(a) In general. For taxable years beginning on or after January 1, 1986, no deduction or credit shall be allowed with respect to-
(1) Traveling away from home (including meals
and lodging),
(2) Any activity
which is of a type generally considered to constitute entertainment, amusement
or recreation, or with respect to a facility used in connection with such an
activity, including the items specified in section 274(e),
(3) Gifts defined in section 274(b)
or
(4) Any listed property (as
defined in section 280F(d)(4) and §1.280F-6T(b) ), unless the taxpayer
substantiates each element of the expenditure or use (as described in paragraph
(b) of this section) in the manner provided in paragraph (c) of this section
This limitation supersedes the doctrine found in Cohan v
Commissioner, 39 F. 2d 540 (2d Cir. 1930). The decision held that
where the evidence indicated a taxpayer incurred deductible travel or
entertainment expenses but the exact amount could not be determined, the court
should make a close approximation and not disallow the deduction entirely.
Section 274(d) contemplates that no deduction or credit shall be allowed a
taxpayer on the basis of such approximations or unsupported testimony of the
taxpayer. For purposes of this section, the term entertainment
means entertainment, amusement, or recreation, and use of a facility therefor;
and the term expenditure includes expenses and items
(including items such as losses and depreciation).
(b) Elements of an expenditure or use -
(1)
In
general. Section 274(d) and this section contemplate that no deduction
or credit shall be allowed for travel, entertainment, a gift, or with respect
to listed property unless the taxpayer substantiates the requisite elements of
each expenditure or use as set forth in this paragraph (b).
(2)
Travel away from home.
The elements to be provided with respect to an expenditure for travel away from
home are-(i)
Amount. Amount
of each separate expenditure for traveling away from home, such as cost of
transportation or lodging, except that the daily cost of the traveler's own
breakfast, lunch, and dinner and of expenditures incidental to such travel may
be aggregated, if set forth in reasonable categories, such as for meals, for
gasoline and oil, and for taxi fares;
(ii)
Time. Dates of
departure and return for each trip away from home, and number of days away from
home spent on business;
(iii)
Place. Destinations or locality of travel, described by name
of city or town or other similar designation; and
(iv)
Business purpose.
Business reason for travel or nature of the business benefit derived or
expected to be derived as a result of travel.
(3)
Entertainment in
general. The elements to be proved with respect to an expenditure for
entertainment are-(i)
Amount. Amount of each separate expenditure for entertainment,
except that such incidental items as taxi fares or telephone calls may be
aggregated on a daily basis;
(ii)
Time. Date of entertainment;
(iii)
Place. Name, if any,
address or location, and destination of type of entertainment, such as dinner
or theater, if such information is not apparent from the designation of the
place;
(iv)
Business
purpose. Business reason for the entertainment or nature of business
benefit derived or expected to be derived as a result of the entertainment and,
except in the case of business meals described in section 274(e)(1), the nature
of any business discussion or activity;
(v)
Business relationship.
Occupation or other information relating to the person or persons entertained,
including name, title, or other designation, sufficient to establish business
relationship to the taxpayer.
(4)
Entertainment directly preceding
or following a substantial and bona fide business discussion. If a
taxpayer claims a deduction for entertainment directly preceding or following a
substantial and bona fide business discussion on the ground that such
entertainment was associated with the active conduct of the taxpayer's trade or
business, the elements to be proved with respect to such expenditure, in
addition to those enumerated in paragraph (b)(3) (i), (ii), (iii), and (v) of
this section are-(i)
Time.
Date and duration of business discussion;
(ii)
Place. Place of
business discussion;
(iii)
Business purpose. Nature of business discussion, and business
reason for the entertainment or nature of business benefit derived or expected
to be derived as the result of the entertainment.
(iv)
Business relationship.
Identification of those persons entertained who participated in the business
discussion.
(5)
Gifts. The elements to be proved with respect to an
expenditure for a gift are- (i)
Amount. Cost of the gift to the taxpayer;
(ii)
Time. Date of the
gift;
(iii)
Description. Description of the gift;
(iv)
Business purpose.
Business reason for the gift or nature of business benefit derived or expected
to be derived as a result of the gift; and
(v)
Business relationship.
Occupation or other information relating to the recipient of the gift,
including name, title, or other designation, sufficient to establish business
relationship to the taxpayer.
(6)
Listed property. The
elements to be proved with respect to any listed property are-
(i)
Amount -
(A)
Expenditures. The amount
of each separate expenditure with respect to an item of listed property, such
as the cost of acquisition, the cost of capital improvements, lease payments,
the cost of maintenance and repairs, or other expenditures, and
(B)
Uses. The amount of each
business/investment use (as defined in §1.280F-6T(d)(3) and (e) ), based
on the appropriate measure (i.e., mileage for automobiles and other means of
transportation and time for other listed property, unless the Commissioner
approves an alternative method), and the total use of the listed property for
the taxable period.
(ii)
Time. Date of the expenditure or use with respect to listed
property, and
(iii)
Business or investment purpose. The business purpose for an
expenditure or use with respect to any listed property (see
§1.274-5T(c)(6)(i) (B) and (C) for special rules for the aggregation of
expenditures and business use and §1.280F-6T(d)(2) for the distinction
between qualified business use and business/investment use).
See also §1.274-5T(e) relating to the
substantiation of business use of employer-provided listed property and
§1.274-6T for special rules for substantiating the business/investment use
of certain types of listed property.
(c) Rules of substantiation -
(1)
In general. Except as
otherwise provided in this section and §1.274-6T, a taxpayer must
substantiate each element of an expenditure or use (described in paragraph (b)
of this section) by adequate records or by sufficient evidence corroborating
his own statement. Section 274(d) contemplates that a taxpayer will maintain
and produce such substantiation as will constitute proof of each expenditure or
use referred to in section 274. Written evidence has considerably more
probative value than oral evidence alone. In addition, the probative value of
written evidence is greater the closer in time it relates to the expenditure or
use. A contemporaneous log is not required, but a record of the elements of an
expenditure or of a business use of listed property made at or near the time of
the expenditure or use, supported by sufficient documentary evidence, has a
high degree of credibility not present with respect to a statement prepared
subsequent thereto when generally there is a lack of accurate recall. Thus, the
corroborative evidence required to support a statement not make at or near the
time of the expenditure or use must have a high degree of probative value to
elevate such statement and evidence to the level of credibility reflected by a
record made at or near the time of the expenditure or use supported by
sufficient documentary evidence. The substantiation requirements of section
274(d) are designed to encourage taxpayers to maintain the records, together
with documentary evidence, as provided in paragraph (c)(2) of this
section.
(2)
Substantiation
by adequate records -(i)
In
general. To meet the "adequate records" requirements of section
274(d), a taxpayer shall maintain an account book, diary, log, statement of
expense, trip sheets, or similar record (as provided in paragraph (c)(2)(ii) of
this section), and documentary...
