Proposed Regulations on Deductions for Entertainment Use of Business Aircraft Teleconference
Miller & Chevalier held a Teleconference Regarding Proposed Regulations on Deductions for Entertainment Use of Business Aircraft.
More than two years after the issuance of Notice 2005-45, the Internal Revenue Service has finally issued proposed regulations addressing the deductibility of entertainment expenses under Section 274(e)(2) of the Internal Revenue Code, as amended by the American Jobs Creation Act of 2004. Section 274(e)(2) disallows deductions for entertainment goods, services and facilities provided to "specified individuals" to the extent the expenses exceed the amount that the service recipient treats as compensation. Although the statute does not specifically reference aircraft, the intent of the amendment was to override the Tax Court's holding in Sutherland Lumber-Southwest, Inc. v. Commissioner, which sustained the taxpayer's deduction of expenses for its executives' entertainment flights on company aircraft that were valued for compensation purposes using the special valuation rules for flights on noncommercial aircraft, known as the SIFL rules.