under this chapter for the expense of any food or beverages unless—

(A)

such expense is not lavish or extravagant under the circumstances, and

(B)

the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages.

(2)

Exceptions

Paragraph (1) shall not apply to—

(A)

any expense described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e), and

(B)

any other expense to the extent provided in regulations.

(l)

Transportation and commuting benefits

(1)

In general

(2)

Exception

(m)

Additional limitations on travel expenses

(1)

Luxury water transportation

(A)

In general

(B)

Exceptions

Subparagraph (A) shall not apply to—

(i)

any expense allocable to a convention, seminar, or other meeting which is held on any cruise ship, and

(ii)

any expense described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e).

(2)

Travel as form of education

(3)

Travel expenses of spouse, dependent, or others

No deduction shall be allowed under this chapter (other than section 217) for travel expenses paid or incurred with respect to a spouse, dependent, or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel, unless—

(A)

the spouse, dependent, or other individual is an employee of the taxpayer,

(B)

the travel of the spouse, dependent, or other individual is for a bona fide business purpose, and

(C)

such expenses would otherwise be deductible by the spouse, dependent, or other individual.

(n)

Only 50 percent of meal expenses allowed as deduction

(1)

In general

(2)

Exceptions

Paragraph (1) shall not apply to any expense if—

(A)

such expense is described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e),

(B)

in the case of an employer who pays or reimburses moving expenses of an employee, such expenses are includible in the income of the employee under section 82,

(C)

such expense is for food or beverages—

(i)

required by any Federal law to be provided to crew members of a commercial vessel,

(ii)

provided to crew members of a commercial vessel—

(I)

which is operating on the Great Lakes, the Saint Lawrence Seaway, or any inland waterway of the United States, and

(II)

which is of a kind which would be required by Federal law to provide food and beverages to crew members if it were operated at sea,

(iii)

provided on an oil or gas platform or drilling rig if the platform or rig is located offshore, or

(iv)

provided on an oil or gas platform or drilling rig, or at a support camp which is in proximity and integral to such platform or rig, if the platform or rig is located in the United States north of 54 degrees north latitude, or

(D)

such expense is—

(i)

for food or beverages provided by a restaurant, and

(ii)

paid or incurred before January 1, 2023.

Clauses (i) and (ii) of subparagraph (C) shall not apply to vessels primarily engaged in providing luxury water transportation (determined under the principles of subsection (m)). In the case of the employee, the exception of subparagraph (A) shall not apply to expenses described in subparagraph (B).

(3)

Special rule for individuals subject to Federal hours of service

(o)

 See Amendment of Section note below.

Regulatory authority

(Added Pub. L. 87–834, § 4(a)(1), Oct. 16, 1962, 76 Stat. 974; amended Pub. L. 88–272, title II, § 217(a), Feb. 26, 1964, 78 Stat. 56; Pub. L. 94–455, title VI, § 602(a), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1572, 1834; Pub. L. 95–600, title III, § 361(a), (b), title VII, § 701(g)(1)–(3), Nov. 6, 1978, 92 Stat. 2847, 2903, 2904; Pub. L. 96–222, title I, § 103(a)(10)(A), (B) Apr. 1, 1980, 94 Stat. 212; Pub. L. 96–598, § 5(a), Dec. 24, 1980, 94 Stat. 3488; Pub. L. 96–605, title I, § 108(a), Dec. 28, 1980, 94 Stat. 3524; Pub. L. 96–608, § 4(a), Dec. 28, 1980, 94 Stat. 3552; Pub. L. 97–34, title II, § 265(a), (b), Aug. 13, 1981, 95 Stat. 265; Pub. L. 97–248, title III, §§ 307(a)(1), 308(a), Sept. 3, 1982, 96 Stat. 589, 591; Pub. L. 97–424, title V, § 543(a), Jan. 6, 1983, 96 Stat. 2195; Pub. L. 98–67, title I, § 102(a), title II, § 222(a), Aug. 5, 1983, 97 Stat. 369, 395; Pub. L. 98–369, div. A, title I, § 179(b)(1), title VIII, § 801(c), July 18, 1984, 98 Stat. 718, 995; Pub. L. 99–44, §§ 1(a), 2, 6(b), May 24, 1985, 99 Stat. 77, 79; Pub. L. 99–514, title I, §§ 122(c), (d), 142(a)–(c), title XI, § 1114(b)(6), Oct. 22, 1986, 100 Stat. 2110, 2117–2120, 2451; Pub. L. 100–647, title I, §§ 1001(g)(1)–(4)(A), (5), 1018(u)(2), title VI, § 6003(a), Nov. 10, 1988, 102 Stat. 3351, 3352, 3590, 3684; Pub. L. 101–239, title VII, §§ 7816(a), 7841(d)(18), Dec. 19, 1989, 103 Stat. 2420, 2429; Pub. L. 101–508, title XI, § 11802(b), Nov. 5, 1990, 104 Stat. 1388–529; Pub. L. 103–66, title XIII, §§ 13209(a), (b), 13210(a), (b), 13272(a), Aug. 10, 1993, 107 Stat. 469, 542; Pub. L. 105–34, title IX, § 969(a), Aug. 5, 1997, 111 Stat. 896; Pub. L. 108–357, title VIII, § 907(a), Oct. 22, 2004, 118 Stat. 1654; Pub. L. 109–135, title IV, § 403(mm), Dec. 21, 2005, 119 Stat. 2632; Pub. L. 113–295, div. A, title II, § 221(a)(46), Dec. 19, 2014, 128 Stat. 4045; Pub. L. 115–97, title I, §§ 13304(a)(1)–(2)(E), (b)–(d), 13310(a), Dec. 22, 2017, 131 Stat. 2124–2126, 2132; Pub. L. 116–260, div. EE, title II, § 210(a), Dec. 27, 2020, 134 Stat. 3066.)

cite as: 26 USC 274