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TAXATION

NAME

INSTITUTION
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The country club dues is a necessary deduction of the entertainment expense. The

expense constitutes a business expense. Rules have been formulated by the IRS to limit

deductions from a business owner as forms of entertainment expense. For example, the cost of

playing golf ($15000) can be probably be deducted with your client while you can’t deduct the

membership fees ($4300) of the club. The silver lining in the above case is so small. The IRS in

its publication 463(Entertainment, car expense and gift) is quite specific regarding deduction of

membership fees and club dues. Non-deductible expenses include any club expenses that is

organized for recreation, pleasure and other social purposes. Heather did not arrange to join the

country club for recreation but rather to meet potential clients (Masselli & Ricketts, 2004).

The discussion must be associated with your business; for example, it must have a clear

business purpose such as encouraging existing business relationship or developing new business.

Discussion can involve advice, planning or simply exchanging useful information with a

business associate. To qualify for the deduction, the business must be discussed with one or more

people after or before you play golf, for example, having a drink or meal with one or more

business associates at the club house after or before you golf together.

If you qualify for the deduction, a fifty percent deduction of the cost of drinks, parking,

meals, green fees, travel from and to the golf club, golf course, golf balls or other similar

expenses. Discussions you have while playing golf do not qualify for the deduction. Discussion

on the golf should occur on the same day as the golf. If you have to stay overnight, golf can be

played on the same day after or before the discussion (Andreoni & Feinstein, 2008).

Being aware of some of the rules before spending the money on meals or ticket is a good

idea at a time when the food or event is expensive. Owners can only claim fifty percent of their

expenses hence the business owner spending on sports, meals, and theater isn’t going to get a
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windfall on tax time. Therefore, for $15000 as entertainment business expense, $7500 becomes

tax return and hence leading to a considerably fewer tax savings. If the amount spent on

entertainment is too lavish under the owner’s circumstances, IRS might put a limit on how much

you can claim. Heather, as an agency employee, will review the return in question or challenge

the expenses during the audit period. You will still be subjected to the 50 percent rule as allowed

by the government. It’s important to record the date and place where the entertainment took

place, the names of the people entertained, where you had your business discussion and finally

the business purpose of the entertainment (Bobek et al., 2013).

The deductible business expense must be necessary and ordinary for the business

operations. Therefore, the club dues deducted will fit into the above description and hence it

can’t be a square peg as it relates to the business. The IRS does consider time into account. Since

they had a substantial business discussion, they don’t need to be longer that total time provided

by the entertainment. Further, the IRS requires that the entertainment cannot be extravagant and

lavish, a description considered subjective hence try to keep the bill's minimum to avoid raising

eyebrows. Entire deduction might be lost if the IRS doesn’t consider the expenses a reasonable

amount. A substantial business discussion must exist with the expectation of closing a sale to

qualify for expenditures in entertainment (Joulfaian, 2000).

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REFERENCE

Andreoni, J., Erard, B., & Feinstein, J. (2008). Tax compliance. Journal of economic

literature, 36(2), 818-860.

Bobek, D. D., Hageman, A. M., & Kelliher, C. F. (2013). Analyzing the role of social norms in

tax compliance behavior. Journal of Business Ethics, 115(3), 451-468.

Jackson, B. R., & Milliron, V. C. (1986). Tax compliance research: Findings, problems, and

prospects. Journal of accounting literature, 5(1), 125-165.

Joulfaian, D. (2000). Corporate income tax evasion and managerial preferences. Review of

Economics and Statistics, 82(4), 698-701.

Masselli, J., & Ricketts, R. (2004). Tax Compliance Behaviors And Risk: An Examination of the

Impact of Risk Propensity on Taxpayer Responsiveness to Computer Generated Audit

Flags.