Business expenses

flight equipment rotatable parts and assemblies, purchnased at the time the airplanes were acquired, are tangible property for which depreciation is allowable, beginning at the time the aircraft for 60.6 Advances by majority stockholder. which they were purchased is placed in service. Advances made by a taxpayer to pay the business §1.162-3, 1.167(a)-1. (Secs. 162, 167; ’86 expenses of a corporation of which he is the major- Code.) ity stockholder are not deductible by him as busiRev. Rul. 69-200, 1969-1 C.B. 60. ness years paid. I.T. 1901 superseded. §1.162–1. 60.14 Amounts paid to trust for use of capital. (Sec. 162, ’86 Code.) The members of a family partnership transferred Rev. Rul. 71-36, 1971-1 C.B. 51. interests in the partnership to trust created for the 60.7 Advances to commission salesmen; benefit of their respective wives and children. The charged off by employer. Advances originally trusts were not bona fide partnership members, intended as loans to commission salesmen, that Held, the partnership was entitled to deduct reaare subsequently charged off by the employer are sonable amounts paid or credited to the trust for additional compensation to the salesmen and are the partnership’s use of trust capital. (Sec. 191, ’39 deductible by the employer in the year of the C o d e ; S e c . 7 6 4 , ’ 8 6 C o d e . ) charge-off. I.T. 2043 superseded. §§1.61–12, T. M. Stanback, 27 T.C. 1, Acq., 1958-2 C.B. 8. 1.162-7. (Secs. 61, 162; ’86 Code.) 60.15 Annuity payments exchanged for Rev. Rul. 69-465, 1969-2 C.B. 27. dower interest in farm. Annuity payments pay60.8 Advertising; African safari. The Sanitary able out of income from farm property distributed by a probate court to a decedent’s son in exchange Farms Dairy, Inc. decision allowing the cost of an African safari as an advertising expense deduc- for the release of a widow’s dower rights and intertion, will be applied only to cases of substantially est in the property are nondeductible capital expenditures. §§1.162–1, 1.263(a)–1. (Secs. 162, identical facts. (Sec. 162, ’86 Code.) 263; ’86 Code.) Rev. Rul. 56-583, 1956-2 C.B. 117. Rev. Rul. 72-81, 1972–1 C.B. 98. Business expenses 60.9 Advertising; demonstration installa60.16 Architect and contractor; replacement tions. Expenditures incurred by a manufacturer in (See also specific subject headings) installing certain of its products in residences property. Taxpayer paid architect’s and contrac60.1 Accountant fees. Accountant’s fees for without charge, for demonstration purposes, tor’s fees to estimate the replacement cost of examining the taxpayer’s books and records in constitute business expenses; in acquiring the destroyed property in order to collect insurance connection with the filing of a claim against a for- installations as compensation for the use of his proceeds which were used to buy replacement mer officer-stockholder’s estate were deductible premises, the borne owner is taxable on the excess property for which the taxpayer elected not to recbusiness expenses. (Sec. 162, ’86 Code.) of the fair market value of the product over the ognize the gain. Held, the nonrecognized gain is Arc Realty Co., 34 T.C. 484, Acq., 1960-2 C.B. value of the replaced products prior to removal. not a class of income wholly exempt from tax and the fees are deductible as business expenses. 3. (Secs. 61, 162; ’86 Code.) (Secs. 23(a), 24(a), ’39 Code; Secs. 162, 265, ’86 Rev. Rul. 56-181, 1956-1 C.B. 96. Code.) 60.2 Accrued expenses payable to closely Cotton States Fertilizer Co., 28 T.C. 1169, Acq., related taxpayers. Taxpayer deducted rent, 60.10 Advertising; impartial participation in 1958-2 C.B. 4. salary, and interest accrued on its books but not political elections. Expenditures incurred by a actually paid to the payees, its only stockholders, taxpayer engaged in a trade or business, other than 60.17 Arsonist. lnsurance proceeds received by within 2 1/2 months after the close of the taxable an employee, for (1) advertising designed to a taxpayer who pays a third party to burn down the year. Held, the amounts were constructively encourage employees or the general public to reg- taxpayer’s building represents gain includible as received by the payees and were properly ister or vote or to contribute to the campaign funds income. deducted by the taxpayer. (Sec. 24(c), ’39 Code; of a political candidate or party, (2) sponsoring a ordinary income in the taxpayer’s gross resulting Other federal income tax consequences Sec. 267, ’86 Code.) public debate by candidates for an office, (3) from discovery of the arson and repayment of the Geiger & Peters, Inc., 27 T.C. 911, Acq., 1957-2 granting time off with pay for registration and vot- insurance proceeds in the following tax year are ing, and (4) maintaining a voluntary payroll C.B. 4. deduction plan for those wishing to make political also discussed. §§1.61–14, 1.162–18, 1.165–1, 1.212–1, 1.1001–1, 1.1033(a)–2, 1.1231–1. (Secs. 60.3 Accrued liability. In 1951 an accrual basis contributions, are deductible as business expenses taxpayer who received payments from customers provided such expenditures are politically impar- 61, 162, 165, 212, 1001, 1033, 1231; ’86 Code.) Rev. Rul. 82-74, 1982–1 C.B. 110. for servicing TV sets for 12 month periods extend- tial in character and are related to future patronage ing into the next taxable year contracted with a expected by the taxpayer and otherwise meet the 60.18 Artist’s representative; legal and corporation to perform the repair service. Held, requirements of the Code. §1.162–1. (Sec. 162, promotional. Payments made by an artist’s reprethe taxpayer must include the full amount of cus- ’86 Code.) sentative to an attorney for rendering business tomer payments in income when received but may Rev. Rul. 62-156, 1962-2 C.B. 47. advice to clients in the representative’s absence accrue and deduct the consideration to the servicwere deductible business expenses as were paying corporation as a business expense. (Sec. 23(a), 60.11 Advertising; political convention pro- ments made in an unsuccessful effort to promote gram. There is no conflict between former section the career of a potential star with a reasonable ’39 Code; Sec. 162, ’86 Code.) Bressner Radio, Inc., 28 T.C. 378, Acq., 1958-2 276(c) or the Code and section 610 of title 18 expectation of deriving substantial fees in the U.S.C. and expenses that meet the requirements of event of success. (Sec. 23(a), ’39 Code; Sec. 162, C.B. 4. former section 276(c) incurred by corporations in ’86 Code.) 60.4 Administrative services performed by a advertising in the 1972 Democratic and RepubliLou Levy, 30 T.C. 1315, Acq., 1959-1 C.B. 4. parent corporation. Many of the taxpayer corpo- can National Convention programs are deductration’s administrative services were performed ible. §1.2761. (Sec. 276, ’86 Code.) 60.19 Assessments paid exempt service orgaon its behalf by another corporation owning 50 nization. Payments by a group of taxpayers to a Rev. Rul. 76-29, 1976-1 C.B. 85. percent of its stock. At the time the other corporanonprofit exempt organization organized by them tion acquired the remaining stock, the taxpayer 60.12 Advertising; violation of Civil Rights for the purpose of rendering necessary marine Act. Expenses incurred by an employment agency radio telephone service, to the extent used by the was billed for past services rendered. Held, though not transacted at arms length, the amount paid for for advertisements violating the Civil Rights Act corporation to purchase equipment, constitute a such services was reasonable and is a deductible of 1964, which imposes on the violator no criminal capital investment subject to depreciation. That business expense. (Sec. 23(a), ’39 Code; Sec. 162, penalty or loss of license or privilege to engage in portion of the payments utilized by the corporation a trade or business, are not subject to disallow- to meet current operating expenses constitutes ’86 Code.) Waring Products Corp., 27 T.C. 921, Acq., ance. §1.162–1. (Sec. 162, ’86 Code.) payment for services rendered by it to the taxpayRev. Rul. 74-323, 1974-2 C.B. 40. 1957-2 C.B. 7. ers and is deductible by them as a business expense. §§1.162–1, 1.263(a)–1. (Secs. 162, 263; 60.5 Advance remuneration repaid by 60.13 Airlines; flight equipment; spare parts. ’86 Code.) employee. Examples illustrate the treatment of The cost of an airline’s expendable flight equipRev. Rul. 58-534, 1958-2 C.B. 125. amounts advanced to an employee in excess of ment spare parts is deductible as a business remuneration earned where such excess is repaid expense for the taxable year in which such parts 60.20 Attorneys fees. Attorneys obtained a by the employee, under the employment contract, are used to repair aircraft. The cost of such parts on judgment against the decedent for services they upon termination of the employer-employee rela- hand at the end of the taxable year is to be performed in protecting his investment and tionship. S.S.T. 316 superseded. §§1.61–1, accounted for as a deferred expense. However, the defending his title to stock in a stockholders’ 1.162-17, 1.1451-1, 1.461-1. (Secs. 61,162, 451, 461, 3121, 3306, 3401, 6413; ’86 Code.) Rev. Rul. 79-311, 1979-2 C.B. 25. Business expenses §§1.61-1, 1.162-1, 1.446-1. (Secs. 61, 162, 446; ’86 Code.) Rev. Rul. 74-351, 1974–2 C.B. 144. 60.35 Bond purchased to insure supply of 60.29 Bankrupt; direct payments to trade creditors. Amounts a cash-method, nondis- materials. To assure a source of supply from a plycharged bankrupt paid outside the bankruptcy pro- wood manufacturer which had agreed to sell a per60.21 Automobile; mileage allowances. The ceeding in satisfaction of creditors’ claims arising centage of its production to bondholders, a lumber optional standard mileage rate for the business use from purchases of goods sold in the bankrupt’s dealer purchased a debenture bond which later of an automobile for 1991 is increased from 26 business in a prior year and for court costs and became worthless. Held, the purchase of the bond cents a mile to 27.5 cents a mile. The procedure attorneys’ fees relating to those claims are deduct- was a reasonable and necessary act in the conduct also provides rules for substantiation for expendi- ible by the bankrupt as business expenses in the of taxpayer’s business and the cost of the bond was deductible in full as a business expense or loss tures for ordinary and necessary expenses of trans- year paid. (Sec. 162, ’86 Code.) John Dowd, 68 T.C. 294, Nonacq., 1978-1 C.B. upon worthlessness. (Secs. 23(a), 23(e), ’39 Code; portation whether or not traveling away from Secs. 162, 165, ’86 Code.) home. Rev. Proc. 89-66 superseded. §§1.62-2, 2 . Tulane Hardwood Lumber Co., 24 T.C. 1146, 1.162-17, 1.274–5T, 1.1016-3. (Sec. 601.105, 60.30 Bankrupt corporations; trustee’s Acq. in result, 1958-2 C.B. 8. S.P.R.; Secs. 62, 162, 274, 1016, ’86 Code.) expenditures. Costs and expenses incurred by a 60.36 Bonus; baseball contract; agreement to Rev. Proc. 90-59, 1990-2 C.B. 269. corporation’s trustee in bankruptcy in connection share. Taxpayer, while in high school, orally 60.22 Automobile owners and lessees. This with the institution and administration of reorga- agreed with his father to share equally any bonus revenue procedure provides tables detailing the nization proceedings under Chapter X of the he might receive for signing a professional baselimitations on depreciation deductions for auto- Bankruptcy Act arc capital expenditures of the ball contract in exchange for his father’s services mobiles first placed in service during calendar corporation; however, such expenditures in a liq- as coach and trainer. After graduation, taxpayer year 1990 and the amounts to be included in uidation under Chapters I through VII of the Act, signed a professional baseball contract providing income for automobiles first leased during calen- except for expenses connected with sales of assets for a cash bonus to be paid one-half to his father. dar year 1990. §§1.280F-2T, 1.280F-7T. (Sec. that must be offset against proceeds, are deduct- Held, the full share of the bonus payment to the ible by the corporation under section 162. In either father was deductible as a business expense. (Sec. 601.105, S.P.R.; Sec. 280F, ’86 Code.) the reorganization or liquidation bankruptcy, the 162, ’86 Code.) Rev. Proc. 90-22, 1990-1 C.B. 504. expenses of the trustee in operating the bankrupt’s Cecil Randolph Hundley, Jr., 48 T.C. 339, Acq. 60.23 Automobile racing. A full-time electri- business are deductible under section 162. I.T. in result, 1967–2 C.B. 2. 2004 superseded. §§1.162–1, 1.263(a)–1. (Secs. cal engineer entered and drove his own cars in 60.37 Bonus paid by controlled corporation. 162, 263; ’86 Code.) about 15 races for which substantial time and An accrued bonus paid by a corporation to its sole money was expended for minimal winnings. Held, Rev. Rul. 77-204, 1977-1 C.B. 40. stockholder (who uses the cash method of the activities constituted a business and the expenses allocable thereto were deductible. (Sec. 60.31 Banks; depositors’ guaranty fund; accounting) is not allowable as a deduction where equalization payments. An equalization pay- such amount is not actually or constructively 162, ’86 Code.) Lincoln Adolphus Bolt, 50 T.C. 1007, Acq., ment by a savings and loan association to a deposi- received by the stockholder within 2 1/2 months tors’ guaranty fund as a condition of membership, after the close of the corporation’s taxable year, 1969-1 C.B. 20. and representing in substance an equity in the even though the bonus is ultimately included in the fund, is a non-amortizable capital expenditure. stockholder’s gross income in the same taxable 60.24 Automobile rebates. Rebates paid by an automobile manufacturer to qualifying retail cus- Withdrawals from the fund will be recognized as year within which the 2 1/2 month period falls. tomers who purchase or lease a new automobile, gain or loss measured by the difference between §1.267(a)-1. (Sec. 267, ’86 Code.) Rev. Rul. 68-114, 1968-1 C.B. 100. or who purchase a new automobile and trade in a the amount of money received on withdrawal and specified type of vehicle, are ordinary and neces- the adjusted basis of the equity interest in the fund. 60.38 Bonus paid by parent to subsidiary’s sary business expenses of the manufacturer, are §1.162-13. (Sec. 162, ’86 Code.) employees. A parent corporation may not deduct Rev. Rul. 72-379, 1972-2 C.B. 92. not includable in the gross income of the customer, as a business expense the cash bonuses it pays to and require a downward adjustment to the customemployees of its wholly owned subsidiary. Hower’s basis. §§1.61-2, 1.162-1, 1.1012-1, 60.32 Banks; parent’s payments to creditors ever, because the parent’s payment of cash 1.1016-2. (Secs. 61, 162, 1012, 1016; ’86 Code.) of insolvent foreign subsidiary. A corporation’s bonuses to its subsidiary’s employees is a payments to depositors and creditors of its insolRev. Rul. 76-96, 1976–1 C.B. 23. vent foreign subsidiary bank, to protect the corpo- constructive contribution to the subsidiary’s capiration’s reputation and goodwill, are deductible tal accompanied by a constructive payment by the 60.25 Automobiles; given as prize. The cost of subsidiary of the cash bonuses to its employees, an automobile given away as a prize to a customer business expenses to the extent they exceed the the cash bonuses may be deducted by the subsidis deductible as a business expense. The fair mar- assets acquired, and any subsequent year recover- iary under section 162. §§1.118–1, 1.162–9. ket value of the automobile at the date of its ies of such payments are includable in its gross (Secs. 118, 162; ’86 Code.) income for the recovery years. The corporation’s acquisition is includable in the customer’s gross Rev. Rul. 84-68. 1984–1 C.B. 31. income. I.T. 1667 superseded. §§1.74–1, 1.162–1. total investment in its subsidiary’s stock is deductible as a long-term capital loss. §§1.61–1, 60.39 Bookmakers; rents and wages. (Secs. 74, 162; ’86 Code.) 1.162-1, 1.165-5. (Secs. 61, 162, 165; ’86 Code.) Amounts paid for rents and wages by bookmaking Rev. Rul. 69-510, 1969-2 C.B. 23. Rev. Rul. 73-226, 1973-1 C.B. 62. establishments, even though they are illegal enter60.26 Automobiles; ministers. Automobile prises under state law, are deductible as business 60.33 Baseball team sponsored; representa- expenses. §39.23(a)–1. (Sec. 23(a), ’39 Code; expenses incurred by a minister while rendering services without compensation may not be tive of corporation. Amounts expended by a Sec. 162, ’86 Code.) deducted as a business expense; however, they manufacturing corporation to outfit and support a Sullivan, 356 U.S. 27, Ct. D. 1821, 1958–1 C.B. may be deducted as a charitable contribution. baseball team representing the corporation are 506. deductible business expenses. O.D. 1030 super§§1.162-2, 1.170-2. (Secs. 162, 170; ’86 Code.) 60.40 Broker-dealer; order errors and secuseded. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 69-645, 1969-2 C.B. 37. rity differences; treatment. The treatment of cerRev. Rul. 70-393, 1970-2 C.B. 34. tain gains, losses, and expenses resulting from 60.27 Automobile owners and lessees. This procedure provides owners and lessees of passen- 60.34 Blocked foreign income; when deduct- order errors or security differences incurred by a ger automobiles with tables detailing the limita- ible. A series of questions and answers with broker-dealer is explained. §§1.61-1, 1.162-1, 1.165–1, 1.451–1, 1.461–1, 1.1236–1. (Secs. 61, tions on depreciation deductions for automobiles respect to blocked foreign income explain the term 162, 165, 451, 461, 1236; ’86 Code.) “deferrable income”; how to account for and first placed in service during calendar year 1993 Rev. Rul. 79-80, 1979-1 C.B. 86. and the amounts to be included in income for auto- report such income; bow and when to make an mobiles first leased during calendar year 1993. election to defer such income; when deferrable 60.41 Brokerage fees; stock reacquisition. §§1.280F-5T, 1.280F-7. (Sec. 601.105, S.P.R.; income ceases to be deferrable; how to deduct Brokerage fees paid by a domestic corporation in expenses paid or incurred or paid or accrued in the acquiring its own stock for the purpose of holding Sec. 280F, ’86 Code.) foreign country in which there is deferrable it as treasury stock or retirement are part of the purRev. Proc. 93-35, 1993-2 C.B. 472. income; how to deduct costs and direct expenses chase price and are not deductible business 60.28 Away from home temporarily. Guide- paid or incurred in U.S. dollars in a transaction expenses. O.D. 852 superseded. §§1.162–1, lines are provided for determining whether tax- giving rise to deferrable income; and how to deter1.263(a)-2. (Secs. 162, 263; ’86 Code.) payers are away from home temporarily for pur- mine the basis of investment or business property Rev. Rul. 69–561, 1969-2 C.B. 25. poses of deducting travel expenses under section acquired with funds representing deferrable 162(a)(2) as amended by the Energy Policy Act of income. Mims. 6475, 6494, and 6584 and I.T. 60.42 Brokerage firm; compensation for sub1992. Rev. Rul. 83–82 obsoleted in part and 4037 superseded. Modified by Rev. Rul. 81-290, ordinated accounts. Compensation paid by a broderivative action with some benefit accruing to the corporation. Held, a portion of the judgment amount was deductible as expense. (Sec. 23(a), ’39 Code; Sec. 212, ’86 Code.) A. P. Steckel, 26 T.C. 600, Nonacq., 1957-1 C.B. 6. Notice 93-29 amplified. §§1.162-2, 1.262-1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 93-86, 1993-2 C.B. 26. Business expenses kerage firm to “owners,” with respect to cash and securities subject to a “Subordination Agreement,” is ordinary income to the owners and deductible by the firm as business expenses. §§1.61-1, 1.162-1. (Secs. 61, 162; ’86 Code.) Rev. Rul. 69-455, 1969-2 C.B. 9. 60.43 Building and loan association; foreclosed property; sales expenses. A domestic building and loan association’s expenses in disposing of foreclosed property are not deductibles business expenses but are taken into account in computing foreclosure gains and losses to be reflected in the reserve for losses on qualifying real property loans. §§1.162–1, 1.166-4, 1.595–1. (Secs. 162, 166, 595; ’86 Code.) Rev. Rul. 73--116, 1973-1 C.B. 300. 60.44 Calculation; use of home by day care providers. A day care provider should compute the amount of the deduction by treating a room as used for day care for the entire business day if it is available for day care use for the entire day and is regularly used for day care. (Secs. 262, 280A; ’86 Code.) Rev. Rul. 92-3, 1992-1 C.B. 141. 60.45 Campaign to influence legislation. Contributions made by alcoholic beverage distributors to organizations which expended them in publicity programs designed to defeat proposed prohibition measures are not deductible as ordinary and necessary business expenses. Regulations disallowing deductions for amounts expended to influence legislation apply to expenditures for publicity directed to the general public as well as to lobby expenses. §§29.23(a)–1, 29.23(o)–1, 29.23(q)–1. (Secs. 23(a), 23(o), 23(q), ’39 Code; Secs. 162, 170, ’86 Code.) Cammarano, 358 U.S. 498, Ct. D. 1835, 1959-1 C.B. 666. 60.46 Campaign to influence legislation. Amounts contributed by a taxpayer to a campaign fund to influence the adoption or defeat of an amendment to a state constitution are not deductible as business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 58-255, 1958-1 C.B. 91; Luther Ely Smith, 3 T.C. 696, Acq. issue 2 withdrawn and Nonacq. substituted, 1958-1 C.B. 7. 60.47 Campaign to influence legislation; dues; action organization. Dues and other payments made to an “action” organization exempt under section 501(c)(4) are subject to the provisions of reg. 1.162–20(c)(3) where a substantial part of such organization’s activities consists of attempting to influence legislation by urging the public to contact members of a legislative body. §1.162-20. (Sec. 162, ’86 Code.) Rev. Rul. 67-163, 1967-1 C.B. 43. 60.48 Campaign to influence legislation; “grassroot” lobbying. A tax-exempt trade association that urges its members to contact their employees and customers to have them communicate with certain elected state representatives to support repeal of legislation considered detrimental to the association is engaging in “grassroot” lobbying within the scope of section 162(e)(2)(B). §1.162-20. (Sec. 162, ’86 Code.) Rev. Rul. 78-113, 1978-1 C.B. 43. 60.50 Campaign to influence legislation; newspaper and magazine advertising. No deduction is allowable under section 162(a) for expenses incurred by a corporation in preparing and placing advertisements in major state newspapers and regional magazines setting forth objections to proposed legislation of direct interest to the corporation. §1.162-20. (Sec. 162, ’86 Code.) Rev. Rul. 78–112, 1978–1 C.B. 42. 60.51 Campaign to influence legislation; State employee. A State highway department employee, who incurred various expenses in lobbying for legislation to establish a State grievance committee, merit system benefits, and salary increases for highway department employees may deduct his expenses as business expenses. (Sec. 162, ’86 Code.) James M. Jordan, 60 T.C. 770, Acq., 1974-1 C.B. 2. 60.52 Campaign to influence legislation through stockholders. The expenses incurred by a domestic corporation for preparing, printing, and distributing to its shareholders a pamphlet focusing on proposed legislation which would adversely affect the company’s tax liability and suggesting that the shareholders contact their congressmen to make known their views concerning such proposed legislation are not deductible as business expenses. Amplified by Rev. Rul. 78-111. §1.162-20. (Sec. 162, ’86 Code.) Rev. Rul. 74-407, 1974-2 C.B. 45. 60.53 Campaign to influence legislation tbrough stockholders. No deduction is allowable under section 162(a) for expenses incurred by a corporation in printing and distributing to its shareholders its president’s remarks given before a state legislature concerning the corporation’s opposition to certain proposed legislation. Rev. Rul. 74-407a. §1.162-20. (Sec. 162, ’86 Code.) Rev. Rul. 78–111, 1978-1 C.B. 41. 60.54 Car-top sign; rural mail carrier. The cost incurred by a rural mail carrier for a U.S. mail identification car-top sign is a capital expenditure recoverable through depreciation. Since the sign is attached to the vehicle used in delivering mail, the depreciation deduction is allowable as a transportation expense in arriving at adjusted gross income. §§1.62–1, 1.162–1, 1.263(a)–1. (Secs. 62, 162, 263; ’86 Code.) Rev. Rul. 67-444, 1967-2 C.B. 80. 60.55 Charges for securing loan evidenced by mortgage bond. Expenses incidental to securing a loan evidenced by a mortgage bond are not deductible in the year in which the loan is made but must be prorated over the life of the bond. S.M. 3691 superseded. §§1.162-1, 1.461-1. (Secs. 162, 461; ’86 Code.) Rev. Rul. 70-360, 1970-2 C.B. 103. in connection with the yacht were deductible business expenses. (Sec. 162, ’86 Code.) Thomas W. Jackson, 59 T.C. 312, Acq., 1973-1 C.B. 1. 60.58 Checkwriting fees; NOW accounts. An individual taxpayer who maintains an interestbearing personal checking account (NOW account) may not deduct fees charged by the bank for the privilege of writing the checks as expenses for the production of income under section 212. The taxpayer must include in gross income and the bank must report on Form 1099-INT the full amount of interest earned on the account, not reduced by the amount of the fees. §§1.162–1, 1.212-1, 1.262-1, 1.6049-1. (Secs. 162, 212, 262, 6049; ’86 Code.) Rev. Rul. 82-59, 1982-1 C.B. 47. 60.59 Christmas gifts. A distribution by an employer to his employees of food, such as hams, turkeys or other merchandise of similar nominal value at Christmas or a comparable holiday, does not constitute wages or additional income to the employees if such distribution is primarily for promoting good relations with the employees. The cost of such items is deductible by the employer as a business expense. §§1.61–2, 1 162–10. (Secs. 61, 162; ’86 Code.) Rev. Rul. 59–58, 1959-1 C.B. 17. 60.60 Claims against drug manufacturers; Swine Flu Program. Funds advanced by the U.S. to drug manufacturers and placed in a segregated interest-bearing bank account to be used to satisfy claims against the manufacturers in connection with the National Swine Flu Immunization Program of 1976 are includable in the income of the drug manufacturers when withdrawn from the account. The manufacturer may deduct amounts paid or incurred in satisfaction of damage recoveries or for expenses incurred in the investigation, settlement, or defense of any actual or potential claim or suit. §§1.61–2, 1.162–1. (Secs. 61, 162; ’86 Code.) Rev. Rul. 77–120, 1977-1 C.B. 16. 60.61 Closely held corporation; compensation to shareholder-employees. Deduction for reasonable compensation paid to shareholder-employees of a closely held corporation will not be denied on the sole ground that the corporation has not paid more than an insubstantial portion of its earnings as dividends on its outstanding stock. §§1.162-7, 1.162-8, 1.316-1. (Secs. 162, 316; ’86 Code.) Rev. Rul. 79-8, 1979-1 C.B. 92. 60.62 Clothing; fashion coordinator. A fashion coordinator for a shoe manufacturer who in the same course of her employment was expected to wear clothing of advanced styles that was not suitable nor used for personal or private wear may deduct the unreimbursed clothing expenditures as ordinary and necessary business expenses. (Sec. 162, ’86 Code.) Betsy Lusk Yeomans, 30 T.C. 757, Acq. withdrawn and Nonacq. substituted, 1981-1 C.B. 2. 60.63 Coal mining; airshaft, compressor and fan to maintain normal output. Due to recession of the working faces of their mine, a coal mining company made expenditures for an air shaft, fan, and compressor which the Commissioner contended were capital improvements with a useful life of 20 years. Held, the expenditures were incurred to maintain normal output of the mine and are allowable business expenses. The Commissioner’s contention that the expenditures must be shown to be minor rather than major was without authority. (Sec. 23(m), ’39 Code; Sec. 611, ’86 Code.) Roundup Coal Mining Co., 20 T.C. 388, Nonacq., 1954-1 C.B. 8. 60.64 Coal mining; equipment to maintain normal output of coal. The sole shareholder of a 60.56 Charges paid to related corporation. Taxpayer corporation purchased items from a related Holland corporation, and in connection with its purchases, paid certain charges and expenses which under Holland law could not be paid by the Holland corporation. Taxpayer also paid handling fees to officers of the Holland corporation. Held, the payments did not constitute dividend distributions, but were ordinary and nec60.49 Campaign to influence legislation; essary business expenses. (Sec. 162, ’86 Code.) Doornbosch Bros., Inc., 46 T.C. 199, Acq. in “grassroot” lobbying. A tax-exempt trade association that contacts members to urge them to result, 1967–1 C.B. 2. write or call their Congressmen to recommend support of legislation of direct interest to the 60.57 Charter yacht. The taxpayer was association is not engaging in “grassroot” lobby- engaged in the trade or business of chartering his ing. Such communication to prospective mem- yacht as evidenced by his investigation of the bers, however, does constitute “grassroot” lobby- charter market, extensive advertising, securing of ing, § 1.162–20. (Sec. 162, ’86 Code.) loans for working capital, and his relative success in obtaining charter business. His operating costs Rev. Rul. 78-114, 1978-1 C.B. 44. Business expenses mining corporation deducted, as a supply expense, the cost of movable conveyor equipment with an approximate life expectancy of five years that was used to maintain the production level of coal but neither materially increased the mine’s value nor decreased the cost of production. Held, the expenditures were deductible as ordinary and necessary business expenses. (Sec. 162, ’86 Code.) Leland Adkins, 51 T.C. 957, Acq., 1970-1 C.B. xv. personal expenses even though the automobile was also used to transport his overnight bag and his flight bag. §§1.162-2, 1.262-1. (Secs. 162, 262; ’86 Code.) Fausner, 413 U.S. 838, Ct. D. 1967, 1974-2 C.B. 42. expense. §§1.162–1, 1.170-1. (Secs. 162, 170; ’86 Code.) Rev. Rul. 72-314, 1972–1 C.B. 44. 60.75 Contributions; charitable organization cooperating in advertising program. Amounts paid by a corporation to a charitable organization 60.69 Commuting; transportation of work for the use of its name and cooperation in connecequipment. A taxpayer who can establish that tion with the corporation’s advertising program transportation costs were incurred in addition to are not gifts or contributions but are deductible ordinary commuting expenses, and such addi- business-expenses. §§1.162–15, 1.170-3. (Secs. 60.65 Collateral use; subordinated deben- tional costs are attributable solely to the necessity 162, 170; ’86 Code.) Rev. Rul. 63-73, 1963-1 C.B. 35. of transporting work implements to and from tures under collateral agreement. Subordinate debentures issued under collateral and cash agree- work, will be entitled to deduct such additional 60.76 Contributions; contingent liability; ments by member organizations of the New York costs under section 162. A reasonable and feasible supplemental unemployment benefit plan.The Stock Exchange to maintain the required debt-to- method of allocation of transportation costs is to Revenue Service will not follow the Lukens Steel capital ratio constitute valid indebtedness. The compute the portion of the cost of transporting the Co. decision that an accrual basis taxpayer may amounts, other than principal, paid under the cash work implements by the mode of transportation deduct currently amounts recorded as a contingent agreements and the interest paid on the indebted- used in excess of the cost of commuting by the liability for contributions to a union-management ness are deductible by the organizations under sec- same mode of transportation without the work negotiated supplemental unemployment benefit tion 163. Amounts paid to the lender for the use of implements. The ruling is not applicable prior to plan. If a contingency exists as to payment of an the collateral are deductible under section 162. January 1, 1976, for taxpayers qualifying under obligation, and such contingency relates to other Income from the pledged collateral is includible in Rev. Rul. 63–100. Rev. Rul. 56–25 superseded and than the ability of an obligor to pay, the obligation the lender-owner’s gross income and sale of the Rev. Rul. 63-100 revoked. §§1.162-2, 1.262-1, is not fixed within the meaning of section collateralized securities results in a recognized 301.7805-1. (Secs. 162, 262, 7805; ’86 Code.) 1.461-1(a)(2) of the regulations. §§1.162-10, Rev. Rul. 75-380, 1975-2 C.B. 59. gain or loss. Distinguished by Rev. Rul. 83-98. 1.461–1. (Secs. 162, 461; ’86 Code.) §§1.61–1, 1.162–1, 1.163-1, 1.302-1. (Secs. 61, Rev. Rul. 72-34, 1972–1 C.B. 132. 60.70 Compensation to corporate officer; 162, 163, 302; ’86 Code.) trust income; dividends on stock. Income of a 60.77 Contributions; employees’ trusts; Rev. Rul. 73-122, 1973-1 C.B. 66. revocable trust consisting solely of dividends on reimbursement. Where, pursuant to contract, a f e e s ; installment 60.66 Commitment stock of the corporate-settler, which is payable to shipowner reimbursed a stevedore contractor for accounts. A merchant who sells his installment a corporate officer as additional compensation, the costs of a union negotiated qualified pension accounts receivable to a bank at a discount under may be deducted by the corporation as a business plan for employees of the contractor, the amounts a commitment agreement may sustain an ordinary expense, provided that such amount together with paid constitute a part of the cost of the services renloss. Defaulted accounts repurchased at their the other sums paid the officer as compensation is dered, and are deductible as business expenses by unpaid balance again become part of his install- reasonable. The officer is required to report as the shipowner. The contractor must include in ment accounts receivable and the basis is the compensation the amount of trust income paid to gross income amounts received as reimbursement repurchase price. Accounts which have been or him. I.T. 2358 superseded. §1.162-1. (Sec. 162, for contributions paid by him, and is entitled to a deduction with respect to the amounts actually are to be sold should not be considered in comput’86 Code.) paid. §1.404(o)-1. (Secs. 61, 162, 404; ’86 Code.) ing additions to the reserve for bad debts. CommitRev. Rul. 69-559, 1969-2 C.B. 25. Rev. Rul. 57-104, 1957-1 C.B. 166. ment fees incurred do not constitute interest but are deductible as ordinary and necessary business 60.71 Construction of hall of fame; profesexpenses. §§39.23(a)–1, 39.23(b)–1, 39.23(f)-1, sional sports club. Amounts expended by a pro- 60.78 Contributions; group health insurance 39.113(a)-2, 39.117(a)-1. (Secs. 23(a), 23(b), fessional sports club to finance construction of a for retired employees. The “retired lives 23(f), 113(a), 117(a), ’39 Code; Secs. 162, 163, hall of fame, to be owned by the city in which it is reserve” maintained by an insurance company located, are business expenditures incurred in the under an accrual-basis corporation’s group insur165, 1012, 1221, ’86 Code.) ordinary course of a trade or business with busi- ance program for both active and retired Rev. Rul. 54-43, 1954-1 C.B. 119. ness benefits extending beyond the taxable year. employees and attributable to premiums pre60.67 Commuting. Revenue Ruling 76-453 set The expenditures are amortizable but would not viously deducted, transferred at the corporation’s forth a change in the Service position on the treat- extend beyond the useful life of the building request to an exempt trust to provide insurance coverage for retired employees, is includible in the ment of certain commuting expenses. Announce- erected. §1.162–1. (Sec. 162, ’86 Code.) corporation’s gross income. Further, the corporament 77–147, 1977-42 I.R.B. 45, suspended Rev. Rul. 66-277, 1966-2 C.B. 42. tion’s annual contributions to the trust after the indefinitely the effective date of that ruling thereby negating the revocation of Revenue Rul- 60.72 Construction of parking lot; mer- transfer are deductible in the taxable year paid or ings 190 and 59–371, and the modification of Rev- chants’ payments to city. Voluntary payments by incurred only to the extent that they are actuarially merchants to a city for the acquisition, paving and determined and made on a level basis. Modified by enue Rulings 54-497, 55–109, 61–67, and 63–82. lighting of land that is adjacent to the business dis- Rev. Rul. 77-92.§§1.61–1, 1.162-10. (Secs. 61, The digests of Revenue Rulings 190 and 59-371 162; ’86 Code.) are repeated below. A worker employed for a tem- trict that will be restricted to use as a customer Rev. Rul. 73-599, 1973-2 C.B. 40. porary period on a construction project away from parking lot for a ten-year period are amortizable the area in which he is regularly employed may business expenses. §1.162-1. (Sec. 162, ’86 60.79 Contributions; group life insurance for deduct, in computing adjusted gross income, his Code.) retired employees. A corporation that transfers a actual expenses incurred for daily transportation Rev. Rul. 69-85, 1969-1 C.B. 49. “retired lives reserve” from the insurance combetween his principal or regular place of employpany maintaining its group insurance program to 60.73 Contributions; area redevelopment another insurance company in accordance with an ment and the project location. (Secs. 62, 162, organizations. A nonprofit corporation organized 3121, 3306, 3401, 6041; ’86 Code.) insurance contract, which provides an option to Rev. Rul. 190, 1953–2 C.B. 303. Any allow- to aid and promote the purposes of the Area Rede- make such transfer or to have the reserve returned ances or reimbursements paid to an employee to velopment Act by providing funds through loans to it, must include in its gross income the portion cover daily transportation expenses and expenses to purchaser develop land and facilities to allevi- of the reseve accumulated out of premiums paid or for meals and lodging will be subject to income tax ate unemployment in areas classified as “redevel- incurred in taxable years ended on or before June withholding when (1) the employee has worked opment areas” qualifies for exemption. Contribu- 17, 1969, for which it received deductions, plus for a substantially continuous period of one year tions to the organization may be deducted as the interest attributable to those years, The portion in the project area; or (2) if, at the time the business expenses if such contributions bear a of the reserve accumulated in taxable years after employee is hired, it is contemplated that his direct relationship to a donor’s business and are that date, for which premiums were not deducted, assignment or series of assignments in the area made with a reasonable expectation of a financial is not includable except for the interest. Rev. Rul. may continue for more than one year; or (3) if it return commensurate with the amount of the con- 73-599 modified. §§1.61–1, 1.162–10. (Secs. 61, becomes apparent at any time that the employee’s tribution. §§1.162–1, 1.501(c)(4)–1. (Secs. 162, 162; ’86 Code.) services may reasonably be expected to continue 501; ’86 Code.) Rev. Rul. 77-92, 1977-1 C.B. 41. Rev. Rul. 64-187, 1964-1 (Part 1) C.B. 187. in the area for more than one year. §1.162–1. 60.80 Contributions; hospital association. (Secs. 162, 3401; ’86 Code.) 60.74 Contributions; brokerage corporation. Payments by a corporation to a hospital associaRev. Rul. 59-371, 1959-2 C.B. 236. A stock brokerage corporation’s payments to a tion, under an agreement which furnished the tax60.68 Commuting; transportation of work charitable organization described in section payer with particular rights and interests for its 170(c)(2), made with a reasonable expectation of employees for a period of ten years in certain propequipment. Automobile expenses of a commercial airline pilot in commuting between his home a financial return commensurate with the amount erties and facilities of a hospital to be constructed, and his place of employment are nondeductible of the payment, are deductible as a business are not deductible as charitable contributions or as Business expenses business expenses, but constitute capital expenditures. §§39.23(a)–1, 39.23(q)–1, 39.24(a)–2. (Secs.23(a), 23(q), 24(a), ’39 Code; Secs. 162, 170, 263, ’86 Code.) Rev. Rul. 55-616, 1955-2 C.B. 545. 60.81 Contributions; Indiana Employment Security Act. Voluntary contributions under the Indiana Employment Security Act are an allowable business expense so long as they serve to reduce the rate of required contributions. However, where the taxpayer has made sufficient voluntary contributions to qualify for the minimum rate, further voluntary contributions are not deductible. Required contributions are deductible, but not if capitalized by the taxpayer. Additions to contingent reserves for anticipated contributions are not deductible. I.T.s 3013 and 3650 superseded. §1.162–10. (Sec. 162, ’86 Code.) Rev. Rul. 71–59, 1971-1 C.B. 56. 60.82 Contributions; political convention; local committee. A contribution by a taxpayer engaged in a trade or business in a locality, to a committee organized to bring a national political convention to such locality, is a deductible business expense, provided such contribution is made with a reasonable expectation of a financial return commensurate with the amount of the contribution. §39.23(a)–1. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul 55-265, 1955-1 C.B. 22. 60.83 Corporate salaries in connection with corporate mergers and acquisitions. The portion of the compensation paid by a corporation to its employees attributable to services performed in connection with corporate mergers and acquisitions must be capitalized; however, such amounts paid with respect to abandoned plans for mergers or acquisitions are deductible as losses in the year of abandonment. §§1.165–1, 1.263(a)–1. (Secs. 165, 263; ’86 Code.) Rev. Rul. 73–580, 1973-2 C.B. 86. 60.84 Cost of goods; unreported sales. Taxpayer was entitled to deduct the unreported cost of goods sold attendant to the unreported sales included by the Commissioner in gross income. (Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.) Nathan Goldsmith, 31 T.C. 56, Acq., 1959-1 C.B. 4. 60.85 Cost of materials; cash method taxpayer; year of deduction. A cash method taxpayer that is engaged in the uniform rental business, in which it is necessary to maintain a supply of uniforms to replace worn or damaged uniforms and to supply new customers, must defer its deduction for amounts paid to purchase rental uniforms until the taxable year they are placed in service. §§1.162–3,1.446–1, 1.461–1. (Secs. 162, 446, 461; ’86 Code.) Rev. Rul. 78–382, 1978-2 C.B. 111. 60.86 Current payment profit-sharing plan; affiliated group. Amounts paid under an employees’ current payment profit-sharing plan may be deductible in the year of accrual even though paid shortly after the close of the taxable year. Each member of an affiliated group may deduct only the payment made by it to its own employees from its own profits. The affiliated group may not claim the benefits of section 404(a)(3)(b) of the Code. §1.404(a)–10. (Secs. 162, 404; ’86 Code.) Rev. Rul. 57–88, 1957-1 C.B. 88. 60.88 Damages; lawsuit settlement payment; breach of franchise agreement. A taxpayer who operates a business under a franchise agreement was sued by the franchise transferor, who had retained significant rights under the agreement, for failure to pay the required monthly fee based on a percentage of gross sales. An amount paid by the taxpayer in settlement of the lawsuit and for a release of all claims under the agreement is deductible under section 162(a). §1 162–1. (Secs. 162, 1253; ’86 Code.) Rev. Rul. 79-208, 1979-2 C.B. 79. 60.89 Damages; punitive; civil suit. Amounts paid by a corporation as punitive damages that arose as a result of a civil lawsuit against the corporation for breach of contract and fraud in connection with the ordinary conduct of its business activities are deductible as ordinary and necessary business expenses. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 80-211, 1980-2 C.B. 57. 60.90 Damages and attorney’s fees; Fair Labor Standard Act. Liquidated damages and reasonable attorney’s fees allowed by the courts, pursuant to section 16(b) of the Fair Labor Standards Act of 1938, are deductible as business expenses. I.T. 3762 superseded. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 69-581, 1969-2 C.B. 25. 60.91 Day care provision for employees’ preschool children. A corporation’s payments to a day care center to provide care for the preschool children of its factory employees while they are at work are deductible business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 73-348, 1973-2 C.B. 31. 60.92 Day care service; Child Care Food Program. Payments received from a sponsoring charitable organization pursuant to the Child Care Food Program are excludable from day care home operator’s gross income to the extent that such payments do not exceed expenses incurred in feeding children eligible for assistance under the program. Any portion of the payment that compensates the operator for services is includible in income. Out-of-pocket expenses in excess of reimbursement are deductible under section 170 where no profit motive exists and under section 162 where such motive does exist. §§1.61-1, 1.162-1, 1.170A-1. (Secs. 61, 162, 170; ’86 Code.) Rev. Rul. 79-142, 1979-1 C.B. 58. 60.93 Day care services in own home. Factual situations illustrate the tax treatment of amounts received and amounts expended by individuals providing child care services in their own homes. Rev. Rul. 56-70 superseded. §§1.61-1, 1.62-1, 1.162-1, 1.170-2, 1.1401-1. (Secs. 61, 62, 162, 170, 1401, 3121, 3306, 3401; ’86 Code.) Rev. Rul. 77–279, 1977–2 C.B. 304. contractor who uses the cash receipts and disbursements method of accounting and the payment is made pursuant to an arrangement that defers the contractor’s receipt of the fees more than a brief period of time beyond the taxpayer’s taxable year in which the services are rendered, section 404(d) applies, and the taxpayer may not deduct the fees until its taxable year that contains the last day of the contractor’s taxable year in which the contractor includes the fee in income. §§1.404(b)-1T, 1.461(h)-4T. (Secs. 404, 461; ’86 Code.) Rev. Rul. 88–68, 1988–2 C.B. 117. 60.96 Depositors’ tax paid by financial institutions; Ohio. Rev. Rul. 77-418, relating to the intangible property tax levied by the State of Ohio on deposits in financial institutions, will not be applied for any purpose to such tax if the date fixed for the listing and assessment of the deposits occurs prior to December 1, 1978. Rev. Rul. 77–418 clarified, Rev. Rul. 78–79 superseded. §§1.164-1, 301.7805-1. (Secs. 164, 7805; ’86 Code.) Rev. Rul. 78-337, 1978-2 C.B. 346. 60.97 Depositors’ tax paid by financial institutions; Ohio. Taxes levied by the State of Ohio on deposits in financial institutions are deductible by the financial institution paying or accruing the taxes under section 164(a) for the duration of the suspension of section 5719.12 of the Ohio Rev. Code, which provides that financial institutions may deduct the taxes paid on deposits from depositors’ accounts. Rev. Rul. 77-418 suspended. §1.164-1. (Sec. 164, ’86 Code.) Rev. Rul. 79-357, 1979–2 C.B. 83. 60.98 Dikes, seawalls, etc., to counteract land subsidence. Amounts expended for construction of seawalls, dikes, pumping facilities, etc., to counteract land subsidence are capital expenditures and may be recovered through an allowance for depreciation over the useful life of the facilities, depending upon construction and the rate of subsidence to which they are subjected. However, repairs, maintenance, and moving costs occasioned by subsidence, are currently deductible business expenses. §§1.162-1, 1.167(a)-1, 1.263(a)-1. (Sec. 162, 167, 263; ’86 Code.) Rev. Rul. 60-386, 1960–2 C.B. 107. 60.99 Doctors’ hospital; operating deficit paid by partnership. A partnership of physicians organized a nonprofit hospital corporation which admitted only partnership patients. Patients were attracted to the partnership because of its unrestricted access to the hospital. Doctors’ fees received by the hospital were paid to the partnership and any operating deficits of the hospital were paid by the partnership. Held, payments to the hospital were ordinary and necessary business expenses of the partnership. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Charles J. Dinardo, 22 T.C. 430, Acq., 1954-2 C.B. 4. 60.100 Dues; membership in chamber of commerce. Membership fees or dues paid to the chamber of commerce by corporate employees are deductible business expenses when the membership is employed as a means of carrying out substantive duties of employment. S.M. 4291 superseded. §1.162–15. (Sec. 162, ’86 Code.) Rev. Rul. 72–192, 1972-1 C.B. 48. 60.101 Dues; membership in charitable organization. Membership dues, paid to a charitable organization, which do not entitle the member to any benefits or privileges in return, are deductible as charitable contributions; however, where the payment entitles the member to certain benefits or privileges, such dues are not deductible as charitable contributions, but may represent a deductible business expense. Modified by Rev. Rul. 68-432 to indicate that the payment of such dues is deductible as a charitable contribution to the extent the 60.94 Debt owed estate satisfied; compound novation. State courts ordered the taxpayer corporation to pay additional compensation for the services of its deceased former president, whose estate became obligated to make restitution to his heir of dividends improperly paid in prior years. The court decree effected a compound novation whereby the taxpayer discharged its obligation to pay compensation by assuming the obligation of the estate. Held, the payment by the corporation was in discharge of its obligation to pay compensation, not a payment of dividends, and was a 60.87 Damages; cancellation of lease. A lump deductible business expense. (Sec. 23(a), ’39 sum payment by a lessee as damages for cancella- Code; Sec. 162, ’86 Code.) tion of a business lease that is equal to a certain Bear Film Co., 18 T.C. 354, Acq., 1955-1 C.B. amount for each month of the unexpired term is 3 . deductible as a business expense. O.D. 974 superseded. §§1.162–1,1.162–11. (Sec. 162, ’86 60.95 Deferred payments for services. If a taxpayer that uses the accrual method of accounting Code.) pays fees for services rendered by an independent Rev. Rul. 69–511, 1969-2 C.B. 23. Business expenses payment exceeds the monetary value of the benefits and privileges available by reason of such payment. §§39.23(a)–5, 39.23(0)–1, 39.23(a)–1. (Secs. 23(a), 23(o), 23(q), ’39 Code; Secs. 162, 170, ’86 Code.) Rev. Rul. 54-565, 1954-2 C.B. 95. 60.102 Dues; officers’ or noncommissioned officers’ club. Dues paid by members of the Armed Forces of the U.S. to an officers’ or noncommissioned officers’ club are not so directly connected with the carrying on of their trade or business as to constitute an ordinary and necessary business expense. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 55-250, 1955-1 C.B. 270. 60.103 Earthen terraces. Taxpayer attempted to prevent soil erosion on the farms he had cultivated for many years by grading the land into earthen terraces. Held, the expenses of terracing were for maintainance and conservation, not for permanent improvements, and were deductible business expenses. (Secs. 23(a), 24(a), ’39 Code; Secs. 162, 263, ’86 Code.) J. H. Collingwood, 20 T.C. 937, Acq., 1954-1 C.B. 4. 60.104 Economic Stabilization Act; excessive wage-price payments. The portion of a taxpayer’s payment of wages and salaries after August 15, 1971, and rents and price payments after January 26, 1972, in excess of the amount permitted under Executive Order 11640, issued pursuant to the Economic Stabilization Act of 1970, as amended, is not deductible as a business expense under section 162(c)(2), as amended by the Revenue Act of 1971. (Sec. 162, ’86 Code.) Rev. Rul. 72–236, 1972-1 C.B. 41. 60.105 Employee; blind; readers. Payments made by blind employees to readers for services performed in connection with the conduct of the blind employees’ work are deductible as business expenses under section 162 and not as medical expenses under section 213. Rev. Ruls. 57-461, 58-382, and 71-45 distinguished. §§1.162-1, 1.213-1. (Secs. 162, 213; ’86 Code.) Rev. Rul. 75-316, 1975-2 C.B. 54. 60.106 Employee; contributions to private unemployment fund. Unemployment benefits from a private fund, as distinguished from a union established fund, established and contributed to by members who receive the benefits of such fund, constitute gross income to the member when received to the extent they exceed the amount which the member personally contributed to the fund. Contributions to the fund are not deductible by the contributors. §§1.61-1, 1.162-1. (Secs. 61, 162; ’86 Code.) Rev. Rul. 59-5, 1959-1 C.B. 12. 60.107 Employee; convention expenses. Expenses incurred by employed individuals in attending conventions which are ordinary and necessary and directly related to their trade or business are deductible. §§39.22(n)-1, 1.62-1, 1.162-2. (Sec. 22(n), ’39 Code; Secs. 62, 162, ’86 Code.) Rev. Rul. 60-16, 1960-1 C.B. 58. 60.108 Employee; firemen participating in organized mess. Payments to an organized mess that are required of a fireman by his immediate superiors at the fire station, irrespective of whether the fireman leaves his assigned duty station during the normal 24-hour shift and actually participates in the mess, are expenses directly and proximately related to the active conduct of the fireman’s trade or business and are deductible under section 162(a). Robert E. Cooper, 67 T.C. 870, Nonacq., 1978–1 C.B. 2; Richard R. Sibla, 68 T.C. 422, Nonacq., 1978–1 C.B. 3. 60.109 Employee; handicapped; payments for helpers. Examples are given of situations where amounts paid by handicapped taxpayers for travel, meals, and lodging for related and unrelated helpers who must perform certain services for them on business trips are considered business expenses under section 162, medical expenses under 213, or nondeductible personal expenses under section 262. § §1.162–2, 1.213–1. (Secs. 162, 213; ’86 Code.) Rev. Rul. 75-317, 1975-2 C.B. 57. 60.110 Employee; industrial insurance debit agents. Industrial insurance debit agents employed by insurance companies to collect, service and sell weekly and monthly insurance policies are not considered to be “outside salesmen.” Amplified to provide that in determining adjusted gross income, such agents may deduct local transportation and travel expenses incurred in connection with their employment. Other ordinary and necessary business expenses are deductible in computing taxable income. §§1.62–1, 1.162–17. (Secs. 62, 162; ’86 Code.) Rev. Rul. 58–175, 1958–1 C.B. 28; Rev. Rul. 59-396, 1959-2 C.B. 29. 60.111 Employee; liability insurance. The cost of liability insurance arranged by a corporation and paid by its principal executives, who were not officers or directors, to protect the executives against liability for wrongful acts while acting as corporate employees is deductible as a business expense provided deductions are itemized. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 76-277, 1976-2 C.B. 41. 60.112 Employee; office in personal residence. An employee who, as a condition of his employment, is required to provide his own space and facilities for performance of his duties and regularly uses a portion of his personal residence for that purpose may deduct a pro rata portion of the expenses of maintenance and depreciation on his residence. Guidelines for computing the deduction to which the employee is entitled are set forth. §§1.62-1, 1.161-1, 1.162-1, 1.167(a)-1. (Secs. 62, 161, 162, 167; ’86 Code.) Rev. Rul. 62-180, 1962-2 C.B. 52. 60.113 Employee; outside salesman. A salesman who is required by his employer as a regular part of his employment to engage in selling activities at his employer’s place of business for a specified period of time each week does not qualify as an outside salesman for the purpose of section 62(2)(D). §§1.62-1. (Sec. 62, ’86 Code.) Rev. Rul. 62-85, 1962-1 C.B. 13. 60.114 Employee; president of union representing federal employees. An employee of a federal agency may not deduct expenses incurred in running for president of a union representing the employees of the agency. The employee, as president of the union, may deduct expenses incurred in representing or assisting employees in presenting grievances before the agency. §1.162–1. (Sec. 162. ’86 Code.) Rev. Rul. 83-181, 1983-2 C.B. 39. 60.115 Employee; privately owned airplane; official business. Expenses incurred by a Federal Government employee in operating his privately owned airplane on official business are deductible as business expenses. Such expenses include depreciation on the airplane to the extent allocable to business use. §§1.162–1, 1.167(a)–1. (Secs. 162, 167; ’86 Code.) Rev. Rul. 70-558, 1970-2 C.B. 35. 60.116 Employee; reimbursement arrangements. An arrangement requiring a salaried employee to pay his own expenses in connection with the employment does not constitute a reimbursement, or other expense allowance arrangement as to permit deductions for other than traveling expenses in computing adjusted gross income. A reimbursement arrangement exists only where the reimbursement or other expense allowance is identified by separate payment or by specifically indicating the wage and expense allowance in a single payment. §39.22(n)–1. (Sec. 22(n), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 55-288, 1955-1 C.B. 257. 60.117 Employee; reimbursement for operation and maintenance of tools. Reimbursement an employee-sawyer receives for the operation and maintenance of the individual’s own saws is includable in gross income. The costs, to the extent of the reimbursement, are deductible in computing adjusted gross income and expenses incurred in excess of the reimbursement are deductible as an itemized deduction. §§1.61–1, 1.62–1, 1.162–1. (Secs. 61, 62, 162; ’86 Code.) Rev. Rul. 75-497, 1975-2 C.B. 29. 60.118 Employee; representing fellow employee. A Federal employee who represented a fellow employee in the presentation of a complaint filed with the employer was acting within the scope of his employment and expenses for transportation, handbooks, manuals, and the reproduction of documents incurred in connection with the preparation of the complainant’s case are deductible as business expenses. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 74-514, 1974-2 C.B. 41. 60.119 Employee; seeking new employment. Expenses incurred by an individual in seeking new employment in the employee’s continuing trade or business are deductible as business expenses even though new employment was not obtained. This Revenue Ruling will not be applied to fees paid to secure employment in the case of situations similar to those in Rev. Ruls. 71–308 and 60-223 before April 21, 1975. Rev. Ruls. 60-223, 70-396, and 71–308 revoked; clarified by Rev. Rul. 77–16. §§1.162-1, 1.212-1, 1.262-1, 301.7805-1. (Secs. 162, 212, 262, 7805; ’86 Code.) Rev. Rul. 75–120, 1975–1 C.B. 55; Leonard F. Cremona, 58 T.C. 219, Acq., 1975-1 C.B. 1. 60.120 Employee; seeking new employment. Travel and transportation expenses incurred by an individual in seeking new employment in the same trade or business are deductions in computing adjusted gross income; the expenses of typing, printing, and mailing a resume are allowable as itemized deductions. Rev. Rul. 75–120 clarified. §§1.62-1, 1.162-1. (Secs. 62, 162; ’86 Code.) Rev. Rul. 77-16, 1977–1 C.B. 37. 60.121 Employee; seeking new employment; same trade or business. Expenses incurred by a design engineer in seeking new employment in the same trade or business are deductible if directly connected with such trade or business as determined by all the objective facts and circumstances even though the new employment offered was not accepted. (Secs. 162, 262; ’86 Code.) Kenneth R. Kenfield, 54 T.C. 1197, Acq., 1978-2 C.B. 2. 60.122 Employee; subscription to official work manual. A Federal law enforcement agency employee whose duties require extensive travel and frequent reference to the agency’s official work manual may deduct the cost of a subscription to the manual. §1.162–1. (Sec. 162, ’86 Code. Rev. Rul. 78–2 C.B. 107. 60.123 Employee; union assessments for pension fund. A union member’s contributions to a union pension fund that is not qualified under either section 401 or 408(c) are not deductible as business expenses under section 162 but are treated as the member’s investment in the contract under section 72(c). §§1.162–1, 1.262–1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 83–2, 1983–1 C.B. 42. 60.124 Employer contributions; apprenticeship program. Contributions made by an Business expenses York. Contributions made by employers and employees to the New York nonoccupational disability benefit fund are deductible as taxes, and contributions made by employers to private plans for the payment of nonoccupational disability benefits are deductible as business expenses. Amounts withheld from wages of employees for contributions to private plans are not deductible as 60.125 Employer contributions; disaster taxes, business expenses or as medical expenses, relief. Contributions made by a corporation to pro- but are nondeductible personal expenses. Rev. mote the rehabilitation of its employees and their Rul. 71-73 superseded and Rev. Rul. 72-191 families who sustained injuries or damages in a modified. §§1.162.1, 1.164–1, 1.213–1, 1.262–1. tornado are deductible as business expenses; such (Secs. 162, 164, 213, 262; ’86 Code.) Rev. Rul. 81-192, 1981-2 C.B. 50. contributions do not constitute income to the employees. Distinguished by Rev. Ruls. 57–1 and 64-329. §§29.22(a)-1, 29.23(a)-13. (Secs. 22(a), 60.132 Employer contributions; payment to deceased employee’s sisters. The payments 23(a), ’39 Code; Secs. 61, 162, ’86 Code.) made by a family-owned corporation to the sisters Rev. Rul. 131, 1953-2 C.B. 112. of a deceased officer in recognition of the valuable 60.126 Employer contributions; employee services he performed for an inadequate salary were intended as death benefits and are deductible benefit trust funds. Employers may deduct as ordinary and necessary business expenses the pay- as business expenses. (Sec. 101, 162, 404; ’86 ments required by union-industry association col- Code.) lective bargaining agreements to a workers’ health John C. Nordt Co., 46 T.C. 431, Acq., 1972-2 facility and recreational center trust fund or to a C.B. 2. fund maintain, through licensed insurance carriers, group term life, accident and health, hospital- 60.133 Employer contributions; private ization, and medical and surgical insurance for the plan; nonoccupational disability benefits. Conbenefit of covered employees and their families. tributions made by an employer under a private §§1.162-10, 1.404(a)-1. (Secs. 162, 404; ’86 plan established pursuant to New Jersey law, to provide payments of nonoccupational disability Code.) benefits to employees in lieu of the benefits of the Rev. Rul. 77-406, 1977-2 C.B. 56. State’s plan are deductible as business expenses. 60.127 Employer contributions; employees’ I.T. 4011 superseded. Distinguished and clarified hospital association. An amount contributed by a by Rev. Rul. 82-95. §1.162-1. (Sec. 162, ’86 corporation to its Employees’ Hospital Associa- Code.) tion for the purpose of constructing a hospital Rev. Rul. 71-209, 1971-1 C.B. 53. building to be used by its employees is deductible as a business expense. §§29.23(a)–1, 29.23(a)–13. 60.134 Employer contributions; unemployment benefit plan. An amendment to a supple(Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) mental unemployment benefit plan, to permit the Rev. Rul. 160, 1953–2 C.B. 114. employer when authorized by an employee to 60.128 Employer contributions; grantor deduct and pay the employee’s union dues from his benefit or separation check, does not affect the trusts. Contributions by an employer to a trust formed to pay its obligations to its employees deductibility of the employer’s contributions. under the state workmen’s compensation act are §1.162-10. (Sec. 162, ’86 Code.) not deductible under section 162 until the trust Rev. Rul. 73-90, 1973-1 C.B. 64. actually pays benefits to the employees because contributions; union the trust is a grantor trust. Rev. Rul. 72–191 distin- 60.135 Employer guished and Rev. Rul. 71–209 distinguished and educational and cultural trust. A statement in an exemption ruling that contributions to a tax-ex1.671-2, 1.671-3, clarified. §§1.162-10, empt union educational and cultural trust are 1.677(a)-1. (Secs. 162, 671, 677; ’86 Code.) deductible by the donors under section 170 does Rev. Rul. 82-95, 1982-1 C.B. 101. not preclude the deduction under section 162 of payments made to the trust by an employer as a 60.129 Employer contributions; insurance result of a collective bargaining agreement if the coverage. A corporation’s nonrefundable contribution to an employees’ trust to provide group payments otherwise qualify as business expenses. health and life insurance for both active and retired §§1.162-10, 1.170-3. (Secs. 162, 170; ’86 Code.) Rev. Rul. 74-51, 1974-1 C.B. 45. employees is deductible. §§1.162–10, 1.404(a)–1. (Secs. 162, 404; ’86 Code.) 60.136 Employer contributions; wage supRev. Rul. 69-478, 1969-2 C.B. 29. plementation plan. Amounts paid by employers in an industry to reach their respective pro rata 60.130 Employer contributions; nonoccupashare of the total industry costs under a workforce tional disability benefits; New York. Employer contributions to a fund to provide for nonoccupa- stabilization utilization plan providing wage suptional disability benefits for employees pursuant plementation benefits for employees whose earnto Article 9 of the New York Workmen’s Com- ings are reduced below certain guaranteed levels pensation Law are contributions to an accident or are deductible as business expenses for the taxable health plan excludable from the employees’ gross year in which paid or accrued depending upon the income and are not wages subject to income tax method of accounting used by the employer. Any withholding; however, they are deductible by the recovery of excess contribution is includable in employer as business expenses. Employees must gross income in the year of recovery to the extent include any nonoccupational disability benefits in that a tax benefit was received for a prior year. their gross income unless the payments qualify for §§1.111-1, 1.162-10. (Secs. 111, 162; ’86 Code.) Rev. Rul. 72-489, 1972-2 C.B. 89. exclusion as amounts received under a wage continuation plan. I.Ts. 4010, 4060 and 4075 and Rev. Ruls. 130 and 257 superseded. Amplified by Rev. 60.137 Employer contributions; workmen’s Rul. 75-499. Modified by Rev. Rul. 81–192. Dis- compensation; lump sum payment to State. An tinguished by Rev. Rul. 82–95. §§1.61–1, employer’s lump sum payment covering past 1.104–1, 1.105–1, 1.106-1, 1.162-10. (Secs. 61, employment loss obligations required by a State to permit the employer to withdraw from the Work104, 105, 106, 162, 3402; ’86 Code.) men’s Compensation Insurance Fund and become Rev. Rul. 72-191, 1972-1 C.B. 45. self-insured is a deductible business expense in the year paid. §1.162-10. (Sec. 162, ’86 Code.) 60.131 Employer contributions; nonoccupaRev. Rul. 74-139, 1974-1 C.B. 46. tional disability benefits; private plans; New employer to a joint apprenticeship and training trust fund pursuant to a collective bargaining agreement between the employer and a local union are deductible as business expenses in the taxable year in which paid or incurred. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 58-238, 1958-1 C.B. 90. 60.138 Employment fees; corporate executive. A corporate financial executive entered into a contract with an organization performing services similiar to those performed by an employment agency which successfully assisted him in obtaining a new position as a corporate executive. He had agreed to pay fees and expenses regardless of whether he obtained new employment. Held, the fee paid was a deductible business expense incurred in the trade or business of being a corporate executive. (Sec. 162, ’86 Code.) David J. Primuth, 54 T.C. 374, Acq. in result, 1972–1 C.B. 2. 60.139 Engineering and designing; no legal obligation. A corporation owning fifty percent of the taxpayer’s stock contracted with a manufacturer for the manufacture of blenders and steam irons for the taxpayer. The taxpayer incurred engineering and designing expenses in aiding the manufacturer in producing marketable products. The steam irons were defective and were withdrawn from the market. A dispute concerning payment for the defective irons was settled by a payment in money and a transfer to the manufacturer of steam iron tools belonging to the taxpayer. Held, the engineering and designing costs including those paid by transfer of the tools were deductible by the taxpayer, even though there was no underlying legal obligation. (Sec. -23(a), ’39 Code; Sec. 162, ’86 Code.) Waring Products Corp., 27 T.C. 921, Acq., 1957-2 C.B. 7. 60.140 Environmental impact studies. A pub- lic utility company conducted, and paid another organization to conduct, environmental impact studies to support its application to state regulatory agencies to expand its generating facilities. The expenses are not research and experimental expenditures. However, if not chargeable to a capital account, the expenses are deductible business expenses. §§1.162–1, 1.174–2. (Secs. 162, 174; ’86 Code.) Rev. Rul. 80-245. 1980–2 C.B. 72. 60.141 Equipment installed on unrelated corporation’s premises. The tax treatment of an air pollution scrubber that the owner pays to have installed, operated, and maintained on the premises of an unrelated corporation is discussed. §§1.48–1, 1.61–1, 1.162–1, 1.167(a)–2. (Secs. 48, 61, 162, 167; ’86 Code.) Rev. Rul. 79-264, 1979-2 C.B. 92. 60.142 FacuIty member’s payment for substitute. A faculty member who is granted a sabattical leave at full salary and, as conditions of being granted the leave and of continued employment, must pay a fixed nonrefundable percentage of such salary into a fund used to compensate substitute faculty members during the leave period must Include the full salary in gross income and may deduct amounts paid into the fund. §§1.61-2, 1.162-1. (Secs. 61, 162; ’86 Code.) Rev. Rul. 76-286, 1976-2 C.B. 41. 60.143 Family vacation from foreign assign- ment; corporate deduction.A Bahamian corporation, operating in the Philippines, and a domestic corporation each paid a percentage of the Philippine operation manager’s salary, with the domestic corporation additionally paying travel expenses for the manager and his family to vacation in the U.S. Held, the travel expenses were fully deductible by the domestic corporation and did not have to be restricted to the percentage of annual salary it paid. (Sec. 162, ’86 Code.) Ross Glove Co., 60T.C. 569, Acq., 1974–1 C.B. 2. 60.144 Farmers; hay raised for feeding. A n accrual method cattle raiser valuing his cattle inventory under the unit-livestock-price method is not required to inventory hay that he raises and Business expenses intends solely for the feeding of his herd. §§1.162-3, 1.471-1. (Secs. 162, 471; ’86 Code.) Rev. Rul. 74-527, 1974–2 C.B. 42. 60.145 Farmers; irrigation assessment. A n assessment imposed by an irrigation district, a subdivision of a state, against all farm property within the district, is not deductible as a tax. The portion of the assessment attributable to operation and maintenance, administration, and water purchase costs is deductible as a trade or business expense and the portion attributable to repayment of the cost of the water distribution system is treated as an adjustment to increase the basis of the property with respect to which the assessment is paid. §§1.162–12, 1.164–1, 1.1016–1. (Secs. 162. 164, 1016; ’86 Code.) Rev. Rul. 67–337, 1967–2 C.B. 92. 60.146 Farmland; value of summer fallow. The value of summer fallow separately stated in a contract for the purchase of farmland is part of the purchase price and is neither deductible as a business expense by the buyer nor reportable as ordinary income by the seller. §§1.61–6, 1.162–12. (Secs. 61, 162; ’86 Code.) Rev. Rul. 71-348, 1971-2 C.B. 122. 60.147 Fee for lifetime use of hospital facilities. A fee paid by a physician to a hospital in exchange for a nontransferable lifetime privilege to use the hospital’s facilities is a capital expenditure recoverable by amortization deductions based on the physicians’s life expectancy at the date of acquisition. Where it can be established that circumstances merit a shorter life, such shorter life should be utilized in computing the amortization deduction. §§1.162-1, 1.167(a)-3, 1.263(a)-1. (Secs. 162, 167, 263; ’86 Code.) Rev. Rul. 70-171, 1970-1 C.B. 55. 60.148 Fees from private practice remitted to medical school. Fees received by a medical school faculty member from his private professional practice are includible in his, gross income even though, under the terms of his contract of employment with the school, all or a part of such fees must be turned over to the school. Those fees actually turned over to the school may be deducted as business expenses. Distinguished by Rev. Rul. 69–275. O.D. 1009 superseded. §1.61-2. (Sec. 61, ’86 Code.) Rev. Rul. 66-377, 1966–2 C.B. 21. 60.149 Filing fee; candidate for election; North Carolina. The primary filing fee, required of candidates for political office by section 163–120 of the General Statutes of North Carolina, is not deductible as a business expense, as a tax, or as an expense paid or incurred for the production of income. Rev. Rul. 57–345 revoked. §§1.162-1, 1.164-1, 1.212-1. (Secs. 162, 164, 212; ’86 Code.) fore, deductible as a business expense under section 162(a). §1.162–21. (Sec. 162, ’86 Code.) Rev. Rul. 88-46, 1988-1, C.B. 76. personal gifts, but deductible as business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Olivia de Havilland Goodrich, 20 T.C. 323, Acq., 1953-2 C.B. 4. 60.153 Flood protection; temporary dikes. The cost of constructing and removing temporary dikes to protect business and non-business property from flooding is not allowable as a casualty loss; however, such cost incurred to protect business property is deductible as a business expense. §§1.162-1, 1.165-7. (Secs. 162, 165; ’86 Code.) Rev. Rul. 70-90, 1970-1 C.B. 37. 60.154 Foster parents. Factual situations illustrate the tax treatment of amounts received and amounts expended by individuals providing foster care to children. I.T. 4068 superseded. §§1.61–1, 1.62-1, 1.151-2, 1.162-1, 1.170-2, 1.1401-1, 1.6041-1. (Secs. 61, 62, 151, 162, 170, 280A, 1401, 3121, 3306, 3401, 6041; ’86 Code.) Rev. Rul. 77-280, 1977-2 C.B. 14. 60.160 Guaranty payments; savings and loan association. Payments made by attorneys pursuant to an agreement to underwrite the operating deficits of a newly organized Federal savings and loan association for its initial three years were intended to develop an additional source of fees from abstract work and therefore were deductible business expenses, not capital expenditures. (Sec. 162, ’86 Code.) Cubbedge Snow, 31 T.C. 585, Acq., 1959-1 C.B. 5. 60.161 Guide dog. The cost of maintaining a guide (“seeing-eye”) dog which a blind taxpayer uses daily in the conduct of his business is not a deductible business expense. The cost is a deductible medical expense. Distinguished by Rev. Rul. 75-316. (Secs. 162, 213; ’86 Code.) Rev. Rul. 57–461, 1957-2 C.B. 116. 60.162 Health spa; physical condition as requirement of employment. Health spa expenses incurred by a law enforcement officer who, as a condition of employment, was required to be in excellent physical condition are not deductible as trade or business expenses under section 162 but are nondeductible personal expenses. §§1.162–1, 1.262–1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 78–128, 1978–1 C.B. 39. 60.163 Home office deduction; principal place of business; outside salesman. Guidance and examples are provided for determining whether a taxpayer’s home office qualifies as a principal place of business under section 280A(c)(1)(A) of the Code, in light of Soliman, 113 S. Ct. 710. Notice 93–12, 1993-1 C.B. 298. 60.164 Housing advice for minority group employees. Fees paid by an employer to an exempt organization under an agreement which provides that the organization will assume an advisory and consultant role with respect to the securing of open housing for the employer’s minority group employees are deductible by the employer as a business expense. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 68-2, 1968–1 C.B. 61. 60.165 Improvements; shopping area; cityowned property. Voluntary payments by a property owner toward construction of improvements to a downtown shopping area on city-owned property are business expenses amortizable over the ten-year period during which the city will maintain the improvements. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 69–86, 1969–1 C.B. 50. 60.166 Indefinite suspension of trade or business. Expenses incurred by an anesthesiologist for the maintenance of professional skills and medical equipment during a period when the anesthesiologist suspended practice indefinitely due to increased rates for malpractice insurance coverage are not deductible as trade or business expenses. §1.162–1, 1.162–2, 1.162–5, 1.162-6. (Sec. 162, ’86 Code.) Rev. Rul. 77–32, 1977-1 C.B. 38. 60.167 Industrial laundry; rental items. A n industrial laundry using the accrual method of accounting is engaged in the rental service of shop towels, garments, gloves, linens, and business shirts that have a useful life to the taxpayer of one year or less. The company maintains a supply of these items and puts them in service only as actually needed in the business. The company charges these items to expense when they are placed in ser- 60.155 Funeral home operator; advances to mutual aid burial association. Voluntary payments were made by the taxpayer to meet operating deficits in the general fund of a mutual aid insurance association organized by the taxpayer and others under State statute to issue burial or life insurance policies for the primary purpose of advertising the organizer’s funeral business. Held, the payments were deductible as ordinary and necessary business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Ray Crowder, 19 T.C. 329, Acq., 1953-1 C.B. 3 . 60.156 Gas injected into hydrocarbon reservoir. Costs incurred for purchased liquefied petroleum gas injected into a hydrocarbon reservoir to increase recovery of native oil, to the extent not recoverable with subsequent production, are deductible in the year such losses can be determined; the remaining costs must be allocated and offset against sale proceeds. Modified to provide that costs incurred after November 5, 1973, for such unrecoverable gas are capital expenditures subject to depreciation. However, the undepreciated portion of such gas is deductible as a loss in the year it can be determined that the remaining gas did not benefit production and the project is a failure. §§1.162-1, 1.165-1, 1.167(a)-1, 1.263(a)-1, 301.7805-1. (Secs. 162, 165, 167, 263, 7805; ’86 Code.) Rev. Rul. 70–354, 1970-2 C.B. 50; Rev. Rul. 73-469, 1973-2 C.B. 84. 60.157 Golden parachute payments; non-deductible. For purposes of section 1274(d), relating to certain transactions in which a debt instrument is issued for property, tables set forth the applicable federal short-term, mid-term, and long-term rates for each six-month period ending as indicated. (Secs. 280G, 467, 468, 483, 1274, 7872; ’86 Code.) Rev. Rul. 84-163, 1984-2 C.B. 179, (6/84) Rev. Rul. 84-163, 1984-2 C.B. 179, (12/84) Rev. Rul. 84-163, 1984-2 C.B. 179, (6/85) Rev. Rul. 85-51, 1985-1 C.B. 287, (12/85) 60.158 Gratuity fund payments by member of a Board of Trade. A commodities trader may not deduct as business expenses, funds required by the commodities exchange to be paid to a fund that will pay death benefits to the beneficiary of the trader. Rev. Rul. 70-342 revoked. §§1.162-1, 1.262-1, 301.7805-1. (Secs. 162, 262, 7805; ’86 Code.) Rev. Rul. 86-80, 1986-1 C.B. 79. 60.159 Gratuities to business associates. A professional actress deducted as business expenses, the cost of valuable items of silver, art, and jewelry given to three business associates whose efforts had contributed to her success. Held, the gifts were directly related to the actresses business, were reasonable in amount, and were not Rev. Rul. 60-366, 1960-2 C.B. 63. 60.150 Fine paid as condition of probation. An amount paid to a charitable organization in satisfaction of a condition of probation imposed by a federal district court is a fine for purposes of section 162(f) and is not deductible under section 162(a). §§1.162-21, 1.170-1. (Secs. 162, 170; ’86 Code.) Rev. Rul. 79-148, 1979-1 C.B. 93. 60.151 Fine paid by union member. A fine paid by a union member to the union for violation of a union rule relating to the basis of payment of wages and as a condition of continued membership in the union is deductible as a business expense. §1.162–1 5. (Sec. 162, ’86 Code.) Rev. Rul. 69–214, 1969–1 C.B. 52. 60.152 Fines and penalties; assessed by EPA. A nonconformance penalty assessed by the Environmental Protection Agency is not a “fine or similar penalty” under section 162(f) and is, there- Business expenses vice. Held, the taxpayer’s treatment of such items is an acceptable method of accounting. §§1.162-3, 1.446-1, 1.461-1. (Secs. 162, 446, 461; ’86 Code.) Rev. Rul. 69-81, 1969–1 C.B. 137. 60.168 Industrial project; leasing arrangeare deductible by the owner as business expenses. §§1.105-2, 1.162-10. (Secs. 105, 162; ’86 Code.) Rev. Rul. 71-588, 1971-2 C.B. 91. incurred during prolonged periods of disability due to injury or sickness, any proceeds derived from such policy are includable in gross income. Premiums paid on such policy are deductible business expenses. §§39.22(a)–1, 39.23(a)–1. (Secs. 22(a), 23(a), ’39 Code; Secs. 61, 162, ’86 Code.) Rev. Rul. 55-264, 1955-1 C.B. 11. 60.174 Insurance; accident policy; paid by employer. Premiums paid by an employer on individual accident policies it purchased for each of its salesmen to provide accidental death benefit and indemnity for total disability are deductible by the employer as business expenses and taxable to the salesmen where the employer retains no incident of ownership in the policies and the employees have full rights, benefits, and privileges thereunder, including the right to name the beneficiary. §§29.22(a)-3, 29.23(a)-1. (Secs. 22(a), 23(a), ’39 Code; Secs. 61, 162, ’86 Code.) Rev. Rul. 210, 1953-2 C.B. 114. ment between corporation and political subdivision; investment income. A corporation described in Rev. Rul. 68–590 must include in its gross income amounts received by the bond trustee from the investment of net bond proceeds during a temporary period and from the investment of the reserve fund if the investment income inures to the benefit of the corporation. Rev. Rul. 68-590 amplified. §§1.61-1, 1.103–1. (Secs. 61, 103; ’86 Code.) Rev. Rul. 86-66, 1986-1 C.B. 9. 60.181 Insurance; disability; overhead reimbursed. Where the terms of a disability insurance policy provide that the benefit payments to be made are reimbursement for loss of income, dismemberment, or loss of life, but do not specifically state that the payments under the contract are to reimburse the policyholder for certain business overhead expenses incurred by the policyholder during a period of disability due to injury or sickness, the premiums paid on such a policy are not deductible as a business expense. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 58–480, 1958-2 C.B. 62. 60.182 Insurance; disability or death of employee. Where an employer is the beneficiary under insurance policies covering the accidental disability or death of employees, he may not deduct the premiums paid as ordinary and necessary business expenses. §§1.104–1, 1.2641, 1.265-1. (Secs. 104, 264, 265; ’86 Code.) 60.169 Industrial project; leasing arrangement with municipality. A leasing arrangement under which a municipality will issue bonds for the financing of equipment to be acquired by a manufacturing corporation and leased, for the term of the bonds plus one day, to the city which will sublease it to the corporation for the term of the bonds for subrentals sufficient to retire the bonds, is a financing arrangement entitling the corporation as owner of the equipment to the tax treatment contained in Rev. Rul. 68–590. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 74-290, 1974–1 C.B. 41. 60.175 Insurance; Airline Pilot Occupational Disability Insurance. Premiums paid by an airline pilot on an insurance policy designated as “Airline Pilot Occupational Disability Insurance” but referred to as “Loss of License Insurance” are not deductible as a business expense; however, amounts received under the insurance policy are excludable from gross income. §§1.104-1, 1.162-1. (Secs. 104, 162; ’86 Code.) Rev. Rul. 70-394, 1970-2 C.B. 34. 60.176 Insurance; assigned life insurance policy held as security. Premiums paid by the taxpayer on life insurance policies held as security for debts owed by the insured are deductible business expenses, even though the debts were previously written off as worthless, the debtor had been discharged in bankruptcy, and there was no possibility of taxpayer being reimbursed for payment of the premiums. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Charleston National Bank, 20 T.C. 253, Nonacq., 1954–1 C.B. 8. Rev. Rul. 66-262, 1966-2 C.B. 105. 60.183 Insurance; employee group term insurance premiums; portion credited to reserves. For taxable years ending on or before June 17, 1969, annual premium paid or incurred by the policyholder pursuant to contracts providing group term life and health and accident coverage for active and retired employees are deductible in full, even though a portion of such premiums is credited to reserves subject to certain conditions. §1.162–10. (Sec. 162, ’86 Code.) Rev. Rul. 69-382, 1969-2 C.B. 28. 60.170 Industrial project; leasing arrangement with political subdivision. A corporation that enters into certain agreements with a political subdivision of a State for the financing, construction, and operation of an industrial project is considered to be the owner of the project. The primary agreement is in the form of a lease of the project by the city to the corporation with an option to purchase. The political subdivision obtained funds to finance the purchase or construction of the project by issuing industrial development bonds. The corporation will take into account any premium or discount on the bonds. Other tax treatment resulting to the corporation is set forth. Amplified to provide that bond counsel fees, printing costs, and other related fees incurred by a corporation in the issuance of the bonds must be amortized over the life of the bonds. §§1.38-1, 1.61-1, 1.61-12, 1.164-1, 1.167(a)-1, 1.162-1, 1.163-1, 1.263(a)-1. (Secs. 38, 61, 162, 163, 164, 167, 263; ’86 Code.) Rev. Rul. 68–590, 1968–2 C.B. 66; Rev. Rul. 73-134, 1973-1 C.B. 60. 60.177 Insurance; bank corporate liability. Premiums paid by a bank for group liability insurance policies, one indemnifying it for corporate liability resulting from wrongful acts committed, or alleged to have been committed, by its directors and officers within the scope of their employment, and one reimbursing such officers for their expenses arising from such acts, are deductible as business expenses. No income results to the officers and directors from such premiums. §§1.61–1, 1.162-1. (Secs. 61, 162; ’86 Code.) Rev. Rul. 69-491, 1969-2 C.B. 22. 60.184 Insurance; entertainer insured by manager. Premiums paid by a manager of persons in the entertainment field on an insurance policy covering the life of one of his entertainers are not deductible where the manager is the beneficiary under the policy. (Sec. 162, ’86 Code.) Rev. Rul. 55-714, 1955-2 C.B. 51. 60.185 Insurance; fire; prepaid for three years. A cash basis taxpayer may deduct only the pro rata portion of a three-year prepaid fire insurance premium that is applicable to each year. G.C.M. 13148 and G.C.M. 23587 superseded. §§1.162-1, 1.446-1, 1.461-1. (Secs. 162, 446, 461; ’86 Code.) Rev. Rul. 70-413, 1970-2 C.B. 103. 60.178 Insurance; beneficiary designated by employee; policy assigned to employer. A corporation is an indirect beneficiary to the life insurance policies issued to its employees under a master insurance contract, which requires the employees to assign the policies over to the employer even though the employee has the right to name a beneficiary. The employer may terminate the policies at will without the consent of the employees and receive the cash surrender values thereof. Therefore, the premium payments are made pursuant to section 264(a)(1) and are not deductible under section 162. G.C.M. 7997 superseded. §§1.162–1, 1.264-1. (Secs. 162, 264; ’86 Code.) Rev. Rul. 70-148, 1970-1 C.B. 60. 60.171 Installation of subsidiary’s appliances. The parent corporation’s expenses of selling, delivering, and installing gas appliances sold by its wholly owned subsidiary were deductible as ordinary and necessary expenses relating to its own business of selling gas. (Sec. 162, ’86 Code.) Fall River Gas Appliance Co., 42 T.C. 850, Nonacq., 1965–1 C.B. 5. 60.186 Insurance; foreign company. Amounts paid by a domestic petroleum corporation to a foreign insurance company that provides insurance against certain risks incurred in the petroleum business only to its 31 unrelated shareholders and their subsidiaries and affiliates, none of which owns a controlling interest and among which the economic risk of loss can be shifted and distributed, are premiums deductible, provided they are reasonable in amount for the coverage obtained and are based on sound actuarial principles. Rev. Rul. 77-316 distinguished. §1.162-1. (Secs. 162, 4371; ’86 Code.) Rev. Rul. 78-338, 1978–2 C.B. 107. 60.187 Insurance; foreign subsidiary. Example illustrate the tax consequences of so-called insurance premiums paid by a domestic corporation and its domestic subsidiaries to the parent’s wholly owned foreign “insurance” subsidiary and compensation received from the foreign “insurance” subsidiary with respect to “insured” losses incurred by the domestic parent and subsidiaries, Distinguished by Rev. Rul. 78-338. §§1.118-1, 1.162-1, 1.165-1, 1.301-1, 1.801-3, 1.831-1. (Secs. 118, 162, 165, 301, 801, 831; ’86 Code.) Rev. Rul. 77-316, 1977-2 C.B. 53. 60.172 Installment payments to employee’s widow. Regardless of whether an employer obligates himself to pay a pension to the widow of a deceased employee over a period of years or whether such payments are contingent upon some future happening, the employer may deduct as a business expense, in each taxable year, only those amounts which he actually paid. Rev. Rul. 54–625 is modified to the extent inconsistent herewith. §§39.23(a)-9, 39.23(p)-1. (Secs. 23(a), 23(p), ’39 Code; Secs. 162, 404, ’86 Code.) Rev. Rul. 55–212, 1955-1 C.B. 299. 60.179 Insurance; condition of loan. A corporation that buys life insurance on the lives of its officers and assigns the policies to the Small Business Administration as a condition of a loan may not deduct the premiums as a business expense. Sol. Op. 136 superseded. §1.264-1. (Sec. 264, ’86 Code.) Rev. Rul. 68–5, 1968–1 C.B. 99. 60.173 Insurance; accident and health plan; family members. Amounts reimbursed under an accident and health plan covering all employees, including the owner’s wife, and their families are not includable in the employee’s gross income and 60.180 Insurance; disability; business expenses reimbursed. Where a taxpayer purchases an insurance policy which would reimburse him for certain business overhead expenses Business expenses 60.188 Insurance; group insurance; commission salesmen. Group term life and hospitalization insurance premiums paid on behalf of commission salesmen are taxable to salesmen who are not employees, but are exempt to those who are employees; premiums on group permanent life insurance are taxable to all salesmen. In either case, such premiums constitute allowable business deductions of the employer provided the total commissions paid, together with the insurance premiums, are reasonable in amount and the employer is not a beneficiary under such policies. (Secs. 61, 106, 162; ’86 Code.) Rev. Rul. 56-400, 1956-2 C.B. 116. 60.189 Insurance; hospitalization for nonunion employees. Premiums paid by an employer under policies providing hospital and surgical services under a plan for its employees, who do not come under its health and welfare plan covering its union employees, do not constitute income to such employees, are not subject to withholding of income tax and are deductible as business expenses by the employer. §1.106-1. (Secs. 106, 162; ’86 Code.) Rev. Rul. 56-632, 1956-2 C.B. 101. 60.190 Insurance; key employee. A n employer who purchases a life insurance policy for a key employee in order to retain his services may not deduct the amounts he pays for the premiums during the period the employer has any interest in the policy as a beneficiary. §§1.162–7, 1.264-1. (Secs. 162, 264; ’86 Code.) Rev. Rul. 66-203, 1966-2 C.B. 104. 60.191 Insurance; malpractice; employed physician. When paid by a physician who is an employee, malpractice insurance premiums constitute ordinary and necessary expenses incurred in carrying on a trade or business. But, the premiums may be deducted only from adjusted gross income in computing taxable income. §§1.62-1, 1.162-6. (Secs. 62, 162; ’86 Code.) Rev. Rul. 60-365, 1960-2 C.B. 49. 60.192 Insurance; malpractice; reserve premiums; retrospective rate credit refund clause. Reserve premiums paid under a medical malpractice liability insurance policy that are subject to a retrospective rate credit refund clause are deductible in the year paid as business expenses. §§1.162-1, 1.263(a)-1, 1.461-1. (Secs. 162, 263, 461; ’86 Code.) Rev. Rul. 83-66, 1983-1 C.B. 43. 60.193 Insurance; physician-owned mutual insurance company. Payments made as professional liability insurance premiums by a medical service corporation with 25 employees to a physician-owned mutual insurance company that provides non-assessable professional liability insurance to over 5,000 doctors and several professional corporations are deductible business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 80-120, 1980-1 C.B. 41. 60.194 Insurance; prepayments; FSLIC insurance. Payment by a state-chartered savings and loan association of the “additional premium” required by section 404(d) of the National Housing Act to be paid to the Federal Savings and Loan Insurance Corporation is not deductible. §1.162-1. (Sec. 162, ’86 Code.) Lincoln Savings and Loan Assn., 403 U.S. 345, Ct. D. 1948, 1971-2 C.B. 116. during protection 60.195 Insurance; construction of new building. Insurance premiums for public liability and workman’s compensation insurance paid in connection with the construction of a taxpayer’s new building when the taxpayer takes on the responsibility of a general contractor are capital expenditures, not deductible as a business expense. §§1.162-1, 1.263(a)-1. (Secs. 162, 263; ’86 Code.) Rev. Rul. 66-373, 1966-2 C.B. 103. 60.196 Insurance; shipowners’ associations. An amount paid into the reserve fund of an exempt shipowners’ protection and indemnity association, to provide the protection left void by the $100,000 deductible provision in standard marine insurance policies, is deductible by the member as a business expense and is not includible in the association’s gross income. §39.23(a)–1. (Secs. 23(a), 116(K), ’39 Code; Secs. 162, 526, ’86 Code.) Rev. Rul. 55-189, 1955-1 C.B. 265. 60.197 Insurance; sickness and disability policy. Premiums on an individual sickness and disability insurance policy paid by an employer for an employee constitute additional income to the employee under the 1939 Code, but are excludable from gross income under section 106 of the 1954 Code. Such premiums may be deductible by the employer as business expenses for years to which either Code applies. However, premiums paid by a sole proprietor on such a policy for his own benefit are not deductible as business expenses. §§39.22(a)–3, 39.23(a)–6, 1.61–2, 1.104-1, 1.106-1. (Secs. 22(a), 23(a), ’39 Code; Secs. 61, 104, 106, 162, ’86 Code.) Rev. Rul. 58-90, 1958-1 C.B. 88. 60.198 Insurance; stockholder insured by corporation. Premiums paid by a corporation insuring the lives of its stockholders pursuant to a trust agreement whereby upon the death of the insured his stock would be surrendered to the corporation are not ordinary and necessary business expenses, but are in the nature of amounts paid for the acquisition of a corporate asset (treasury stock). Modified by Rev. Rul. 74-503, to remove any implication that a corporation’s treasury stock held by it has a cost basis rather than a zero basis. §§1.162-1, 1.264-1. (Secs. 162, 264; ’86 Code.) Rev. Rul. 70-117, 1970-1 C.B. 30. reinsurance 60.199 Insurance broker’s expenses. Payments by a broker, representing reinsurance costs and matured claims occasioned by the suspension of one of the insurance companies in which he wrote policies, made voluntarily in order to retain or protect and promote his business, are deductible as ordinary and necessary expenses directly related to the carrying on of his insurance business. (Sec. 162, ’86 Code.) Rev. Rul. 56-359, 1956-2 C.B. 115. 60.200 Insurance commissions redirected to taxpayer’s corporations. Taxpayer, a licensed insurance agent, endorsed commission for an auto sales corporation and an auto loan corporation he controlled. The policies aided auto sales and protected auto loans.Held, although the commission payments were income to the taxpayer, not the corporations, amounts determined by the court representing compensation to the corporations for services performed and expenses reimbursed were deductible by the taxpayer. (Secs. 61, 162; ’86 Code.) R. W. Shaw, III, 59 T.C. 375, Acq., 1973-2 C.B. 3. 60.201 Insurance company’s license tax; addition to premiums. A license tax imposed upon insurance companies by Louisville, Kentucky, is not deductible as a “state or local sales tax” by the purchaser of insurance to whom the tax is passed. However, premiums paid in connection with the operation of a trade or business and the tax added to them may be deductible as a business expense. §§1.162–1, 1.164-5, 1.264–1. (Secs. 162, 164, 264; ’86 Code.) Rev. Rul. 61-85, 1961-1 C.B. 45. 60.202 Interest paid; finance company. The interest payments made by a finance company are deductible as ordinary and necessary business expenses under section 162 for purposes of the 15-percent test of section 542(c)(9), notwithstanding the fact that interest is specifically allowable under section 163; the finance company is not a personal holding company. (Secs. 162, 163, 542; ’86 Code.) McNutt-Boyce Co., 38 T.C. 462, Acq. in result, 1966-2 C.B. 6. 60.203 Investigations; legislator. State Expenses incurred by a State legislator in making an investigation to ascertain facts in connection with leasing agreements for State-owned lands, which resulted in a legislative proposal and enactment, are deductible business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 65-224, 1965-2 C.B. 42. 60.204 Investment property; accounting fees and general office cost. Accounting fees and general office costs incurred by a corporation whose sole activity is an investment in unimproved, nonincome-producing real property are deductible under section 162; interest and real property taxes incurred by the corporation may be deducted under sections 163 and 164, respectively. §§1.162-1, 1.163-1, 1.164-1, 1.266-1. (Secs. 162, 163, 164, 266; ’86 Code.) Rev. Rul. 78-195, 1978–1 C.B. 39. 60.205 Investor’s traveling expenses; attending stockholder meetings. Transportation and incidental expenses incurred by a stockholder in attending meetings of companies in which he owns stock but has no other interest therein are nondeductible personal expenses. He is not carrying on a trade or business and a business expense deduction is precluded, neither are such expenses sufficiently related to investment activities to warrant their deduction as expenses incurred for the production of income. (Secs. 162, 212, 262; ’86 Code.) Rev. Rul. 56-511, 1956-2 C.B. 170. 60.206 Leased section 38 property; lease agreement treated as sale.Treatment by a lessor and lessee, for purposes of determining who is entitled to the investment credit and certain other deductions, where the transaction is cast in the form of, and treated by the parties as a lease of section 38 property but is subsequently determined to be a sale of property. §§1.38-1, 1.162-1, 1.167(a)-1, 1.163-1, 1.164-1, 1.162-11, 1.453-1, 1.483-1, 1.1223-1, 1.1231-1, 1.1245-1. (Secs. 38, 50, 162, 163, 164, 167, 453, 483, 1223, 1231, 1245; ’86 Code.) Rev. Rul. 72-408, 1972-2 C.B. 86. 60.207 Legal; action to limit condemnation. Legal expenses incurred by a taxpayer in an unsuccessful attempt to limit the condemnation of a portion of his commercial orchard by a public utility district to the taking of a flowage easement rather than a fee simple title are deductible as ordinary and necessary business expenses. (Sec. 162, ’86 Code.) Blaine M. Madden, 57 T.C. 513, Nonacq., 1978-1 C.B. 2. 60.208 Legal; assessment for local benefits. Attorney fees for obtaining a reduction of an unreasonable assessment levied against property for local benefits are not business expenses and constitute part of the property’s cost for purposes of determining gain or loss in event of its sale. O.D. 739 superseded. §§1.162-1, 1.1016-1. (Secs. 162, 1016; ’86 Code.) Rev. Rul. 70-62, 1970-1 C.B. 30. 60.209 Legal; Congress member; redistricting. Legal expenses incurred by a U.S. Congressman in connection with a presentation to the courts concerning the matter of Congressional redistricting in his home state are nondeductible personal expenses. §§1.162–1, 1.262–1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 67-457, 1967-2 C.B. 81. Business expenses 60.210 Legal; contest of retirement pay; Army officer. Legal expenses paid by an Army officer retiree in connection with a suit contesting his rank and rate of retirement pay that resulted in his receiving back pay are deductible as business expenses. I.T. 3325 superseded. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 72-169, 1972-1 C.B. 43. 60.211 Legal; contesting tax deficiency. Legal and accounting fees incurred by an accrual basis taxpayer in contesting adjustments to prior years business income, with resulting tax deficiencies and interest thereon were ordinary and necessary business expenses accruable with the deficiency interest in arriving at adjusted gross income in the year liability for the items became fixed. (Secs. 22(n), 23(a), ’39 Code; Secs. 62, 162, ’86 Code.) James J. Standing, 28 T.C. 789, Nonacq., 1958-2 C.B. 9. 60.212 Legal; corporate officer; conspiracy to corrupt state officials. The taxpayer’s vicepresident was indicted for conspiracy to corrupt state legislators to influence certain legislation, but was acquitted. The corporate by-laws required indemnification of the officer’s legal fees. Held, the acquittal adequately disproved the charge that defence payments frustrated any well-defined public policy and were deductible business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Union Investment Co., 21 T.C. 659, Acq., 1954-2 C.B. 6. 60.213 Legal; criminal assault. Taxpayer, employed as branch manager of a company, whose duties included interviewing and hiring solicitors for magazine subscriptions, was charged with criminal assault by a job applicant. The attorneys’ fees paid for legal advice and defense against the charge and an amount paid to the job applicant in consideration for a release from any claim of civil liability were deductible as ordinary and necessary business expenses. (Sec. 162, ’86 Code.) John W. Clark, 30 T.C. 1330, Nonacq., 1959-1 C.B. 6. 60.214 Legal; criminal indictment; bribery of revenue agent. A taxpayer in the real estate business was charged with bribing a revenue agent who had examined his returns. A mistrial was declared and the Government dropped the charge. Held, a causal connection existed between the business and the trial and the legal fees were deductible business expenses. (Sec. 162, ’86 Code.) Paul Caspers, 44 T.C. 411, Nonacq., 1970-2 C.B. xxi. 60.215 Legal; criminal indictment; evasion of taxes. Legal expenses incurred in the successful defense of a criminal tax evasion charge are deductible as a business expense. However, public policy demands that no deduction be allowed for expenses arising in an unsuccessful defense of a criminal case. §29.23(a)–1. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Shapiro, 278 F. 2d 556, Ct. D. 1857, 1960-2 C.B. 442. 60.216 Legal; criminal indictment; evasion of taxes; corporate officer. Legal expenses incurred by a corporate officer in connection with his defense of criminal indictments for evasion of the corporation’s income taxes and his individual income taxes are deductible as a business expense and a nonbusiness expense, respectively. §§1.162-1, 1.212-1. (Secs. 162, 212; ’86 Code.) Rev. Rul. 68-662, 1968-2 C.B. 69. 60.217 Legal; defense of status as reserve Army officer. Legal expenses incurred by an Army Reserve officer in defending charges of misconduct in lieu of resigning a commission in the U.S. Army Reserve are deductible as business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 64-277, 1964-2 C.B. 55. 60.218 Legal; horseracing investigation. Taxpayer was entitled to deduct fees and other expenses incurred in connection with an investigation of artificial stimulation of his racehorses and the related defense of an employee. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Robert S. Howard, 32 T.C. 1284, Acq., 1960-2 C.B. 5. 60.219 Legal; libel suit. Expenditures incurred in a libel suit to protect the taxpayer’s professional reputation were deductible business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Paul Draper, 26 T.C. 201, Acq., 1956-2 C.B. 5; J. Raymond Dyer, 36 T.C. 456, Acq., 1962-1 C.B. 4. necessary expenses of the corporation. (Sec. 162, ’86 Code.) Old Town Corp., 37 T.C. 845, Acq., 1962-2 C.B. 5. 60.226 Legal; stockholder’s suit. A corporation that paid the legal fees of all parties to a stockholder’s suit against it and its directors arising from actions of the directors in the conduct of the affairs of the business were deductible as business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) B. T. Harris Corp., 30 T.C. 635, Acq., 1958-2 C.B. 5. 60.227 Legal; suits involving business real property. Legal expenditures incurred in the successful prosecution of a suit to invalidate a municipal ordinance prohibiting the operation of taxpayer’s business are deductible business expenses. However, expenditures incurred, after the denial 60.220 Legal; minority stockholder in deriv- of a building permit to expand taxpayer’s busiative action. The corporate taxpayer, defendent in ness, in the successful prosecution of a suit to a derivative suit was ordered to pay the legal fees invalidate an ordinance prohibiting such expanof the plaintiff, a minority stockholder. Held, the sion, or incurred in the unsuccessful challenge of payments were for the conservation of property a municipally established building line that rather than for the defense of title, and were adversely affected taxpayer’s business property, deductible. (Sec. 23(a), ’39 Code; Sec. 162, ’86 are nondeductible capital expenditures. I.T. 1382 Code.) and Rev. Rul. 60–261 superseded. §§1.162–1, Shoe Corp., 29 T.C. 297, Acq., 1958-2 C.B. 7. 1.263(a)-2. (Secs. 162, 263; ’86 Code.) Rev. Rul. 78-389, 1978-2 C.B. 125. 60.221 Legal; misconduct charges; State judge. Legal expenses paid by a State judge in 60.228 Legal; tax advice on reorganization. connection with obtaining a dismissal of the mis- Legal fees incurred by a corporation in securing conduct charges brought against him by a State advice on the tax consequences prior to the conCommission are deductible business expenses summation of a merger with another corporation, provided he itemizes deductions. §1.162-1. (Sec. a subsequent stock split, and proposed distribution 162, ’86 Code.) in redemption of a portion of the outstanding stock Rev. Rul. 74-394, 1974-2 C.B. 40. are capital in nature and not deductible. However, in the event the proposed redemption is subse60.222 Legal; partnerships owned by corpo- quently abandoned, the capitalized fees are rate stockholders. Pursuant to a shareholder’s deductible in the taxable year of abandonment. dispute, attorneys were employed to determine §§1.162-1, 1.263(a)-1. (Secs. 162, 263; ’86 ownership of income from two partnerships con- Code.) ducted by the majority shareholders who agreed Rev. Rul. 67-125, 1967-1 C.B. 31. on December 31, 1946 to transfer the partnerships to the corporation “as of January 1, 1946.”Held, 60.229 Legal; treble damage suits; Clayton the legal expenses incurred were deductible by the Act. Guidelines are prescribed for the proper tax corporation. (Sec. 23(a), ’39 Code; Sec. 162, ’86 accounting for amounts realized by regulated pubCode.) lic utilities in settlement of civil suits for treble Charles K. Bishop, 25 T.C. 969, Acq., 1956-1 damages under section 4 of the Clayton Act. C.B. 3. §§1.61-1, 1.61-14, 1.111-1, 1.162-1, 1.1016-2. (Sec. 601.105, S.P.R.; Secs. 61, 111, 162, 1016, 60.223 Legal; reduction of state tax assess- ’86 Code.) ments. Taxpayer, a member of various partnerRev. Proc. 67-33, 1967-2 C.B. 659. ships, paid legal fees for services rendered in reducing proposed state unincorporated business 60.230 Legal; union incurred on behalf of tax assessments against the partnerships which members; back pay settlement. The portion of a would ultimately have been payable by the part- court approved back pay settlement between a ners but could have been collected directly from union and a company that was to be used by the the taxpayer. Held, the expenses were deductible; union to pay legal fees incurred in enforcing a coltheir reduction directly benefited the taxpayer. lective bargaining agreement on behalf of union members is not includable in the members gross (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Daniel W. Farnsworth, 29 T.C. 1131, Acq., income and is not deductible by them as a business expense. §§1.61–1, 1.162–1. (Secs. 61, 162, 3121, 1958-2 C.B. 5. 3306, 3401; ’86 Code.) 60.224 Legal; services for corporate officers. Rev. Rul. 80-364, 1980-2 C.B. 294. The general counsel for a corporation was paid an annual retainer. While so employed, counsel acted 60.231 Legal; union president defending peras attorney for the estate of the corporation presi- formance of duties. A labor union president dent’s father without additional compensation. incurred legal expenses in defending a suit Held, the corporation was entitled to deduct the brought against him, the union, and other union legal fees without allocation for services rendered officials by an opponent for the union presidency. the estate. (Sec. 162, ’86 Code.) Held, the expenses incurred in defending an action Alabama-Georgia Syrup Co., 36 T.C. 747, Acq., arising out of the performance of his duties as pres1962-1 C.B. 3. ident were deductible business expenses. (Sec. 162, ’86 Code.) 60.225 Legal; stockholder’s expenses. A James B. Carey, 56 T.C. 477, Acq., 1971-2 C.B. majority stockholder and the corporation were 2. sued by the former corporate president for breach of an employment contract which was negotiated 60.232 Legal; unsuccessful defense of crimiby the stockholder before acquiring control. The nal prosecution. Legal expenses incurred by a corporation paid all legal expenses and settlement taxpayer in the unsuccessful defense of a businesscosts. Held, the portion paid attributable to the related criminal prosecution for violation of the claims against the stockholder were ordinary and Securities Act of 1933 and the mail fraud statute Business expenses are deductible business expenses. §1.162–1. (Sec. 1253 of the Code and payments by the licensee must be deducted ratably over the term of the 162, ’86 Code.) Tellier, 383 U.S. 687, Ct. D. 1907, 1966-1 C.B. agreement. §§1.162–1, 1.162–11, 1.461–1. (Secs. 162, 461, 1253; ’86 Code.) 32. Rev. Rul. 87-63, 1987–2 C.B. 210. 60.233 Legal and accounting; credit difficulties; change in business form. Fees were paid by 60.240 Liquor purchased in “dry” state. The the taxpayer corporation to an attorney, who Service will follow theRoland D. Stacy decision, solved its working capital problem by forming a where there is no clearly defined public policy partnership to operate the corporation’s business, which would be frustrated by the allowance of a and to an accountant for evaluating the tax conse- deduction for amounts spent for intoxicating quences of such a change in business. Held, all the liquor to be used for business purposes in a dry accountant’s fees and the attorney’s fees, except state. §§1.162–1. (Sec. 162, ’86 Code.) the portion allocated to formation of the partnerRev. Rul. 64-197, 1964–2 C.B. 52. ship, were deductible business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Meldrum & Fewsmith, Inc., 20 T.C. 790, Acq., 60.241 Litigation expenses; legal fees and settlement payment; stock title and negligence 1954-2 C.B. 5. claim. Taxpayer paid a money settlement in a law60.234 Legal and accounting; registration of suit involving the former employer’s claim to stock with S.E.C. Legal and accounting expendi- reacquire shares of stock and the employer’s tures incurred by a corporation in registering its threatened action against the taxpayer for neglistock with the Securities and Exchange Commis- gent performance of his duties. Held, only a porsion constitutes capital expenditures and, as such, tion of the payment represented a charge against are not deductible as business expenses. I.T. 3026 the capital gain which taxpayer realized upon sale superseded. §§1.162–1, 1.263(a)–1. (Secs. 162, of the stock; a portion of the payment related to the threatened negligence claim and was deductible as 263; ’86 Code.) a business expense. (Secs. 162, 263; ’86 Code.) Rev. Rul. 69–330, 1969–1 C.B. 51. George Eisler, 59 T.C. 634, Acq., 1973-2 C.B. 60.235 Legal and accounting; research proj- 1. ect. The expenses for legal and accounting work incurred by a taxpayer in applying for a Federal 60.242 Litigation expenses; stock appraisal; income tax ruling in connection with a research reorganization matters.The “primary purpose” and development project and a determination of a test developed in cases involving costs of defendregulatory commission with respect to the effect ing property has no application to litigation of the project on the taxpayer’s rate structure are expenses incurred to establish the value of stock not deductible as research and experimental required to be purchased from dissenting minority expenditures. The expenses, if not chargeable to shareholders in reorganization matters. capital account, are deductible business expenses. §§1.162-1, 1.212-1, 1.263(a)-2. (Secs. 162, 212, §§1.162-1, 1.174-2. (Secs. 162, 174; ’86 Code.) 263; ’86 Code.) Rev. Rul. 67-401, 1967-2 C.B. 123. Woodward, 397 U.S. 572, Ct. D. 1939, 1970–1 60.236 Legal and actuarial; investigation of C.B. 56; Hilton Hotel Corp., 397 U.S. 580, Ct. D. 1940, 1970-1 C.B. 59. stock sale. Taxpayer corporation gave directors contracts to purchase unissued common stock. By use of a marketing device the stock’s value was 60.243 Livestock; cows carrying transinflated and sold to the public. Taxpayer paid legal planted embryos; calves subsequently born.A and actuarial fees in connection with Federal and purchaser of cows that are pregnant with transState investigations into the sale of the stock. planted embryos, who subsequently sells the cows and the calves separately, must allocate the origiHeld, under State law the directors never owned the stock and the amounts they received belonged nal purchase price between the cows and the to the taxpayer as proceeds from the sale of stock. calves. The portion of the original purchase price The fees were deductible business expenses. (Sec. that equals the fair market value of the cows is allocated to the cows; the remaining amount is 162, ’86 Code.) Cardinal Corp., 52 T.C. 119, Acq., 1962-2 C.B. allocated to the calves. Neither the costs attributable to the cows, nor the costs attributable to the xxiv. embryos, are deductible currently as expenses. 60.237 Legal and other fees; administration Gain or loss from the sale of the cows or calves is of partnership estate. Under State law, upon the ordinary income or ordinary loss. §§1.61-4, 1.162–12, 1.263(a)–1, 1.1012–1, 1.1231–2. (Secs. death of a partner the partnership was administered as a “partnership estate” in the Probate 61, 162, 263, 1012, 1231; ’86 Code.) Rev. Rul. 8624, 1986-1 C.B. 80. Court. Certain expenses including administrator’s fees, attorneys’ fees, court costs, etc., were incurred in the administration and approved by the 60.244 Livestock investment program; cattle Probate Court as being reasonable. Held, such breeding service agreements.A limited partnerexpenses were deductible as ordinary and neces- ship that expended amounts pursuant to an agreesary expenses of the partnership. (Sec. 23(a), ’39 ment, under which the seller offered to sell cattle Code; Sec. 162, ’86 Code.) to the partnership for a specified amount plus a Leonard A. Farris, 22 T.C. 104, Acq., 1954-2 monthly maintenance fee and the partnership C.B. 4. could cancel the agreement at any time is not permitted to deduct the maintenance fee for periods 60.238 Legislators; convention expenses. An prior to the date the cattle were purchases. elected legislator’s expenses of attending a politi- §§1.162-12, 1.263(a)-1. (Secs. 162, 263; ’86 cal party’s biennial convention, held to plan strat- Code.) egy and advance the party’s political programs, as Rev. Rul. 84-35, 1984-1 C.B. 31. a participant of a law enforcement panel to discuss various aspects of law enforcement in relation to the party’s political programs are nondeductible as 60.245 Loans repaid to protect law practice. business expenses. §1.162-1. (Sec. 162, ’86 A law firm, retained to perform legal services and assist in obtaining financing for a new company, Code.) induced several people, including clients, to lend Rev. Rul. 76-64, 1976-1 C.B. 45. money to the company. Upon discovering that 60.239 License agreement; computerized they had unknowingly been parties to a fraudulent commodity trading. A license agreement to scheme, the lawyers repaid the loans they had receive computerized commodity trading sugges- obtained. Held, the repayments represented tions does not constitute a franchise under section deductible business expenses to protect the continued existence of the law practice. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Morton Pepper, 36 T.C. 886, Acq., 1962-1 C.B. 4. 60.246 Loss; arson by owner. No deduction is available to a taxpayer who burns down a building and collects no insurance proceeds because the arson is discovered. §§1.162–18, 1.165–1, 1.212-1. (Secs. 162, 165, 212; ’86 Code.) Rev. Rul. 81–24, 1981–1 C.B. 79. 60.247 Loss on sale of bonds; collateral for performance of contract.Taxpayer bought U.S. bonds, deposited them in escrow in lieu of a performance bond under the terms of a contract, and sold them at a loss upon the contract’s completion. Held, the loss was incident to the performance of a contract in the regular course of business and was deductible as a business expense. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Bagley and Sewell Co., 20 T.C. 983, Acq. in result, 1958–1 C.B. 3. 60.248 Loss v. business expense; recovery, repair, and replacement of storm-damaged equipment. A construction contractor who agreed to excavate and remove dirt and debris from a flood control reservoir installed equipment at the worksite that became damaged, destroyed, or buried by flooding. To perform the contract, the contractor had to uncover and repair or replace the equipment concurrently with performance of the contract. The contractor deducted the costs incurred and included the insurance reimbursement in gross receipts. The expenses for recovering, repairing, and replacing the equipment are deductible as ordinary and necessary business expenses in the year paid or incurred. (Secs. 162, 165; ’86 Code.) R.R. Hensler, Inc., 73 T.C. 168, Acq. in result, 1980-2 C.B. 5. 60.249 Losses; insured but not claimed. An attorney, covered by malpractice insurance, who made a payment to a client to reimburse the client for expenses incurred as a result of erroneous advice but did not file a claim against the insurer may not deduct the payment as a loss or as a business expense. §§1.162–1, 1.165–1. (Secs. 162, 165; ’86 Code.) Rev. Rul. 78-141, 1978-1 C.B. 58. 60.250 Magazines; trade and professional. Subscription expenses for trade and professional magazines related to the conduct of taxpayer’s trade or business as a prospector and mining engineer are deductible as business expenses. (Sec. 162, ’86 Code.) J. Bryant Kasey, 54 T.C. 1642, Acq., 1971-1 C.B. 2. 60.251 Maintenance; easements; electric transmission and distribution lines. The maintenance costs of tree trimming and brush clearing from easements for the transmission and distribution of electrical energy are deductible operating expenses and are not part of the repair allowance for the Electrical Transmission and Distributing Facilities, asset guideline class 49.14. §§1.162-1, 1.167(a)-11. (Secs. 162, 167; ’86 Code.) Rev. Rul. 75–135, 1975–1 C.B. 56. 60.252 Maintenance; golf course greens. Expenditures incurred in the original construction of greens on a golf course constitute capital expenditures to be added to the original cost of the land and are not subject to depreciation. Subsequent operating expenses for sod, seed, soil and other maintenance constitute deductible business expenses. §§39.24(a)-2. (Sec. 24(a), ’39 Code; Sec. 263, ’86 Code.) Rev. Rul. 55-290, 1955–1 C.B. 320. 60.253 Maintenance; realty company assessments. Maintenance charges assessed against owners of residential property to provide munici- Business expenses pal services and improvements are includible in the gross income of the development company and are not deductible as taxes by the property owners. No portion of the amount assessed is a capital expenditure. If an owner converts the property to rental property, such charges would be deductible business expenses. §§39.22(a)-1, 39.23(a)-1. (Secs. 22(a), 23(a), ’39 Code; Secs. 61, 162, ’86 Code.) Rev. Rul. 55-154, 1955-1 C.B. 216. 60.254 Maintenance; safety devices at airport runways. A manufacturer of military aircraft which constructs, maintains and owns special safety devices at both ends of airport runways it uses, may deduct the operating and maintenance expenses and the depreciation thereon even though such devices are constructed on cityowned land. §39.23(1)–1. (Sec. 23(1), ’39 Code; Sec. 167, ’86 Code.) Rev. Rul. 54-579, 1954-2 C.B. 91. 60.255 Management fee; start-up expenditures; construction of offshore drilling rig. A cash-method, calendar-year limited partnership was organized in 1980 to acquire an offshore drilling rig to be constructed for it and to engage in contract drilling after the rig is completed in July, 1981. The portion of a management fee paid to the managing partner for supervision of construction and financing of the rig is a capital expenditure. The portion of the fee attributable to the management of the partnership during the construction of the rig must also recapitalized, but that part of this amount paid or incurred after July 29, 1980, is a start-up expenditure, which the partnership may elect to deduct under section 195 of the Code. §§1.162-1, 1.263(a)-1. (Secs. 162, 195, 263; ’86 Code.) Rev. Rul. 81-150, 1981–1 C.B. 119. 60.256 Master recordings. The costs of master recordings used for substantially more than one year to produce phonograph records must be capitalized and recovered through depreciation. §§1.167(a)-1, 1.263(a)-1. (Secs. 167, 263; ’86 Code.) Rev. Rul. 69-475, 1969-2 C.B. 40. 60.257 Meal expenses; transportation industry. This procedure provides a special method for determining the amount of ordinary and necessary expenses of an employee or self-employed individual in the transportation industry for meal and incidental expenses incurred while traveling away from home that will be deemed substantiated for purposes of section 1.274–5T of the temporary regulations. Rev. Proc. 89–67 amplified, clarified and modified. §§1.62–17, 1.274–5T. (Sec. 601.105, S.P.R.; Secs. 62, 162, 274, ’86 Code.) Rev. Proc. 90-38, 1990-2 C.B. 363. 60.258 Meal expenses of self-employed individuals and employees. Self-employed individuals and employees may use the federal meal and incidental expense rate to compute the amount allowable as a deduction for business meal and incidental expenses paid or incurred while traveling away from home. Rev. Proc. 83–71 superseded; Rev. Proc. 89–67 amplified and modified; Notice 87-23 modified. §§1.62-2T, 1.162-17, 1.274–5T. (Sec. 601.105, S.P.R.; Secs. 62, 162, 274, ’86 Code.) Rev. Proc. 90–15, 1990-1 C.B. 476. 60.259 Medical association; malpractice claims and related expenses.A self-insured professional medical association may deduct amounts paid for malpractice claims or judgments, and related expenses for legal fees and court costs, arising from the alleged negligent acts of its doctor-employees with whom it has an employment contract agreeing to waive its right of contribution and indemnify them with respect to these claims and to pay the related expenses. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 78-210, 1978-1 C.B. 39. 60.260 Medical information computer data; group subscriptions. Amounts paid by individual subscribers to a plan providing storage and retrieval of personal medical information by a computer data bank are deductible medical expenses. The amount paid by an employer in favor of an employee’s participation in the plan is an amount paid for accident or health plans excludable from gross income by employees. The amount paid by an employer for coverage of all of his employees is a deductible business expense. §§1.106-1, 1.162-1, 1.213-1. (Secs. 106, 162, 213; ’86 Code.) Rev. Rul. 71-282, 1971-2 C.B. 166. 60.266 Member of Congress; office expenses paid from personal funds. Amounts paid by a congressman from his personal funds, in excess of his annual Congressional allowance, for reasonable salaries of additional staff employees necessary to handle an unusually heavy workload are deductible as business expenses incurred as an employee. However, amounts he paid for additional office equipment under such circumstances are capital expenditures subject to depreciation. A net loss incurred in the operation of the congressman’s office because of heavy initial expenses will not preclude deduction of the full amount of his business expenses. O.D. 310 superseded. §§1.62-1, 1.162-1. (Secs. 62, 162; ’86 Code.) Rev. Rul. 73-464, 1973-2 C.B. 35. 60.267 Member of Congress; trust fund for travel expenses. Contributions to a trust estab60.261 Medicare; hospital staff physicians. lished to provide funds for certain travel expenses Medicare fees earned by staff physicians of a hos- incurred by a taxpayer as a Member of Congress pital but collected and used by exempt organiza- and the taxpayer’s staff in connection with the pertion are includable in the gross income of the phy- formance of official duties do not qualify as gifts sicians performing the services for which the fees under section 102(a) and are includible in the taxwere paid. Such amounts are not deductible as payer’s gross income in the year received by the business expense by the individual physician, but trust. However, the amounts disbursed for travel are deductible as charitable contributions. Rev. expenses are deductible business expenses, unexRul. 69-275 amplified. §§1.61-2, 1.162-1, pended funds returned to the contributors on ter1.170-1. (Secs. 61, 162, 170; ’86 Code.) mination of the trust are deductible as a business Rev. Rul. 70-161, 1970-1 C.B. 15. loss, and any portion of the contributions donated from the terminated trust to charitable organiza60.262 Member of city council; staff expenses tions is deductible to the extent provided in section paid from personal funds. A member of a city 170. §§1.61-1, 1.102-1, 1.162-2, 1.165-1, council may deduct expenditures for salaries, 1.170A-1. (Secs. 61, 102, 162, 165, 170; ’86 office rent, and office supplies under section 162 Code.) provided the member itemizes deductions; howRev. Rul. 76-276, 1976-2 C.B. 14. ever, the expenditures are not deductible as charitable contributions under section 170, and the 60.268 Member of state legislature; legal fees. limitations of section 162(b) do not apply. Rev. A politician may not deduct legal fees under secRul. 59–160 revoked and Rev. Ruls. 73-464 and tion 162(e)(2), paid to defend against criminal 73–113 amplified. §§1.162–1, 1.170A-1. (Secs. charges arising from participation in a political 162, 170; ’86 Code.) campaign in support of a candidate for political Rev. Rul. 84-110, 1984-2 C.B. 35. office. §1.162–20. (Sec. 162, ’86 Code.) Rev. Rul. 86-3, 1986-1 C.B. 81. 60.263 Member of Congress; allowances; discharge of official duties. The tax treatment of 60.269 Membership dues; chamber of comallowances and reimbursements made under the merce; Federal employees. Unreimbursed does Regulations and Accounting Procedures for paid for membership in a chamber of commerce or Allowances and Expenses of Committees, Mem- similar organization represent ordinary and necesbers and Employees of the United States House of sary business expenses and are deductible by a Representatives for use in the discharge of official Federal employee where such membership is used and representational duties is set forth. §§1.61–1, as a means of carrying out the substantive duties 1.162-17, 1.274-5. (Secs. 61, 162, 274; ’86 of his employment or as a means of carrying out Code.) other duties devolving upon him solely because of Rev. Rul. 77-323, 1977-2 C.B. 18. his Federal employment. §§1.162-6, 1.162-15. (Sec. 162, ’86 Code.) 60.264 Member of Congress; intern proRev. Rul. 66-261, 1966-2 C.B. 47. gram. Funds solicited by a U.S. Congressman for his intern program, designed to provide education 60.270 Membership organization; advertisand training in governmental functions and legis- ing and promotion. Independent distributors, all lative processes to selected individuals who spend of whom were required to pay their own freight, a part of their time in the Congressman’s office advertising, and promotion costs, formed their performing the same services as his compensated own association and set up a trust fund in which staff, are not excludable gifts, but are includible in their contributions were pooled and expended for his gross income for the year received, and he may authorized freight, advertising, and promotional deduct the amounts he pays to the interns under costs. At the end of each year, the unexpended porsection 162. The funds received by the interns are tion of the contributions was retained in the fund not excludable scholarships or fellowship grants, to redeem promotional tokens included in the but must be included in their gross income as com- products sold. Held, the amount retained in the pensation received for services performed. fund does not constitute income to the association. §§1.61-1, 1.102-1, 1.117-2, 1.162-1. (Secs. 61, (Secs. 61, 277; ’86 Code.) 102, 117, 162; ’86 Code.) Dri-Powr Distributors Association Trust, 54 T.C. 460, Nonacq., 1974-2 C.B. 5. Rev. Rul. 75-146, 1975-1 C.B. 23. 60.265 Member of Congress; newsletter publication and distribution expenses. Subscription fees or solicited contributions received by a congressman to be used solely to defray the cost of newsletters, reports, and questionnaires sent to constituents are includable in his gross income. Expenses of publishing and distributing such material are deductible as business expenses incurred as an employee. I.T. 4095 superseded. §§1.61-1, 1.62-1, 1.102-1, 1.162-1. (Secs. 61, 62, 102, 162; ’86 Code.) Rev. Rul. 73-356, 1973-2 C.B. 31. 60.271 Membership organization; advertising and promotion. Amounts received from franchised automobile dealers and an automobile manufacturer by a corporation, organized and operated primarily to advertise and promote the manufacturer’s automobiles, are includible in the gross income of the corporation, which is entitled to all allowable deductions, subject to the rules relating to deductions by membership organizations from transactions with its members. The Service will not follow the contrary decisions in Ford and Broadcast Measurement Bureau. Rev. Rul. Business expenses 56-209 superseded. §1.61-1. (Secs. 61, 277; ’86 Code.) Rev. Rul. 74-318, 1974–2 C.B. 14; Ford Dealers Advertising Fund, 55 T.C. 761, Nonacq., 1974-2 C.B. 5. 60.272 Membership organization; advertising and promotion. An advertising fund was established by franchised dealers for administration by the franchising manufacturer who would receive and accumulate the nonrefundable contributions and spend them exclusively to nationally advertise the franchised product, accounting for any year-end balance as a liability to the dealers. Held, the arrangement created an association taxable as a corporation and the association, not the manufacturer, realized gross income. §§1.61-1, 301.7701-1. (Sec. 22(a), ’39 Code; Secs. 61, 277, 7701, ’86 Code.) Rev. Rul. 74–319, 1974–2 C.B. 15; Seven-Up Co., 14 T.C. 965, Acq. in result, 1974-2 C.B. 4. 60.273 Membership organizations; radio audience measurement. A nonprofit corporation, whose members were radio stations and networks, collected fees from its members to conduct a study to provide a uniform reliable standard for radio audience measurement. The fees remaining after the first study was conducted were to be either refunded or allowed as a credit on future studies. Held, the fees were not income but constituted a trust fund to be used for a specified purpose or returned. (Sec. 22(a), ’39 Code; Secs. 61, 277; ’86 Code.) Broadcast Measurement Bureau, 16 T.C. 988, Nonacq., 1974-2 C.B. 4. 60.274 Milk bases; Florida. Certain “milk bases,” purchased in the State of Florida, are assets having an indefinite useful life. The cost of them is not deductible as a business expense but must be capitalized and is not subject to amortization or depreciation. §§1.162–1, 1.167(a)–3. (Secs. 162, 167; ’86 Code.) Rev. Rul. 65-228, 1965-2 C.B. 43. 60.275 Motor vehicles invoice price; dealers’ holdback charge. A holdback charge included in the manufacturer’s invoice price of motor vehicles to dealers is not includable in the manufacturer’s gross income; the dealer may not include it in cost of goods sold or claim it as a deduction. §§1.61–1, 1.61-3, 1.162-1. (Secs. 61, 162; ’86 Code.) Rev. Rul. 72-326, 1972-2 C.B. 30. 60.276 Moving; fixed right to reimbursement. An accrual method taxpayer incurred moving expenses and sustained losses due to abandonment of leasehold improvements in moving from property acquired by the state. The taxpayer’s request for a relocation payment under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 was approved by the responsible government agency during the taxable year of the move and payment was received in a subsequent year. The moving expenses and abandonment losses are not deductible to the extent they are reimbursable. §§1.162-1, 1.165-1. (Secs. 162, 165; ’86 Code.) Rev. Rul. 78-388, 1978-2 C.B. 110. 60.277 Moving; 60.278 National banks in Rhode Island; depositors’ taxes paid. Where national banks in Rhode Island elect to pay the tax assessed by the State against depositors, in order to compete with State banks, and elect to receive no reimbursement from the depositors, the taxes so paid are deductible as business expenses. Each depositor in such case is required to report the amount of tax paid on his deposit as taxable income but may deduct the amount as a tax paid. I.T. 1388 superseded. §§1.61-1, 1.162-1, 1.164-1. (Secs. 61, 162, 164; ’86 Code.) Rev. Rul. 69-497, 1969-2 C.B. 23. 60.279 National Guard officers. A National Guard officer is not entitled to an expense deduction for expenditures for maintaining morale, enrtertaining prospective members, etc., which have not been authorized as a regular expense payable by the U.S. Army. Expenditures made in compliance with Army regulations respecting the making of contributions to company funds, if such expenses are incurred for exclusively public purposes, are deductible under section 23(o)(1) of the Code. §39.23(a)-1. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 55-201, 1955-1 C.B. 269. 60.280 National Labor Relations Board decision; awards and legal expenses. Awards required to be paid employees under a National Labor Relations Board’s decision and attorney fees incurred in connection therewith constitute deductible business expenses. Further, the awards and attorney fees are to be deducted in accordance with the taxpayer’s method of accounting for the taxable year in question. I.T. 3412 superseded. §§1.162-1, 1.461-1. (Secs. 162, 461; ’86 Code.) Rev. Rul. 69-547, 1969-2 C.B. 24. 1.168-1, 1.212-1. (Secs. 162, 167, 168, 212, 280A; ’54 Code.) Rev. Rul. 86-148, 1986-2 C.B. 43. 60.284 Office in home expense. The Court determined that the home office was not the principal place of business and the taxpayer was not entitled to the deduction for home office expense. (Sec. 280A, ’86 Code.) Soliman, 113 U.S. 710. Ct. D. 2054. 1993-1 C.B. 45. 60.285 Office in personal residence. A college professor whose institution expects him to carry on independent research and who regularly uses a portion of his home for this activity, since the college does not provide facilities, may deduct a pro rata portion of the depreciation and maintenance expenses as business expenses. §§1.162–1, 1.167(a)-1. (Secs. 162, 167; ’86 Code.) Rev. Rul. 64-272, 1964-2 C.B. 55. 60.286 Office in personal residence; Cohan rule. Taxpayer deducted $600 in connection with the maintenance of an office in his residence. There was no question that taxpayer had a business office in his residence, but he had no substantiation for the amounts claimed. Finding the Cohan rule applicable, the Tax Court allowed $400 of the claimed deduction. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) V.T.H. Bien, 20 T.C. 49, Acq., 1953-2 C.B. 3. 60.287 Office in personal residence; inventor. An officer-stockholder in taxpayer corporation, which manufactured and sold locks the officer invented, maintained an office at home to work on inventions of new locks and other items. Held, the officer was an inventor and mechanical engineer, receiving income mainly from royalties on inventions, and was entitled to the deduction for an office at home. (Sec. 162, ’86 Code.) Best Universal Lock Co., Inc., 45 T.C. 1, Acq., 1966-1 C.B. 1. 60.288 Office in personal residence; professor. A medical school associate professor’s partial use of his residence to carry on some of his professional activities, such as research and preparing lectures and written work, entitled him to deduct a portion of the expenses of the residence as ordinary and necessary business expenses. (Sec. 162, ’86 Code.) Clarence Peiss, 40 T.C. 78, Acq., 1968-2 C.B. 2. 60.289 Office in personal residence; teachers. A husband and wife who are teachers use part of their personal residence for two hours a day, five days a week, for business related activities and use the same area for personal purposes not more than six additional hours per day. In apportioning the cost of maintaining the residence for purposes of a business expense deduction, the proper ratio to apply is the ratio of hours of business use to hours of total use (2/8), rather than the ratio of hours of business use to hours in the day (2/24). (Sec. 162, ’86 Code.) George W. and Emilie Gino, 60 T.C. 304, Nonacq., 1978–2 C.B. 4. 60.290 Oil pollution control fund; contributions. Voluntary contributions to a city’s special oil pollution control fund used for research, beautification, and advertising to recover tourist business lost due to oil pollution and that is commensurate with the expected financial return are not deductible as charitable contributions but are deductible as business expenses by a corporation conducting a retail business in the city. Rev. Rul. 69–90 distinguished. §§1.162-15, 1.170A-1. (Secs. 162, 176; ’86 Code.) Rev. Rul. 73–113, 1973-1 C.B. 65. 60.281 Nonoccupational disability benefits; private plans; New Jersey. Contributions made by employers and employees to the New Jersey unemployment compensation fund and to the nonoccupational disability benefit fund are deductible as taxes, and contributions made by employers to private plans for the payment of nonoccupational disability benefits are deductible as business expenses. Amounts withheld from wages of employees for contributions to private plans are nondeductible personal expenses and arc not deductible as taxes, business expenses, or medical Rev. Rul. 75–48 superseded. expenses. §§1.162-1, 1.164-1, 1.231-1, 1.262-1. (Secs. 162, 164, 213, 262; ’86 Code.) Rev. Rul. 81-193, 1981-2 C.B. 52. 60.282 Nonoccupational disability benefits; voluntary plans; California. Contributions made by employers to the California unemployment compensation fund and by employers and employees to the nonoccupational disability benefit fund are deductible as taxes. Contributions made by employers to voluntary plans for payment of nonoccupational disability benefits are deductible as business expenses. Amounts withheld from the wages of employees for contributions to voluntary plans are not deductible as taxes, business expenses or as medical expenses, but are nondeductible personal expenses. Rev. Rul. 75-149 superseded. §§1.162-1, 1.164-1, 1.213-1, 1.262-1. (Secs. 162, 164, 213, 262; ’86 Code.) Rev. Rul. 81-194, 1981-2 C.B. 54. 60.283 Office in home; security system. Section 280A will disallow the deduction of business expenses and the recovery deduction attributable to the purchase of a security system by a taxpayer not engaged in a trade or business and, in the case of a security system purchased by a taxpayer engaged in a trade or business, section 280A will limit the deduction of the business expenses and recovery deduction to the gross income attributable to the office in the home. §§1.162–1, 1.167–1, reimbursable from condemnation award. An accrual method taxpayer incurred and paid expenses for moving its business from property appropriated by the State. Taxpayer made a claim against the State for damages, including an amount for moving expenses, and in a later tax year, received an amount representing total damages for the taking of the property. Held, the moving expenses were business expenses accrued and deductible in the years in which incurred; taxpayer had no fixed right to reimbursement. (Secs. 162, 461; ’86 Code.) Electric Tachometer Corp., 37 T.C. 158, Acq., 1962-2 C.B. 4. 60.291 Operating costs; mineral property burdened with production payments when acquired. The L. W. and Jane R. Brooks decision Business expenses holding that operating costs are deductible by the owners of operating interest in mineral properties burdened with production payments and acquired through ABC or ACB transactions will be followed. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 71-35, 1971-1 C.B. 51. 60.292 Out of court settlement; actual and threatened claims; acquisition of stock. The entire amount of an out-of-court payment made by an individual, a shareholder and director of a domestic corporation, in settlement of both an actual claim against the individual under section 10(b) of the Securities Exchange Act of 1934 and various threatened claims, all relating to the individual’s acquisition of the stock of the corporation, is a capital expenditure, not a business expense deductible under section 162(a) of the Code. §§1.162-1, 1.263(a)-1. (Secs. 162, 263; ’86 Code.) Rev. Rul. 80-119, 1980-1 C.B. 40. 60.293 Out of court settlement; business dispute. Taxpayer received a cash settlement in a dispute regarding stock ownership and a profit sharing agreement with his former corporate employer and its owner who had attempted to conceal his ownership from his divorce proceedings. Held, taxpayer’s legal expenses were deductible as expenses incurred in the collection of income; the corporation’s legal fees and the cash settlement paid were ordinary and necessary expenses, not payments on behalf of its owner. (Secs. 22(a), 115(1), ’39 Code; Secs. 61, 301, ’86 Code.) Frank T. Feagans, 23 T.C. 208, Acq., 1955-1 C.B. 4. 1.702-1, 1.707-1. (Secs. 61, 162, 702, 707; ’86 Code.) Rev. Rul. 81-301, 1981-2 C.B. 144. 60.298 Partnership; management fees. General partners of a real estate limited partnership each receive a fee of five percent of the gross rentals received by the partnership in return for management services provided to the partnership. The management fee was reasonable in amount for the services rendered. The fees are guaranteed payments under section 707(c). §§1.61–2, 1.162–7, 1.702-1, 1.707-1. (Secs. 61, 162, 702, 707; ’86 Code.) Rev. Rul. 81-300, 1981-2 C.B. 143. 60.299 Partnership; payment to partner for organizing services. A limited partnership’s payments to one of its general partners for services he rendered in organizing the partnership are payments described in section 707, constitute capital expenditures under section 263, and are not deductible under section 162. §§1.162-1, 1.263(a)-1, 1.707-1. (Secs. 162, 263, 707; ’86 Code.) Rev. Rul. 75-214, 1975-1 C.B. 185. 60.300 Passport fee. A fee paid for a passport issued to a citizen or person owing allegiance to, or entitled to the protection of, the U.S. is not deductible as a tax; however, a fee paid to procure a passport for business purposes is a deductible business expense. I.T. 2156 superseded. §1.164-1. (Sec. 164, ’86 Code.) Rev. Rul. 72-608, 1972-2 C.B. 100. made the corporation on each lot if not paid at maturity, Costs exceeded the loans and the partnership advanced funds to the insolvent corporation to pay the excess costs. Held, the advances were not capital contributions but were deductible either as business expenses or business bad debts. (Secs. 162, 166; ’86 Code.) Ray A. Myers, 42 T.C. 195, Acq. in result, 1964-2 C.B. 6. 60.305 Payments to charitable organizations by travel agent. A travel agent regularly transacted a substantial business with tax exempt organizations. Rather than promote such business through salesmen and advertising, the agent made voluntary annual cash payments to the organizations based on the amount, character and profitability of their business.Held, the payments were made solely for business purposes; the limitation on charitable deductions did not preclude deductibility in full as business expenses. (Secs. 162, 170; ’86 Code.) Sarah Marquis, 49 T.C. 695, Acq., 1971-2 C.B. 3. 60.306 Payments to disaster fund of nonprofit organization. Payments made by a member of a savings and loan association league to a disaster fund of a nonprofit organization that distributes the proceeds to victims of natural disasters who have property mortgaged with the members of the league at the time of a disaster are deductible business expenses under section 162. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 79-283, 1979-2 C.B. 80. 60.307 Payments to exempt organization. A railroad corporation’s contribution of cash equal to the fair market value of improved property to an organization described in section 170(c)(2), and the organization’s payment of this amount to the railroad to “purchase” the facility constitutes a charitable contribution of property in an amount determined under section 170(e). The annual payment made by the railroad to the organization for specified operating expenses in consideration for making the facilities available for the use of its employees is a deductible business expense. §§1.162-15, 1.170A-1, 1.1245-1, 1.1250-1. (Secs. 162, 170, 1245, 1250; ’86 Code.) Rev. Rul. 76-151, 1976-1 C.B. 59. 60.308 Payments to “Industry Fund”. Payments made by employers to an “Industry Fund,” established under a negotiated labor agreement, to be used for the common good of all employers in such matters as safety, education and relations with labor, industry and the public at large, are deductible as business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 63-137, 1963–2 C.B. 84. 60.309 Payments to protect professional reputation. An attorney, a shareholder in an insurance corporation, sold stock to which he had a contract right and, after an investigation by the State Department of Insurance, paid over the gain to the insurance company. Held, the payment was not a fine or penalty, but was made to protect taxpayer’s professional reputation, and was an allowable deduction. (Sec. 162, ’86 Code.) Joseph P. Pike, 44 T.C. 787, Acq., 1968-2 C.B. 2. 60.310 Payments to TRANSPO. Payments to the 1972 U.S. Transportation Exposition (TRANSPO) may be deductible as charitable contributions or as a business expense, depending upon the facts and circumstances in each case. §§1.162-15, 1.170-3. (Secs. 162, 170; ’86 Code.) Rev. Rul. 72-293, 1972-1 C.B. 95. 60.311 “Payola” payments to disc jockeys. So-called “payola” payments made to disc jockeys of radio and television musical programs on or after December 6, 1959, are not deductible as business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 62-133, 1962-2 C.B. 45. 60.301 Payment of employee FICA tax by employer without deduction from wages.Pay60.294 Parking meter deposits. Amounts ment by an employer of employee FICA tax withdeposited in District of Columbia parking meters out deduction from the employee’s wages under are not deductible as taxes; if they represent an agreement between them constitutes additional expenditures in connection with a trade or busi- compensation to the employee and is deductible ness they are deductible business expenses. I.T. by the employer as a business expense. However, 3365 superseded. §§1.162-1, 1.164-1. (Secs. 162, if an employer pays the employee’s FICA tax but 164; ’86 Code.) inadvertently fails to deduct it from the Rev. Rul. 73–91, 1973–1 C.B. 71. employee’s remuneration, and upon discovery of the error the employer is reimbursed by the 60.295 Part-time lecturer; career counseling. employee or the tax is deducted from subsequent A full-time practicing attorney and part-time law remuneration paid to him, the tax is not includable school lecturer who incurred expenses for career in the employee’s gross income. I.T. 3154 supercounseling in an effort to secure new employment seded. §§1.61–1, 1.162–7. (Secs. 61, 162; ’86 either practicing or teaching law full time and, as Code.) a direct result of the counseling, secured a position Rev. Rul. 74-75, 1974-1 C.B. 19. of a full-time assistant professor of law may deduct the expenses. §1.162-1. (Sec. 162, ’86 60.302 Payment of employee FICA tax by Code.) employer without deduction from wages.PayRev. Rul. 78-93, 1978–1 C.B. 38. ments by an employer of employee FICA tax without deduction from employee’s wages under an 60.296 Partnership; guaranteed payment to agreement between them are additional wages for limited partner. Where a partner’s percentage of FICA purposes, the amount of wages to be deterthe partnership profits is less than his guaranteed mined by a formula. The additional FICA wages minimum, the partner’s share of the partnership so determined are includable in the employee’s income before the deduction of the guaranteed gross income and are wages for purposes of payment is his distributive share of partnership income tax withholding. If otherwise appropriate, income. The guaranteed payment is the difference the employer may deduct the payments as ordibetween the partner’s minimum guarantee and his nary and necessary business expenses under secdistributive share of partnership income, and only tion 162. Rev. Rul. 74–75 modified. §§1.61–2, the guaranteed payment, thus determined, is 1.162-7. (Secs. 61, 162, 3101, 3306, 3401, 6051, deductible as a business expense of the partner- 6413; ’86 Code.) ship. §§1.162–1, 1.707–1. (Secs. 162, 707; ’86 Rev. Rul. 86-14, 1986-1 C.B. 304. Code.) Rev. Rul. 66-95, 1966-1 C.B. 169. 60.303 Payments after termination of business. Ordinary and necessary business expenses, 60.297 Partnership; investment advisor fee; incurred in a trade or business in prior years and general partner not acting in capacity as part- paid in the current taxable year, by an individual ner. The advisor general partner renders service to cash method taxpayer, are deductible even though its partnership that are substantially the same as the the trade or business has been discontinued. services it renders as an independent contractor or §§1.162-1, 1.461-1. (Secs. 162, 461; ’86 Code.) agent to persons other than its partnership. The Rev. Rul. 67-12, 1967-1 C.B. 29. partnership agreement allocates 10 percent of the daily gross income of the partnership to the advi- 60.304 Payments for insolvent corporation. A sor general partner. The allocation is a payment partnership, engaged in the construction business, that is subject to section 707(a), is taxable to the owned stock in a corporation with which it conadvisor as compensation for services, and is tracted to build houses, guaranteeing lien-free deductible by the partnership. §§1.61-2, 1.162-7, completion and agreeing to purchase bank loans, Business expenses 60.312 Pedestrian mall assessments. Assess- ments by a city against business property owners for their shares of the costs of converting a downtown city street into an enclosed pedestrian mall are capital expenditures subject to depreciation and may not be deducted as ordinary and necessary business expenses. However, the portion of payments made to meet interest charges of bonds issued to finance the project is deductible as taxes. §§1.162-1, 1.164-4, 1.167(a)-1. (Secs. 162, 164, 167; ’86 Code.) Rev. Rul. 73-188, 1973-1 C.B. 62. 60.313 Pension payments; liquidated corporation. A corporate liability for unpaid pensions 60.319 Postmasters furnishing lock boxes. Postmasters who are required to furnish lock boxes or fixtures for the use of the public may deduct such costs either as a current business expense or recover such costs through annual depreciation charges. Where the lock boxes or fixtures purchased by a postmaster are held in excess of six months, they qualify as “property used in trade or business” for section 1231 purposes. §39.23(a)-1. (Sec. 23(a), ’39 Code; Secs. 162, 167, 1231, ’86 Code.) Rev. Rul. 55-579, 1955-2 C.B. 47. 60.320 Premium paid on redemption or repurchase; convertible corporate obligations. Reasonable amounts paid by a corporation on the call of its convertible debt obligations in excess of incurred in the acquisition of a lease on the selected site are capital in nature and are amortizable over the life of the lease. Rev. Rul. 55-442 superseded. §§1.162-1, 1.178-1, 1.212-1, 1.263(a)-1. (Secs. 162, 178, 212, 263; ’86 Code.) Rev. Rul. 73-421, 1973-2 C.B. 33. 60.326 Protection of investment; bankruptcy reorganization. The taxpayer, whose business was the investment in securities of other companies, owned over half the common stock of a corporation which became involved in a bankruptcy reorganization plan. The plan alloted no value to the stock and the taxpayer incurred expenses in successfully opposing it and proposing a plan alloting a value. Held, the expenses were deductible business expenses, not capital expenditures. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Alleghany Corp., 28 T.C. 298, Acq., 1957-2 C.B. 3. 60.327 Proxy fight expenditures. Taxpayer’s shareholders approved the reimbursement of proxy solicitation expenses of both the ousted assumed by former stockholders upon liquidation reduces the actual amount received by the former stockholders upon the corporate liquidation and either reduces the amount of gain or increases the amount of loss for each former shareholder. The corporation may not deduct the commuted value of the unpaid pensions in its final return. §§1.162-10, 1.404(a)-1, 1.1001-1. (Secs. 162, 404, 1001; ’86 Code.) Rev. Rul. 59-228, 1959-2 C.B. 59. 60.314 Per Diem allwances. This procedure the normal premium may be deducted as business expenses if the call was made, or a binding obligation to repurchase at a specified call premium was entered into, before April 23, 1969. The Roberts & Porter, Inc. decision followed. Rev. Ruls. 67-409 and 69–243 revoked. §§1.163–3, 1.249–1. (Secs. 163, 249; ’86 Code.) Rev. Rul. 74-210, 1974-1 C.B. 48. 60.321 Prizefight; complimentary fight tickets. The taxpayer, a professional boxer, claimed expenditures for complimentary fight tickets dis- provides rules under which the amount of ordinary and necessary business expenses of an employee for lodging, meals, and/or incidental expenses incurred while away from home will be deemed substantiated when a payor provides a reimbursement or other expense allowance to pay for such expenses. It also provides an optional method for employees and self-employed individuals to use in computing the deductible costs of business meals and incidental expenses paid or incurred while traveling away from home. Rev. Proc. 93-21 1.162-17, superseded. §§1.62-2, 1.267(a)-1, 1.274-1T, 1.274(d)-1. (Sec. 601.105, S.P.R.; Secs. 62, 162, 267, 274, ’86 Code.) Rev. Proc. 93-50, 1993-2 C.B. 586. 60.315 Percentage payments to customer’s tributed with respect to a proposed title bout in which he was to participate, and for the use of training camp facilities. Held, the expenditures for the tickets represent an ordinary and necessary business expense in part and the amount claimed for training camp facilities is deductible. (Sec. 162, ’86 Code.) Ray S. Robinson, 44 T.C. 20, Acq., 1970-2 C.B. xxi. 60.322 Professional lobbyist. A professional lobbyist acting in a representative capacity may deduct secretarial and other general office expenses, business transportation and travel expenses not directly related to lobbying. He may not deduct expenses incurred in entertaining for lobbying purposes or for transportation and travel expenses incurred in connection with such entertainment. The decision in Loring M. Black will not be followed. §1.162-20. (Sec. 162, ’86 Code.) Rev. Rul. 68-414, 1968-2 C.B. 74. 60.323 Professional singer; throat treatment by medical specialist. Expenses incurred by a professional singer for treatment of his throat by a medical specialist are personal in nature and are not deductible as a business expense but qualify as a medical expense deduction. O.D. 1032 superseded. Distinguished by Rev. Rul. 75–316. §§1.162-1, 1.213-1, 1.262-1. (Secs. 162, 213, 262; ’86 Code.) Rev. Rul. 71-45, 1971-1 C.B. 51. 60.324 Promotional payments; public utility. Promotional payments in the form of cash allowances made by a public utility company to individuals or building contractors to encourage construction of “all gas” homes or to convert heating, hot water, or other systems to gas are capital in nature recoverable through depreciation. The investment credit will not be allowed for these assets. The other expenditures, such as salaries and advertising, are deductible business expenses. Distinguished by Rev. Rul. 69–331 with respect to bonuses and commissions paid to secure hot water heater leases. §§1.38-1, 1.48-1, 1.162-1, 1.167(a)-3, 1.263(a)-2, 1.461-1. (Secs. 38, 48, 162, 167, 263, 461; ’86 Code.) Rev. Rul. 68-561, 1968-2 C.B. 117. 60.325 Prospective business; locating site for boys’ camp. Preliminary expenses incurred in search of a site for a boys’ camp and expenses attributable to the promotion of the business to be established are not deductible as either business expenses or nonbusiness expenses. The expenses management and the insurgents who won the proxy contest. Held, the expenses of both the ousted management and the insurgents involved matters of corporate policy directly related to the taxpayer’s business and are therefore deductible. (Sec. 162, ’86 Code.) Central Foundry Co., 49 T.C. 234, Acq., 1968-2 C.B. 2. 60.328 Proxy fight expenditures. Certain proxy fight expenditures involving solicitation and shareholder relations expenses were primarily concerned with a question of a corporate policy are deductible by the corporation as business expenses; Locke Manufacturing Companiesdecision followed. However, expenditures by corporations in proxy contests made primarily for the benefit of the interests of individuals rather than in connection with questions of corporate policy are not deductible. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 67–1, C.B. 1967–1, 28. 60.329 Public official; campaign against recall from office. Expenses incurred by an elected public official defending his position against a recall from office are deductible as business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 71-470, 1971–2 C.B. 121. 60.330 Public utility; inside telephone wiring account. The cost charged to the inside wiring account of a public telephone company is a capital expenditure under section 263 and must be recovered under section 168. §§1.162–1, 1.263(a)–2. (Secs. 162, 168, 263; ’86 Code.) ReV. Rul. 84-24, 1984-1 C.B. 89. 60.331 Public utility; light watchmen and customer extensions. Expenditures made by a regulated public utility in installing “light watchmen” on customers’ premises and in extending its distribution system to service additional residential customers are excluded additions that must be capitalized and are not deductible expenditures as a part of the repair allowance under the CLADR system. §§1.167(a)–11, 1.263(f)-1. (Secs. 167, 263; ’86 Code.) Rev. Rul. 78-67, 1978-1 C.B. 64. 60.332 Public utility; relocation of transmission lines. Expenditures incurred by a regulated public utility for the installation of new sections of overhead and underground electric transmission and distribution lines to take the place of retired lines that interfered with the construction of an expressway are capital expenditures. However, the costs of temporary relocations of existing power lines to maintain continuous service during the construction period of less than a year are deductible as business expenses. §1.263(a)-1. (Sec. 263, ’86 Code.) Rev. Rul. 73-203, 1973-1 C.B. 146. employees. Payments to a customer employees and to the daughter of the customer’s president for supervising truck operations, filing reports, and maintaining records on the trucks, owned by the taxpayer but titled in the customer’s name, were not reasonable compensation but deductible business expenses. (Sec. 162, ’86 Code.) Roy Marilyn Stone Trust, 44 T.C. 349, Acq. in result, 1966–1 C.B. 3. 60.316 Personal injury claims; accrual. A n expense accrual by a self-insured corporation of anticipated payments of personal injury claims pending at the end of the taxable year is not deductible where the liability for the claims is merely contingent. (Secs. 162, 461; ’86 Code.) Rev. Rul. 57-485, 1957-2 C.B. 117. 60.317 Physical fitness certificate; flight agent. The cost to a flight agent of a medical examination needed for a medical certificate which is required as a condition for his continued employment may be deducted as business expense. However, any expenses for medical aid or physical correction needed to maintain physical fitness are deductible only as medical expenses. Distinguished by Rev. Rul. 75-316. (Sec. 162, ’86 Code.) Rev. Rul. 58-382, 1958-2 C.B. 59. 60.318 Political officeholder; surplus campaign funds; office account. Surplus campaign funds transferred to an officeholder’s office account are includable in gross income for the year the funds are transferred. Amounts disbursed from the office account for ordinary and necessary expenses of serving as an officeholder are deductible provided the expenses otherwise qualify and are not reimbursable. §§1.61–1, 1.162–1. (Secs. 61, 162, 527; ’86 Code.) Rev. Rul. 80-331. 1980-2 C.B. 29. Business expenses 60.333 Public utility; telephone wires replaced with buried cable. The cost of replacing telephone wires with buried cable is to be capitalized and depreciated over the useful life of the cable. §§1.162-4, 1.167(a)–1, 1.263(a)–2. (Secs. 162, 167, 263; ’86 Code.) Rev. Rul. 82-12, 1982-1 C.B. 52. 60.334 Public utility company; conversion of customers’ heating equipment. Amounts expended by a public utility company to convert or adapt its customers’ steam heating equipment to the use of gas are capital expenditures recoverable through depreciation. In computing the depreciation deduction under section 167, the methods described in subsection (b)(2), (3), and (4) may not be used. §§1.162-1, 1.167(a)-3, 1.263(a)-2. (Secs. 162, 167, 263; ’86 Code.) Rev. Rul. 71-469, 1971-2 C.B. 120. 60.335 Race track; “Charity Day” operation. “Charity Day” proceeds distributed to a charitable foundation by a pari-mutuel race track corporation must be included in the corporation’s income. Such amount is not a deductible business expense but is deductible as a charitable contribution. Distinguished by Rev. Rul. 77–121. §§1.61-2, 1.162-15, 1.170-3. (Secs. 61, 162, 170; ’86 Code.) Rev. Rul. 72-542, 1972-2 C.B. 37. 60.336 Race tracks; “Charity Day” operation. A parimutuel race track corporation that agrees to promote, and absorb any losses from, extra racing days each year for the benefit of local charities to obtain and ensure retention of its license must include revenues from the extra days in its gross income and may deduct as a business expense under section 162 the profits turned over to the charities. §§1.61–1, 1.162–1, 1.170A-1, (Secs. 61, 162, 170; ’86 Code.) Rev. Rul. 77–124, 1977–1 C.B. 39. 60.337 Railroads; automatic car identification labels. The costs incurred by a railroad to acquire and apply “Automatic Car Identification” labels to its existing railroad freight-train cars are deductible as business expenses. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 69–60, 1969-1 C.B. 49. 60.338 Railroads; maintenance of stateowned bridge. Costs incurred by a railroad company for the construction of a state-owned bridge over its tracks are capital expenditures amortizable over the estimated time the bridge will be used; future maintenance costs are deductible business expenses when paid or incurred. §§1.162-4, 1.167(a)-3, 1.263(a)-1. (Secs. 162, 167, 263; ’86 Code.) Rev. Rul. 69-229; 1969-1 C.B. 86. 60.339 Railroads; reballasting track. The costs for reballasting tracks incurred by a railroad using the “retirement method” of accounting for depreciation of its track structure is to be capitalized where additional ballast applied results in the ballast depth increased and the track raised, but the cost of the ballast that merely replaces the old ballast is an expense; where a superior type of ballast is used, the excess cost of the superior ballast over the cost of replacing the original ballast is capitalized; and labor costs to resurface the tracks as a result of the reballasting are expensed regardless of whether the ballast cost is capitalized or expensed. §§1.162-4, 1.263(a)–1. (Secs. 162, 263; ’86 Code.) Rev. Rul. 701, 1970–1 C.B. 54. tion of certain bridges, and pressure grouting and pole driving to firm-up the embankment are nondeductible capital expenditures. The cost of pole driving and pressure grouting of an incidental nature not related to the major construction project, however, may be deducted currently. The Service will not follow the Chicago, Burlington & Quincy R.R. Co. decision. Rev. Ruls. 54-356 and 58-278 superseded. §§1.162-4, 1.263(a)-1. (Secs. 162, 263; ’86 Code.) Rev. Rul. 77-478, 1977-2 C.B. 81. 60.341 Railroads; repair; cars; increased expenditures. Expenditures incurred in a taxable year to repair four times the normal number of railroad cars repaired in a year that neither increase the value nor prolong the useful lives of the cars, are properly deductible in full that year. G.C.M. 16279 superseded. §§1.162-4, 1.461-4. (Secs. 162, 461; ’86 Code.) Rev. Rul. 69-119, 1969-1 C.B. 141. 60.342 Railroads; repairs; emergency facilities. The determination of whether an expenditure for repairs is to be classified as a deductible expense or a capital expenditure is not affected by the fact that the asset has been amortized in full or in part as an emergency facility. §39.23(a)-4. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 54-578, 1954-2 C.B. 84. 60.343 Railroads; road crossings. Costs for replacement of railway road crossings over railroad tracks are included in the term “section 38 property.” The retirement-replacement method of accounting for depreciation of crossings and the charge to expense of replacement costs are not proper. §§1.48–1, 1.167(a)–1, 1.263(a)–1. (Secs. 48, 167, 263; ’86 Code.) Rev. Rul. 80-187, 1980-2 C.B. 19. 60.344 Railroads; welded rail costs; retirement method of accounting. Where a railroad uses the retirement and replacement accounting method for depreciation, the initial costs of welding rail segments together are to be capitalized since a permanent improvement or betterment of the track has been effected. Where the welded rail is replaced with welded rail of the same kind and quality, no further betterment is involved and rail replacement and labor costs, less the salvage value of the recovered rail, are properly charged to expense. Where joint or angle bars are retired because welding has occurred, the unrecovered capitalized costs (including the original labor cost of installation) of the joint or angle bars, less their salvage value, are properly charged to expense. §§1.167(a)-1, 1.263(a)-1. (Secs. 167, 263; ’86 Code.) Rev. Rul. 67–22, 1967–1 C.B. 52. 60.345 Realty sales; payments to state employee. The Commissioner failed to prove that compensation paid to a State land trust employee, also a licensed real estate agent, in connection with taxpayers’ sale of land acquired from the land trust violated State law. The payments were properly deductible as selling expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) James G. Hoover, 32 T.C. 618, Acq., 1959-2 C.B. 5. 60.347 Reimbursement; amounts on W-2. Guidance is provided to employees on bow to claim an adjustment to income for business expenses if amounts were reported on Form W-2 that were permitted, but not required, to be reported for- 1989. Notice 90-14, 1990-1 C.B. 322. 60.348 Reimbursement; implied agreement. A travel bureau reimbursed the manager of its Norwegian associate under an implied agreement for services rendered and travel and entertainment expenses incurred on behalf of the bureau’s patrons in Norway. Held, the payments had a business purpose and were deductible business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Bennett’s Travel Bureau, Inc., 29 T.C. 350, Acq., 1958-2 C.B. 3. 60.349 Reimbursement of illegal contribution and fine; corporate officer. Amounts paid by a corporate officer under a court-approved settlement to reimburse a corporation for an illegal campaign contribution, which the officer approved, and for the fine resulting from the contribution, are not deductible as a business expense or as a loss. §§1.162–1, 1.165–1. (Secs. 162, 165; ’86 Code.) Rev. Rul. 81-151, 1981-1 C.B. 74. 60.350 Reimbursement of losses; parent to subsidiary. Amounts paid by a parent corporation to reimburse its subsidiary for losses incurred in selling fishing rods to the parent at a price below the cost of production were deductible as business expenses. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Fishing Tackle Products Co., 27 T.C. 638, Acq. in result, 1964–1 (Part 1) C.B. 4. 60.351 Reimbursement of Medicare premiums. Amounts paid by employers directly to active and retired employees for reimbursement of Medicare premiums, and amounts contributed by employers to welfare funds which reimburse fund participants for Medicare premiums are deductible as business expenses. §1.162–10. (Sec. 162, ’86 Code.) Rev. Rul. 67-315, 1967-2 C.B. 85. 60.352 Relocating capitalized physical assets; electric utility companies.Labor and transportation costs for relocating the existing capitalized physical assets of a group of regulated electric utility companies that maintain and operate integrated electric systems including production, transmission, and distribution facilities are deductible as business expenses. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 70-392, 1970-2 C.B. 33. 60.353 Relocation allowances; displaced owner-occupants and tenants. Relocation allowances paid by a development company to displaced owner-occupants and tenants of slum dwellings to be razed in connection with an urban renewal program are additional costs of the land that may not be deducted as business expenses or amortized. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 70-473, 1970–2 C.B. 34. 60.354 Rent paid; films for T.V. The total rental costs of television films, paid by a television station under a rental agreement which permits the station to show the films over a limited period of time, are deductible, in aliquot amounts, over the period of the rental agreement. Amplified by Rev. Rul. 74-358. §§1.162-11, 1.461-1. (Secs. 162, 461; ’86 Code.) Rev. Rul. 62-20, 1962-1 C.B. 21. 60.355 Rent paid; films for T.V. Advance payments by a television station for the right to exhibit films under a contract permitting limited exposure for a limited period of time are expenditures subject to an allowance for depreciation computed 60.346 Recreational facility conveyed to employees’ association. To attract new employees and reduce turnover during wartime labor shortages and increased business taxpayer in 1944 purchased a small farm some distance from its business site, made improvements, and conveyed the farm to its foremen’s association for rec60.340 Railroads; reconstruction of track reational use by company employees. Held, the embankment. The costs of a major construction cost of the farm and improvements were deductproject that is undertaken to protect a long section ible business expenses, not capital expenditures. of railroad track embankment from water damage (Secs. 23(a), 24(a), ’39 Code; Secs. 162, 263, ’86 and includes the construction of a channel diver- Code.) sion of a river, concrete dikes, dams, and jetties, Slaymaker Lock Co., 18 T.C. 1001, Acq., the installation of riprap, the extension and eleva- 1953-2 C.B. 6. Business expenses under any acceptable method of depreciation including the “income forecast” method; amounts paid under a contract permitting the station unlimited exposure of the film for a limited period are license or leasehold expenditures and must be deducted ratably over the period of the contract. Rev. Rul. 62-20 amplified. §§1.162-11, 1.167(a)-3, 1.461-1. (Secs. 162, 167, 461; ’86 Code.) Rev. Rul. 74–358, 1974–2 C.B. 43; KIRO, Inc., Successor to Queen City Broadcasting Co., 51 T.C. 155, Acq. in result, 1974-2 C.B. 3. 60.356 Rent paid; leasebacks from trust. Rental payments to a trust by a grantor are not deductible business expenses where real property is transferred to the trust for a ten-year period for the benefit of grantor’s children with his wife as one of two trustees, with the corpus to go to the wife in the event of the grantor’s death prior to the expiration of the 10-year period, and with the privilege of leaseback retained by the grantor. Modified by Rev. Rul. 57–315 to provide that the rental payments will constitute a completed gift at the time of the transfer for gift tax purposes, provided the right to such rentals is, under the terms of the transfer and applicable State law, fixed or vested. §§39.22(a)-21, 39.23(a)-10. (Secs. 22(a), 23(a), ’39 Code; Secs. 61, 162, ’86 Code.) Rev. Rul. 54–9, 1954-1 C.B. 20. 60.357 Rental; house rented to relative. A taxpayer who rents a house to his brother for less than the fair market value and less than his total expenses attributable to the house may not deduct, under sections 162 and 212, the interest, taxes, operating expenses, and depreciation but he may deduct the expenses to the extent allowed under reg. 1.183–1(b)(1) provided he itemizes his deductions. §§1.62-1, 1.162-12, 1.183-1, 1.212-1. (Secs. 62, 162, 183, 212; ’86 Code.) Rev. Rul. 75-14, 1975-1 C.B. 90. 60.358 Rental; house swapping. Two homeowners agreed to rent their houses to each other at fair rental value for use as personal residences. In addition to those items deductible without regard to rental of the dwellings, such as interest and taxes, the homeowners are entitled to deduct operating expenses and depreciation, in that order, but only to the extent gross rental income exceeds those deductions allowable without regard to the rental. §1.162–1. (Secs. 162, 280A; ’86 Code.) Rev. Rul. 80-55, 1980-1 C.B. 65. 60.359 Rental of vacation home; business use of home. The right to use a vacation home for one week, donated by the owner to a charitable fundraising auction and sold for fair rental value, is counted as one week of personal use by the owner in determining the owner’s right to deduct expenses. §1.170A-1, 1.170A-7. (Secs. 170, 280A; ’86 Code.) Rev. Rul. 89-51, 1989-1 C.B. 89. 60.360 Repairs; cleaning and lining water pipes. A privately owned water company connected its water system to an adjacent system containing more acidic water, which caused tuberculation in the water main nearest the connection. Held, the cost of cleaning the pipe and lining it with cement to restore its previous carrying capacity was a currently deductible repair expense, not a capital expenditure. (Sec. 162, ’86 Code.) Plainfield-Union Water Co., 39 T.C. 333, Nonacq., 1964-2 C.B. 8. 60.361 Repairs; filling and grading real property. Taxpayer leased a building and property for his business. Construction on adjoining property blocked the leased property’s natural drainage causing water to puddle and seep into the building. Held, expenses of filling and grading the property were deductible repair expenses, not capital expenditures. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Southern Ford Tractor Corp., 29 T.C. 833, Acq., 1958-2 C.B. 7. 60.362 Repairs; general betterment program. Taxpayer’s facilities needed repair, and after bankruptcy and a change in management, the profits earned were returned to the business as it modernized its operations. The Commissioner contended that the repair items were part of a general betterment program and should be capitalized even though, taken individually, they would be deductible as ordinary expenses. Held, no betterment program was in progress, and the expenses were deductible. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Keller Street Development Co., 37 T.C. 559, Acq., 1962-2 C.B. 5. 60.363 Repairs; replacement of roof covering. The lessee of a manufacturing plant with a leaking roof removed the roof covering, installed an expansion joint, then replaced the covering. The repairs neither prolonged the life of the property, increased its value, nor adapted it for a different use. Held, the cost was a deductible business expense, not a capital expenditure. (Sec. 162, ’86 Code.) Oberman Mfg. Co., 47 T.C. 471, Acq., 1967-2 C.B. 3. 60.369 Restitutions for tire losses. A furniture moving and storage company’s expenditures, made to preserve its goodwill among its customers and protect its business reputation by partial monetary restitutions to uninsured customers for losses sustained when fire destroyed the company’s warehouse, are deductible. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 76-203, 1976–1 C.B. 45. 60.370 Rev. Rul. 190 distinguished; transportation expenses. This revenue ruling allows a taxpayer with one or more regular places of business a business expense deduction for transportation expenses paid or incurred in going between his or her residence and a temporary work location, regardless of the distance traveled. Rev. Rul. 190 distinguished; Rev. Rul. 55–109 modified; Rev. Rul. 59-371 distinguishable. §1.62-2T, 1.162-2, 1.262-1, 1.274-5T. (Secs. 62, 162, 262, 274, ’86 Code.) Rev. Rul. 90-23, 1990-1 C.B. 28. 60.371 Reward for return of stolen checks. The amount of a reward paid by a taxpayer engaged in a trade or business for the return of stolen business checks is deductible as a business expense. §1.162–1. (Sec. 162, ’86 Code.) Rev. Rul. 67-98, 1967-1 C.B. 29. 60.372 Royalties; increased by modified agreement. As consideration for the transfer of an additional patent which protected the assignee’s 60.364 Repairs v. permanent improvements. older patents, a corporation increased its royalty Taxpayer, a dairy products processor, expended payments under a prior exclusive license covering substantial sums on a dairy building which was the older patents. Held, the increase in royalties built approximately 25 years earlier. Portions of was supported by adequate consideration and was the floors and walls were rotting due to milk and deductible. (Sec. 162, ’86 Code.) Revolvex Corp., 46 T.C. 392, Acq., 1966-2 water seepage and the repairs were necessary to maintain and continue efficient use of the build- C.B. 6. ing. The repairs never replaced as much as onehalf of any wall, ceiling, or floor, they did not 60.373 Royalties; paid majority stockholderpresident. A royalty paid by a corporation to its enlarge or change the design of the building, and majority stockholder-president for the use of a patthe useful life of the building was not appreciably ent on an article manufactured by the corporation prolonged. Held, such expenditures were properly is deductible as a business expense if the amount deducted as business expenses. (Sec. 23(a), ’39 is reasonable. O.D. 440 superseded. §1.162–11. Code; Sec. 162, ’86 Code.) (Sec. 162, ’86 Code.) Farmers Creamery Co., 14 T.C. 879, Acq., Rev. Rul. 69-513, 1969-2 C.B. 29. 1954-1 C.B. 4. 60.374 Royalties; payment for coal leases and 60.365 Research and related expenses; col- tipple. A corporation was formed by two individulege and university professors. Research als, each paying in $500 for 50 percent of the expenses, including traveling expenses properly stock. One assigned certain coal leases to the corallocable thereto, incurred by a college or univer- poration and the other sold it a coal tipple with a sity professor for the purpose of teaching, lectur- fair market value in excess of his basis. Each ing, or writing and publishing in his area of com- received the corporation’s negotiable promissory petence as a means of carrying out the duties note and a 20 cent per ton overriding royalty on expected of him and without expectation of profit coal mined. Held, the royalty payments were apart from salary, are deductible business deductible business expenses, not a division of expenses. §§1.162–1, 1.274-4, 1.274-5. (Secs. profits. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) 162, 274; ’86 Code.) J. E. Vincent, 19 T.C. 501, Acq., 1953-2 C.B. 6. Rev. Rul. 63-275, 1963-2 C.B. 85. 60.375 Salary; employees called for military 60.366 Research and typing of doctoral dis- service. Salaries paid by an employer to sertation. Where the cost of the related educa- employees who are absent in the military or naval tional courses qualify as deductible business service, or serving the Government in other ways expenses, reasonable expenses for research and at a nominal compensation, but who intend to typing incurred in the preparation of a dissertation return to the employer at the conclusion of such to obtain a graduate doctoral degree are also service, are deductible business expenses. I.T. deductible business expenses. §1.162–5. (Sec. 3417 superseded. §§1.162-10. (Sec. 162, ’86 Code.) 162, ’86 Code.) Rev. Rul. 71-260, 1971-1 C.B. 57. Rev. Rul. 67-421, 1967-2 C.B. 84. 60.376 Salary repayment; officer-stock60.367 Reserve for self-insurance. Amounts holder. Officer-shareholders of a closely held corset aside in a reserve account as self-insurance to poration are entitled to a business expense deduccover losses by fire are not deductible as business tion for portions of their salaries which, pursuant expenses. S.R. 2586 superseded. §§1.162–1, to an agreement with the corporation, were paid 1.461-1. (Secs. 162, 461; ’86 Code.) back after the corporation was disallowed a deducRev. Rul. 69-512, 1969-2 C.B. 24. tion for them. Taxpayers may not compute their respective taxes under section 1341. §1.162–1. 60.368 Reserve for stock redemption; corpo- (Sec. 162, ’86 Code.) ration. Amounts credited to a reserve fund created Rev. Rul. 69–115, 1969–1 C.B. 50; Vincent E. by a corporation for stock redemption are not Oswald, 49 T.C. 645, Acq., 1968-2 C.B. 2. deductible business expenses. O.D. 288 superseded. §1.162–1. (Sec. 162, ’86 Code.) 60.377 Sales commissions paid to officerRev. Rul. 69-546, 1969-2 C.B. 24. stockholders. Taxpayer paid selling commissions Business expenses to two partnerships, one comprised of the taxpayer’s stockholder-general manager and stockholder president, and the other comprised of a stockholder and a third party. Held, the commissions were deductible business expenses, not dividend distributions. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Royal Cotton Mill Co., 29 T.C. 761, Acq., 1958-2 C.B. 7. 60.378 Salesperson; existence of trade or business. A life-long jewelry salesperson terminated his employment in 1957 and remained unemployed until he organized his own corporation in 1962. During this time he incurred expenses entertaining former clients. Held, taxpayer was in a reasonable period of transition. His trade or business did not cease to exist and he could deduct ordinary and necessary business expenses. (Sec. 162, ’86 Code.) Harold Haft, 40 T.C. 2, Acq. in result, 1967-1 C.B. 2. 60.379 Salesperson; partial repayment of advance commissions. Advance commissions received by a cash basis salesperson are includible in gross income in the taxable year received; the portion of such commissions received and included in gross income, that are later repaid to the employer, are deductible business expenses in the taxable year repaid, subject to provisions of section 1341 of the Code. O.D. 19 superseded. §§1.61-2, 1.162-7. (Secs. 61, 162; ’86 Code.) Rev. Rul. 72-78, 1972-1 C.B. 45. §§1.446-1, 1.461-1, 1.481-1. (Sec. 446, 461, 481; ’86 Code.) Rev. Rul. 81–93, 1981–1 C.B. 322; Schuster’s Express, Inc., 66 T.C. 588, Nonacq., 1978-2 C.B. 4. 60.384 Semi-annual reports to S.E.C. 60.391 Stock dividend costs. The cost incurred by a corporation in connection with the issuance of its capital stock in payment of a stock dividend is not deductible as a business expense but is a capital expenditure. §§1.162–1, 1.263(a)–1. (Secs. 162, 263; ’86 Code.) Rev. Rul. 60-254, 1960-2 C.B. 42. 60.392 Stock issuance expenses; open-end investment company. Stock issuance expenses of an open-end investment company, except those incurred during the 90-day initial stock offering period, are deductible as business expenses. The 90-day period after a post-effective amendment to the original registration statement has been declared effective is neither a new stock offering period nor an extension of the initial stock offering. Rev. Rul. 72–13 superseded. §§1.162–1, 1.852-1. (Secs. 162, 852; ’86 Code.) Rev. Rul. 73-463, 1973-2 C.B. 34. 60.393 Stock option terminated; reorganization; payments to employees. A corporation’s payments to employees to terminate their unexercised stock options, as a condition to a section 368(a)(1)(B) reorganization, are additional compensation to the employees in the year of receipt and deductible by the corporation in the same year as business expenses. §§1.162-1, 1.368-1, 1.421-6. (Secs. 162, 368, 421; ’86 Code.) Rev. Rul. 73–146, 1973-1 C.B. 61. Expenses incurred in obtaining and filing semiannual reports required by the Securities and Exchange Commission in connection with an employee stock option offering are deductible as ordinary and necessary business expenses. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 65–13. 1965-1 C.B. 87. 60.385 Service charge paid to union by nonmember. An employee taxpayer who is not a member of a labor union is required, as a condition of his employment, to pay to the labor union a monthly service charge equal in amount to the dues paid by union members. This payment is a deductible business expense. §1.162–15. (Sec. 162, ’86 Code.) Rev. Rul. 68-82, 1968-1 C.B. 68. 60.386 Severance payments and allowance to employees; merged railroads. Severance pay- 60.394 Stock purchased under investment plan; service charge. A discussion is presented of the treatment to be accorded a dividend reinvestwhich a shareholder may elect to 60.387 Short sales; dividends on borrowed ment plan undercash dividend or stock of greater receive either a 60.380 Savings institutions; premium pre- stock. Amounts paid or incurred by investors or value and may also elect to purchase additional payments; FSLIC insurance. Under section 404 traders in securities with respect to ordinary cash of the National Housing Act, as amended, savings dividends on borrowed stock to cover short sales stock at a discount. Rev. Rul. 77–149 distinand loan institutions insured by the Federal Sav- arc deductible expenses and not proper adjust- guished. §§1.162–1, 1.212–1, 1.301–1, 1.302–1, ings and Loan Insurance Corporation must make ments to the basis of the stock purchased to close 1.305-1, 1.1001-1. (Secs. 162, 212, 301, 302, premium prepayments into a secondary reserve the short sale. S.M. 4281 modified. §§1.162–1, 305, 1001; ’86 Code.) Rev. Rul. 78-375, 1978-2 C.B. 130. fund. These prepayments are not deductible under 1.212-1, 1.1016-2. (Secs. 162, 212, 1016; ’86 section 162 when paid, but only when they arc Code.) 60.395 Stock record maintenance fees. Fees used to pay regular premiums or losses, or the posRev. Rul. 62–42. 1962-1 C.B. 133. paid, during the taxable year, to a registrar and sibility of their return to the institutions is othertransfer agent for the maintenance of capital stock wise precluded. §§1.162–13, 1.451–2, 1.461–2. 60.388 Sick pay; accrual method employer. records are deductible as business expenses except (Secs. 162, 451, 461; ’86 Code.) An accrual-method employer may deduct its where the fees are incurred in connection with an Rev. Rul. 66-49, 1966-1 C.B. 36. liability to employees for sick leave earned during original issue of stock, merger, consolidation, or a year under a calendar-year plan providing that stock dividend. I.T. 2582 superseded. §§1.162–1, 60.381 Securities for services rendered. The sick leave earned during the year may be used only 1.263(a)-1. (Secs. 162, 263; ’86 Code.) fair market value of securities transferred by an in the succeeding year and that a lump-sum payRev. Rul. 69-615, 1969–2 C.B. 26. employer to his employee for services rendered ment for unused sick leave will be made to an may be deducted as business expenses, but the employee for each year’s unused sick leave either 60.396 Stock to employees for services renexcess of that value over the employer’s adjusted in January of the next succeeding year or upon ter- dered. The fair market value of authorized but basis is capital gain if the securities were capital mination of employment, whichever occurs ear- unissued stock distributed by a corporation to its assets in the employer’s hands. §§1.61-6, lier. §§1.162-10, 1.461-1. (Secs. 162, 461; ’86 employees as compensation for services rendered is deductible as a business expense, No gain or loss 1.162-7, 1.1001-1, 1.1222-1. (Secs. 61, 162, Code.) is recognized to the corporation by reason of the 1001, 1222; ’86 Code.) Rev. Rul. 78-116, 1978-1 C.B. 143. distribution of the stock. §§1.162-7, 1.1032-1. Rev. Rul. 69-181, 1969-1 C.B. 196. 60.389 Sole proprietorship. The income from (Secs. 162, 1032; ’86 Code.) Rev. Rul. 69–75, 1969-1 C.B. 52. 60.382 Security deposit; performance under a business operated as a sole proprietorship must be reduced by allowable business expenses, both 60.397 Stock to employees for services rencontract. Sums received by a principal from his exclusive sales agent as a security deposit to insure for income purposes and for purposes of the tax on dered; controlling shareholders. The tax consethe agent’s performance under the terms of a con- self-employment income, and an agreement quences are set forth for a transfer of a corporatract are not includible in the principal’s gross between the taxpayer and his wife that she pay the tion’s stock by the corporation’s two shareholders income where he is under an obligation to repay expenses for him will be ineffective to prevent this to three employees in consideration for past sersuch amounts upon performance of the terms of reduction. §1.1402(a)–1. (Secs. 63, 1402; ’86 vices. §§1.61–2, 1.83–1, 1.1012–1. (Secs. 61, 83, the contract. The agent may not deduct these pay- Code.) 1012, 2511, 2512; ’86 Code.) Rev. Rul. 57-538, 1957-2 C.B. 55. ments made during the period of the contract. Rev. Rul. 80-196, 1980-2 C.B. 32. However, any amounts appropriated from the security deposit are includable in the principal’s 60.390 State court judge; expense allowance. 60.398 Stock transactions; “insider’s profgross income and may be deducted by the agent in A State court judge who receives an expense its.” A senior partner in an investment banking the year in which such amounts are appropriated allowance for which he does not account to his company which dealt in shares of stock of a corpoto cover such default. §1.61–1. (Sec. 61, ’86 employer must submit as a part of his tax return a ration in which be was a shareholder-director, Code.) statement showing, among other things, the total reported his share of gross profits realized from Rev. Rul. 67-47, 1967-1 C.B. 9. of all such allowances received, which total must such transactions as ordinary income. It later be included in gross income, and the amounts of appeared that he might be liable to the corporation 60.383 Self-insurance. Estimated insurance his ordinary and necessary business expenses paid for “insider profits”. Without admitting a violaexpenses are not deductible. The change from the or incurred, Only the ordinary and necessary busi- tion of S.E.C. rules and without an official or judiuse of actual losses is a change in accounting ness expenses which can be substantiated are cial determination of a violation, he paid the cormethod and the adjustment for the balance in the deductible. §§1.61–1, 1.162–17, 1.274–5. (Secs. poration the maximum amount it could have recovered. Held, the payments were deductible as reserve account at the beginning of the year of 61, 162, 274; ’86 Code.) Rev. Rul. 66-217, 1966-2 C.B. 107. business expenses to protect the partner’s business change must be included in the gross income. ments and supplemental allowances paid to former employees of a railroad company following its merger into another railroad company are deductible business expenses of the surviving company. §1.162–7. (Sec. 162, ’86 Code.) Rev. Rul. 67-408, 1967-2 C.B. 84. Business expenses reputation and to avoid the expense of litigation. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Laurence M. Marks, 27 T.C. 464, Acq., 1966-1 C.B. 2. 60.404 Suits leased for corporate executives. A corporation leases custom-tailored suits for its executives for a two-year period and, at the end of the lease term, returns the suits to the lessor, who sells them for a nominal amount. The corporation is charged a rental fee and a consulting fee, which together equal the normal purchase price of the suits. The fair market value of the suits is includible in the executives’ gross incomes, and the corporation may deduct the entire amount paid to lease the suits. §§1.61–1, 1.83–I, 1.162–7. (Secs. 61, 83, 162; ’86 Code.) Rev. Rul. 80-322, 1980-2 C.B. 36. 60.405 Supplemental unemployment benefit trust contributions. Contributions made by an employer to an independently controlled trust fund, created to furnish supplemental unemployment benefits to certain employees qualifying under a supplemental unemployment benefit plan established pursuant to a collective bargaining agreement, are deductible business expenses (Rev. Rul. 56-102). Amplified to include plans unilaterally instituted by the employer (Rev. Rul. 58–128), and plans where benefits are made by an employer directly to certain qualifying employees (Rev. Rul. 60-330). Supplemented to provide that an amendment to such a plan to provide for lumpsum separation payments (Rev. Rul. 59–256), or payments of so-called “short-work week” and “waiting week” benefits (Rev. Rul. 63–123), does not adversely affect the deductibility of employer contributions. Rev. Ruls. 56–102 and 59–256 are modified to provide that an amendment to such a plan to provide lay-off moving allowance to certain employees, if they move and accept employment at another of the employer’s plants, does not adversely affect the deductibility of employer contributions. (Rev. Rul. 73-245.) §§1.162-1, 1.162-10. (Sec. 162, ’86 Code.) Rev. Rul. 56–102, 1956–1 C.B. 90; Rev. Rul. 58-128, 1958-1 C.B. 89; Rev. Rul. 59-256, 1959-2 C.B. 59; Rev. Rul. 60-330, 1960-2 C.B. 46; Rev. Rul. 63-123, 1963-2 C.B. 89. 60.406 Supplemental unemployment benefit trust contributions. Amounts paid or incurred by a corporation to an independently controlled trust fund, created solely to furnish unemployment benefits under a supplemental unemployment benefits plan, constitute proper accruals during the taxable year in which such amounts become a fixed and certain liability for payment, and are deductible as business expenses. Amounts computed as a contingent liability are not deductible until they become fixed and certain. (Sec. 162, ’86 Code.) Rev. Rul. 56-671, 1956-2 C.B. 117. 60.407 Supplemental unemployment benefit trust contributions. Contributions conveying fully vested and nonforfeitable interests made by an employer into separate and independently controlled non-exempt security benefit trusts for each employee, each trust created pursuant to a collective bargaining agreement to furnish unemployment and certain other benefits to its employees, constitute additional compensation to the employees in the taxable year such contributions are made; such contributions are subject to employment taxes at the time paid into the trusts, and arc business expenses deductible in the taxable year in which paid. Modified to provide where employees’ rights to the contributions are nonforfeitable, such contributions arc taxable to the employees under section 402(b) rather than section 61 of the Code. §1.402(b)–1. (Secs. 61, 162, 402, 404; ’86 Code.) Rev. Rul. 57–37, 1957–1 C.B. 18; Rev. Rul. 57-528, 1957-2 C.B. 263. 60.408 Supplemental unemployment benefit trust contributions; plan amendment. A supplemental unemployment benefit plan was amended to provide for the payment of lump-sum separation benefits to employees who retire on or after the date they reach age 60 but who are ineligible for retirement benefits. The amendment will result in the disallowance under section 162(a) of the contributions made to the trust under such amended plan, and section 404(a) applies to the deduction of the entire contribution under the plan. Rev. Rul. 59-256 modified. §§1.162-10, 1.404(a)-1, 301.7805-1. (Secs. 162, 404, 7805; ’86 Code.) Rev. Rul. 81-17, 1981–1 C.B. 75 60.409 Supplies; additional amounts paid to obtain premiums. An individual engaged in a trade or business purchases business supplies from a company which has two price lists, one of which contains substantially higher prices but enables the purchaser to obtain premiums for personal or family use such as vacation trips and household appliances in addition to the supplies purchased. The taxpayer elects to use the higher price list in making his purchases in order to obtain the premiums. Held, only that portion of the price attributable to the business supplies may be deducted as a business expense. The portion of the price attributable to the premiums is a nondeductible personal expense. §§1.162–1, 1.262–1. (Secs. 162, 262; ’86 Code). Rev. Rul. 66-289, 1966–2 C.B. 43. 60.399 Stock transactions; “insider’s profits”. Taxpayer was involved in a stock sale-purchase transaction in possible violation of the Securities Exchange Act of 1934 and paid the corporation of which he was vice-president the difference between the sales price of the stock sold and the purchase price of the stock purchased. Held, the amount paid the corporation was not merely a capital loss under the principles of Arrowsmith but was an ordinary and necessary business expense. (Sec. 162, ’86 Code.) William L. Mitchell, 52 T.C. 170, Nonacq., 1970-2 C.B. xxii. 60.400 Stock transactions; “insider’s profits.” Payments made to a corporation by a corporate officer, and by a director, for an apparent violation of section 16(b) of the Securities and Exchange Act of 1934 involving an insider’s profit on a sale and subsequent purchase of the corporation’s stock, were made to protect the taxpayers’ business reputations and are deductible as ordinary and necessary business expenses, rather than as a capital loss or a business loss. (Sec. 162, ’86 Code.) James E. Anderson, 56 T.C. 1370, Nonacq., 1978-1 C.B. 2; Nathan Cummings, 60 T.C. 91, Nonacq., 1978–1 C.B. 2. 60.401 Stockholder-creditor; payment under corporate guaranty. Taxpayer, an investment banker, caused a corporation he jointly owned with his brother to guarantee a bank loan to a financially troubled Cuban corporation he was promoting, in large part with his clients as investors, and give his moral obligation to stand behind the transaction as security for both the bank loan and the corporate guaranty. Although all debts owing by the corporation became worthless when the Cuban government expropriated it, taxpayer personally made payments of interest and principal due under the corporate guaranty. Held, payment of the corporate guaranty was deductible as a business expense to protect his business reputation. (Sec. 162, ’86 Code.) Samuel R. Milbank, 51 T.C. 805, Acq. in result, 1970–1 C.B. xvi. 60.402 Stockholder-licenser; payment of company debt. Taxpayer, president and majority stockholder of X corporation, received a substantial amount of royalty income from the licensing of a patented process used by X and other companies. When X made a shipment of defective material and was unable to cover the resulting loss, taxpayer agreed to assume the loss. Held, taxpayer’s payment was a deductible expense of carrying on his licensing business, even though the obligation giving rise to the transaction was primarily that of the corporation. (Sec. 162, ’86 Code.) James L. Lohrke, 48 T.C. 679, Acq., 1968-1 C.B. 2. 60.403 Substantiation; automobile for business purposes. This revenue procedure provides rules under which the amount of ordinary and necessary expenses paid or incurred by an employee in driving an automobile in connection with the performance of services as an employee of the employer will be deemed substantiated under section 1.274–5T when a payor (the employer, its agent, or a third party) provides a mileage allowance under a reimbursement or other expense allowance arrangement to pay for such expenses. Rev. Proc. 89-66 amplified. §11.62-2T, 1.162-17, 1.274-5T. (Sec. 601, 501, S.P.R.; Secs. 62, 162, 274, ’86 Code.) Rev. Proc. 90–34. 1990-1 C.B. 552. 60.410 Survey of shopping center. A survey of the taxpayer’s shopping center was made in connection with an unsuccessful attempt to obtain permanent financing not for the acquisition of property and its cost was a deductible business expense. (Sec. 162, ’86 Code.) Herbert Shainberg, 33 T.C. 241, Acq., 1960-2 C.B. 7. 60.411 Tax preparation; deductibility. The Service has ruled that expenses incurred by an individual in preparing that portion of the taxpayer’s return that relates to the taxpayer’s business as a sole proprietor is deductible as a trade or business expense in determining the taxpayer’s adjusted gross income under section 62(a)(1). Rev. Rul. 70-40 modified. §1.62-1T. (Secs. 62, 162; ’86 Code.) Rev. Rul. 92–29, 1992–1 C.B. 20. 60.412 Tires and tubes mounted on construction equipment. The cost of tires and tubes mounted on highway construction equipment may be deductible as a business expense by a purchaser who is both a user and lessor of such equipment, although the cost of the equipment is treated by the purchaser as a capital expenditure to be depreciated over its estimated useful life. §§1.162–1, 1.167(a)-1. (Secs. 162, 167; ’86 Code.) Rev. Rul. 69-560, 1969-2 C.B. 25. 60.413 Tires and tubes on purchased used construction equipment. The cost properly allocable to tires and tubes on used construction equipment purchased is deductible as a business expense in the taxable year of purchase if their average remaining useful life is less than one year. §1.162-3. (Sec. 162, ’86 Code.) Rev. Rul. 73-357, 1973-2 C.B. 40. 60.414 Title search; property tax determination. Amount paid by taxpayers to a title insurance company for title insurance and for services in determining whether local tax assessments were properly made against real property they held were deductible, to the extent paid for investigative work, as ordinary and necessary expenses of income producing property. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Byron H. Farwell, 35 T.C. 454, Acq., 1961-2 C.B. 4. 60.415 Tour leader. Expenses incurred by a taxpayer while acting as an unpaid leader of a group of tourists where the taxpayer has received the tour Business expenses 60.423 Unamortized loan expense. Taxpayer financed an acquisition through an institution with which it had an outstanding loan. The new loan agreement provided that the first loan would be repaid from the proceeds of the new loan. Held, the two loan transactions were sufficiently distinct to 60.416 Trade association; loan fund. A mem- consider the cancellation of the first note to be a ber of a trade association may deduct the increased repayment, not a refinancing, and the taxpayer dues charged to all members of the association was entitled to deduct the remaining unamortized when the increased charges are allocated to a spe- expenses incurred in connection with the first cial loan fund to be used for the benefit of the loan. (Secs. 162, 167; ’86 Code.) Buddy Schoellkopf Products, Inc., 65 T.C. 640, §§1.162-15, association’s members. Acq., 1977-1 C.B. 1. 1.501(c)(6)-1. (Secs. 162, 501; ’86 Code.) Rev. Rul. 82-15, 1982-1 C.B. 29. 60.424 Unearned subscription liability assumed. A corporation sold a newspaper it 60.417 Trade catalog publication. Costs incurred in publishing a trade catalog with a useful owned and in the year of sale, consistent with its life exceeding one year are not deductible business prior election under section 455, included in its expenses but must be capitalized and depreciated gross income the prepaid subscription income not over the useful life of the catalog. §§1.162–1, previously included therein. A separately stated amount paid to the purchaser of the newspaper for 1.461-1. (Secs. 162, 461; ’86 Code.) its assumption of the liability for the unearned subRev. Rul. 68-360, 1968-2 C.B. 197. scriptions was deductible by the corporation. 60.418 Travel away from home. This notice Amplified by Rev. Rul. 71-450. §1.162-1. (Sec. 162, ’86 Code.) provides guidance on the effective date of an Rev. Rul. 68-112, 1968-1 C.B. 62. amendment to section 162(a) by the Energy Policy Act of 1992. The amendment is effective for costs 60.425 Unearned subscription liability paid or incurred after December 31, 1992, The assumed. Costs incurred by a publishing corporanotice also invites the public to comment by June tion in fulfilling prepaid subscription contracts 30, 1993, on issues arising in connection with the entered into by its former subsidiary, prior to new 1-year rule. acquisition and liquidation by the publishing corNotice 93-29, 1993-1 C.B. 311. poration, must be capitalized and added to the basis of the assets acquired in the liquidation 60.419 Treasury stock to employees for ser- rather than currently deducted. Costs incurred in vices rendered. The fair market value of Treasury publishing copies of the same periodicals for sale stock distributed by a corporation to its employees at news stands, however, are currently deductible. as compensation is deductible under section §§1.162-1, 1.167(a)-3, 1.263(a)-2, 1.332-1, 162(a); section 1032, regarding nonrecognition of 1.334-1. (Secs. 162, 167, 263, 332, 334; ’86 gain or loss, has no effect on such deduction. Code.) Modified by Rev. Rul. 74–503, to remove any Rev. Rul. 76-520, 19762 C.B. 42. implication that a corporation’s treasury stock held by it has a cost basis rather than a zero basis. 60.426 Unemployment benefit plan; special §§1.162-7, 1.1032-1. (Secs. 162, 1032; ’86 account. Amounts which an accrual basis employer credits to a special account, required to Code.) be maintained in conjunction with its contribuRev. Rul. 62-217, 1962-2 C.B. 59. tions to a trusteed supplemental unemployment 60.420 Treatment of advertising expenses. plan, for contingent annual payment to its The Supreme Court’s decision inIndopco, Inc. v. employees are not deductible by reason of the Commissioner, 112 S. Ct. 1039 (1992) does not employer’s accrual or segregation of such funds. affect the treatment of advertising costs as busi- However, such amounts which are actually paid to ness expenses which are generally deductible eligible employees, pursuant to the special under section 162. §§1.162–1, 1.263(a)–1. (Secs. account provisions, are deductible by the employer as ordinary and necessary business 162, 263; ’86 Code.) expenses in the taxable year in which paid or Rev. Rul. 92-80, 1992-2 C.B. 57. incurred. §§1.162–10, 1.461–1. (Secs. 162, 461; ’86 Code.) 60.421 Trees; Christmas; planting and culRev. Rul. 66-309, 1966-2 C.B. 46. tivation. In the Christmas tree business the cost of silviculture practices, such as weeding, cleaning, and noncommercial trimming are deductible busi- 60.427 Unemployment fund payments; ness expenses; expenditures for items such as Michigan. An employer’s voluntary contribution planting, basal pruning, equipment, etc., must be to the Michigan unemployment compensation capitalized. Modified to provide that shearing and fund in excess of the requirements are deductible as business expenses in the year basal pruning are deductible business expenses for 3265 superseded. §1.162-1. (Sec. of payment. I.T. 162, ’86 Code.) taxable years after May 24, 1971. §§1.162–1, Rev. Rul. 71-246, 1971-1 C.B. 54. 1.263(a)-1, 1.611-3, 301.7805-1. (Secs. 162, 263, 611, 7805; ’86 Code.) 60.428 Unemployment fund payments; WisRev. Rul. 66-18, 1966-1 C.B. 59; Rev. Rul. consin. A cash or accrual basis taxpayer who 71–228, 1971–1 C.B. 53; Daniel D. Kirdey, 51 makes a voluntary lump sum payment into the T.C. 1000, Acq., 1971-2 C.B. 3. Wisconsin unemployment reserve fund as allowed by section 108.18 Wisconsin Statutes (1969) may 60.422 Truck tires; motor freight equipment; deduct such payment in the current taxable year; user or lessor. The cost of tires and tubes pur- notwithstanding, that the payment effects a reducchased on new commercial trucking equipment tion in the amount due in a subsequent year or may and used in motor freight transportation is deduct- be credited to a prior year. I.T. 3177 and Rev. Rul. ible as business expenses in full in the taxable year 55-452 superseded. §1.162-1. (Sec. 162, ’86 of purchase if in such use they are consumable Code.) within that year or their average useful life is less Rev. Rul. 70-577, 1970-2 C.B. 36. than one year even though it extends in part into the next year. Amplified to provide similar treat- 60.429 Uniforms; acquisition and maintement to a taxpayer-purchaser engaged in the busi- nance. Reimbursements or allowances for the ness of leasing such equipment. §§1.162–1, acquisition and maintenance of uniforms are includible in an employee’s gross income, and 1.167(a)-1. (Secs. 162, 167; ’86 Code.) Rev. Rul. 59-249, 1959–2 C.B. 55; Rev. Rul. cost to the extent of such reimbursement is deduct68-134, 1968-1 C.B. 63. ible in computing adjusted gross income; free of charge from a travel agency for organizing the group are not deductible from his gross income as business expenses. §§1.162–2, 1.262–1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 64-154, 1964-1 (Part 1) C.B. 72. expenses in excess of the reimbursements or allowances are deductible in computing taxable income if deductions are itemized. I.T. 3978 superseded. §§1.61–1, 1.62–1. (Secs. 61, 62; ’86 Code.) Rev. Rul. 72-110, 1972–1 C.B. 24. 60.430 Uniforms; civilian employees of military school. Amounts expended by civilian faculty and staff members of a military school for the purchase and maintenance of required uniforms which are not suitable for ordinary wear are deductible as business expenses. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 59-219, 1959–1 C.B. 46. 60.431 Uniforms; insignia, shoulder boards, etc.; Coast Guard Academy cadet. The statutory pay of a cadet of the United States Coast Guard Academy is includable in his gross income and subject to withholding of income tax in the year it is received by the Superintendent, or a subordinate, as his agent. Expenditures made on the cadet’s behalf for insignia, shoulder boards, and similar items are deductible in computing taxable income, but not the cost of textbooks, supplies, and uniforms. §§1.61–2, 1.117-4, 1.162–5, 1.262–1. (Secs. 61, 117, 162, 262; ’86 Code.) Rev. Rul. 62-122, 1962-2 C.B. 12. 60.432 Uniforms; jockey. The amounts paid by a jockey for his riding apparel and its maintenance are deductible, G.C.M. 19662 superseded. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 70-475, 1970-2 C.B. 35. 60.433 Uniforms; military fatigues. Amounts expended by members of the Armed Services on active duty for the purchase and maintenance of required military fatigue uniforms, where local military regulations prohibit their off-duty wear, are deductible as business expenses to the extent such expenses exceed allowances therefor. §§1.162-1, 1.262-1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 67-115, 1967-1 C.B. 30. 60.434 Uniforms; milk routeman. A milk routeman, an independent contractor, was entitled to deduct the cost of matching green trousers worn as part of his uniform with shirts, jackets, and caps stitched with the dairy emblem. (Sec. 162, ’86 Code.) Jerome Mortrud, 44 T.C. 208, Acq., 1966-1 C.B. 3. 60.435 Uniforms; police; firemen; letter carriers; nurses; bus drivers; railway men. The cost of acquisition and maintenance of uniforms that are required for work and unsuitable for ordinary wear is deductible by police officers, firemen, letter carriers, nurses, bus drivers, and railway men. I.T. 3988 and Mim. 6463 superseded. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 70-474, 1970-2 C.B. 34. baseball 60.436 Uniforms; professional player. The amount paid by a professional baseball player for his uniforms is deductible. G.C.M. 19790 superseded. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 70-476, 1970-2 C.B. 35. 60.437 Uniforms and transportation; Armed Forces reservists. Certain nonreimbursed transportation expenses incurred by members of reserve components of the Armed Forces in attending authorized training drills constitute deductible business expenses. Amounts expended for the purchase and maintenance of uniforms required for infrequent occasions and allowed to be worn by reservists only on such occasions are also deductible business expenses. Modified by Rev. Rul. 76-453. §§39.23(a)-1, 39.24(a)-1, (Secs. 23(a), 24(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 55-109, 1955-1 C.B. 261. 60.438 Union dues; contributions; determination of deductibility. Informal conference Business and appeals procedures for determining the deductibility of dues and other payments made to certain exempt organizations, such as labor unions or trade associations, where expenditures are made by such organizations for lobbying purposes, for promotion or defeat of legislation, for political campaigns, or for carrying on propaganda related to such purposes. Amplified to provide that organizations shall be notified regarding the conclusions of the Service. §1.162-15. (Sec. 601.105, S.P.R.; Sec. 162, ’86 Code.) Rev. Proc. 61–10, 1961–1 C.B. 895; Rev. Proc. 61-32, 1961-2 C.B. 572. 60.439 Union dues and assessments. Monthly dues and assessments paid by members of a labor union are deductible business expenses except for the portion of the assessments that is used to provide death benefits. I.T. 2888 superseded. §§1.162-15, 1.262-1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 72-463, 1972-2 C.B. 93. 60.440 Unreimbursed expenses; foreign service employees. Expenses incurred by a U.S. foreign service officer, in excess of those which are either reimbursed or certified as properly reimbursable by the State Department, may be deducted as business expenses if the officer establishes that the expenses are ordinary and necessary in the performance of his duties as a foreign service officer and also that any applicable requirements under section 274 have been met. Rev. Rul. 57–364 and Rev. Rul. 59-407 distinguished. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 65-125, 1965-1 C.B. 88. 60.441 Unreimbursed expenses; Government employee assigned to another agency.An employee of the Treasury Department temporarily assigned to the State Department under the terms of a Participation Agency Service Agreement may deduct expenses incurred in connection with his duties for which he is not reimbursed by either Department. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 69-103, 1969-1 C.B. 50. 60.442 Upland cotton acreage allotment. Since an upland cotton acreage allotment can be expected to continue as an income-producing asset for a period longer than one year, the amount expended by a cotton producer to purchase such an allotment is not deductible, but should be capitalized. §1.162–12. (Sec. 162, ’86 Code.) Rev. Rul. 66-58, 1966-1 C.B. 186. remaining in the seller and legal title held by the purchaser as security for the lenders constitutes a financial arrangement for the ship’s reconstruction and the seller remains the owner for Federal income tax purposes. The seller is entitled to deductions for ordinary and necessary expenses paid or incurred to operate the vessel under a charterparty contract established in connection with the financial arrangements and the purchaser is entitled to expense deductions in connection with the transaction. §§1.38–1, 1.61–1, 1.162-1, 1.163-1, 1.164-1, 1.167(a)-1. (Secs. 38, 61, 162, 163, 164, 167; ’86 Code.) Rev. Rul. 72–543, 1972–2 C.B. 87. 60.446 Voluntary payment in addition to franchise tax; public utility. Voluntary payments made by a public utility company to municipalities in addition to the franchise tax imposed on its gross receipts from within the municipalities, pursuant to letter agreements providing that the company will continue the additional payments as long as it is the sole franchise within such municipalities, are deductible. §1.162-1. (Sec. 162, ’86 Code.) Rev. Rul. 73-517, 1973-2 C.B. 37. 60.447 Wage paid minor child; employee of father. Reasonable wages paid by a father to his unemancipated minor child for personal services rendered as a bona fide employee in the conduct of a trade or business, or for the production of income, are deductible. I.T. 3767 superseded. §§1.73-1, 1.162-1, 1.212-1. (Secs. 73, 162, 212; ’86 Code.) Rev. Rul. 72–23, 1972-1 C.B. 43. 60.448 Wagering tax. The Federal excise tax on wagers under section 3285(d) and the special tax under section 3290 of the ’39 Code, paid by persons engaged in receiving wagers are deductible as business expenses provided the taxpayer is engaged in the business of accepting wagers or conducting wagering pools or lotteries, or is engaged in receiving wagers for or on behalf of any person liable for the tax under section 3285(d). §39.23(a)-1. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 54-219, 1954-1 C.B. 51. expenses ance subsidiary as “insurance premiums” notwithstanding the insurance subsidiary’s acceptance of insurance risks from unrelated parties, is clarified. §§ 1.162–1, 1.831–3. (Secs. 162, 831; ’86 Code.) Rev. Rul. 89–61, 1989–1 C.B. 75. 60.452 Workclothing; fisherman. Crew members of a commercial fishing boat may deduct the expenses actually incurred by them for travel, meals, and lodging when on a business trip requiring their absence from the home port for more than one day’s work. Expenditures for protective clothing of a type not adaptable to general use are deductible. §§39.23(a)-1, 39.23(a)-2. (Sec. 23(a), ’39 Code; Sec. 162, ’86 Code.) Rev. Rul. 55–235, 1955–1 C.. 274. 60.453 Work clothing; painter; union requirement. The fact that a union required a painter to wear a certain type of work clothes is not sufficient to permit the cost of such clothing to be a deductible business expense. The cost and maintenance are personal expenses. (Secs. 162, 262; ’86 Code.) Rev. Rul. 57-143, 1957-1 C.B. 89. 60.454 Wristwatch; required by employer. The cost of a wristwatch purchased by a taxpayer to fulfill a requirement of the taxpayer’s employer is not a deductible business expense, but is a nondeductible personal expense. §§1.162-5, 1.262-1. (Secs. 162, 262; ’86 Code.) Rev. Rul. 82–168, 1982–2 C.B. 56. 60.449 Wages paid and meals and lodging furnished child employed by father. Reasonable wages paid by a father to his child for services rendered as a bona fide employee in his trade or business are deductible business expenses, even though the child uses the wages for part of his own 60.443 Vacation pay; employment on support. However, the value of meals and lodging construction projects. Any amount of vacation pay for taxpayer’s employees that is attributable to furnished by a father to his unemancipated minor employment on construction projects in its expan- child who is his bona fide employee is not deductsion program is not a deductible business expense; ible as wages by the father or includable in the such vacation pay represents a capital expendi- gross income of the child. I.T. 3812 and Rev. Rul. ture, includable as part of the cost of the construc- 59-110 superseded. §1.262-1. (Secs. 162, 262; tion project. §§1.162–10, 1.263(a)–1. (Secs. 162, ’86 Code.) Rev. Rul. 73-393, 1973-2 C.B. 33. 263; ’86 Code.) Rev. Rul. 67-75, 1967–1 C.B. 41. 60.450 Warehouse charges on whiskey in bond. An accrual method domestic wholesale 60.444 Vacation pay; payments to employees’ trust. Amounts paid by an employer to a trust liquor corporation that purchases whiskey wareforming a part of his employees’ vacation plan, house certificates, taking title to whiskey in where such amounts are constructive payments of bonded warehouses, may not deduct as business compensation and thus employee contributions, expenses the accrued storage, moving, taxes, and are deductible under section 162 and not under other charges it must pay when it withdraws the section 404(a)(5). These amounts are taxable to whiskey but must add the warehouse charges to the employees for the taxable year in which paid the basis of the whiskey withdrawn, If the certifito the trust and are subject to employment taxes at cates are sold, it may not consider such charges in the time paid into the trust. Rev. Rul. 57–316, computing its gain or loss. I.T. 3240 superseded. relating to employment taxes, distinguished. §§1.162-1, 1.263(a)-1, 1.1012-1. (Secs. 162, §§1.61-2, 1.162-10. (Secs. 61, 162; ’86 Code.) 263, 1012; ’86 Code.) Rev. Ru1. 67-351, 1967–2 C.B. 86. Rev. Rul. 74-264, 1974-1 C.B. 40. 60.445 Vessel reconstruction; financing arrangement between unrelated corporations. A ship sale and leaseback arrangement between unrelated corporations to finance the reconstruction of a vessel with the beneficial ownership 60.451 Wholly owned insurance subsidiary; insurance premiums. Rev. Rul. 88–72, which holds that a parent corporation and its subsidiaries cannot deduct under section 162 of the Code amounts paid to the parent’s wholly owned insur-