Page 109 - BusinessStructures & Forms

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Travel, meals, and entertainment. membership dues in civic or public service Lobbying expenses. Generally,
Subject to limitations and restrictions organizations, professional organizations lobbying expenses are not deductible.
discussed below, a corporation can (such as bar and medical associations), These expenses include:
deduct ordinary and necessary travel, business leagues, trade associations, • Amounts paid or incurred in connection
meal, and non-entertainment expenses chambers of commerce, boards of trade, with influencing federal, state, or local
paid or incurred in its trade or business. and real estate boards. However, no legislation; or
Generally, entertainment expenses, deduction is allowed if a principal purpose • Amounts paid or incurred in connection
membership dues, and facilities used in of the organization is to entertain or with any communication with certain
connection with these activities cannot be provide entertainment facilities for federal executive branch officials in an
deducted. In addition, no deduction is members or their guests. In addition, attempt to influence the official actions or
generally allowed for qualified corporations cannot deduct membership positions of the officials. See Regulations
transportation fringe benefits. Special dues in any club organized for business, section 1.162-29 for the definition of
rules apply to deductions for gifts, luxury pleasure, recreation, or other social “influencing legislation.”
water travel, and convention expenses. purpose. This includes country clubs, golf Dues and other similar amounts paid to
See section 274, Pub. 463, and Pub. 535 and athletic clubs, airline and hotel clubs, certain tax-exempt organizations may not
for details. and clubs operated to provide meals be deductible. If certain in-house lobbying
under conditions favorable to business
Travel. The corporation cannot deduct discussion. expenditures do not exceed $2,000, they
travel expenses of any individual are deductible.
accompanying a corporate officer or Entertainment facilities. Generally, Line 28. Taxable Income Before
employee, including a spouse or the corporation cannot deduct an expense NOL Deduction and Special
dependent of the officer or employee, paid or incurred for a facility (such as a
unless: yacht or hunting lodge) used for an activity Deductions
• That individual is an employee of the usually considered entertainment, At-risk rules. Generally, special at-risk
corporation, and amusement, or recreation. rules under section 465 apply to closely
• That individual’s travel is for a bona fide Amounts treated as compensation. held corporations (see Passive activity
business purpose and would otherwise be Generally, the corporation may be able to limitations, earlier) engaged in any activity
deductible by that individual. deduct otherwise nondeductible as a trade or business or for the
Meals. Generally, the corporation can entertainment, amusement, or recreation production of income. These corporations
deduct only 50% of the amount otherwise expenses if the amounts are treated as may have to adjust the amount on line 28.
allowable for non-entertainment related compensation to the recipient and (See below.)
meal expenses paid or incurred in its trade reported on Form W-2 for an employee or The at-risk rules do not apply to:
or business. However, the corporation can on Form 1099-NEC for an independent • Holding real property placed in service
deduct 100% of business meal expenses contractor. by the taxpayer before 1987;
if the meals are food and beverages However, if the recipient is an officer, • Equipment leasing under sections
provided by a restaurant. This applies only director, beneficial owner (directly or 465(c)(4), (5), and (6); or
to amounts paid or incurred after indirectly), or other “specified individual” • Any qualifying business of a qualified
December 31, 2020, and before January (as defined in section 274(e)(2)(B) and corporation under section 465(c)(7).
1, 2023. Regulations section 1.274-9(b)), special However, the at-risk rules do apply to
Meals not separately stated from rules apply. the holding of mineral property.
entertainment are generally not Fines or similar penalties. Generally, If the at-risk rules apply, adjust the
deductible. In addition (subject to no deduction is allowed for fines or similar amount on this line for any section 465(d)
exceptions under section 274(k)(2)): penalties paid or incurred to, or at the losses. These losses are limited to the
• Meals must not be lavish or direction of, a government or amount for which the corporation is at risk
extravagant, and governmental entity for violating any law, for each separate activity at the close of
• An employee of the corporation must or for the investigation or inquiry into the the tax year. If the corporation is involved
be present at the meal. potential violation of a law, except: in one or more activities, any of which
See section 274(n)(3) for a special rule • Amounts that constitute restitution or incurs a loss for the year, report the losses
that applies to expenses for meals remediation of property, for each activity separately. Attach Form
consumed by individuals subject to the • Amounts paid to come into compliance 6198, At-Risk Limitations, showing the
hours of service limits of the Department with the law, amount at risk and gross income and
of Transportation. • Amounts paid or incurred as the result deductions for the activities with the
Qualified transportation fringes of orders or agreements in which no losses.
government or governmental entity is a
(QTFs). Generally, no deduction is party, and If the corporation sells or otherwise
allowed under section 274(a)(4) for QTFs • Amounts paid or incurred for taxes due. disposes of an asset or its interest (either
provided by employers to their employees. total or partial) in an activity to which the
QTFs are defined in section 132(f)(1) and No deduction is allowed unless the at-risk rules apply, determine the net profit
include: amounts are specifically identified in the or loss from the activity by combining the
• Transportation in a commuter highway order or agreement and the corporation gain or loss on the sale or disposition with
vehicle between the employee's residence establishes that the amounts were paid for the profit or loss from the activity. If the
and place of employment, that purpose. Also, any amount paid or corporation has a net loss, it may be
• Any transit pass, and incurred as reimbursement to the limited because of the at-risk rules.
government for the costs of any
• Qualified parking. investigation or litigation are not eligible for Treat any loss from an activity not
See section 274, Pub. 15-B and Pub. the exceptions and are nondeductible. allowed for the tax year as a deduction
535 for details. See section 162(f). allocable to the activity in the next tax
Membership dues. The corporation year.
can deduct amounts paid or incurred for

Instructions for Form 1120 -15-