Carol and Jerry, LLP: Issue and Conclusion
TO: File
FROM: Azadeh Aarabi-Taft
RE: Carol and Jerry, LLP
Facts
Carol and Jerry, LLP, pays the Good Eats Café each month for the lunches the two accountants eat there each work day. While at lunch, Carol and Jerry always discuss some business. Often, Carol and Jerry invite friends who work at other CPA firms to join them, so they can keep up with what is happening in the accounting community.
Issue and Conclusion 1
Are Carol and Jerry entitled to deduct the lunch expenses they occurred during lunch meeting at Good Eats Café on every work day as an ordinary and necessary business expense?
No, Caro and Jerry cannot deduct the expenses they occurred during lunch as an ordinary and necessary business expense.
Analysis 1
The lunch expenses paid to Good Eats Café are not deductible under § 162(a) as an ordinary and necessary expenses. Generally, based on Welch v. Helvering (S.Ct., 1933) for an expenditure to be an ordinary and necessary business expense the taxpayer must show a bona fide business purpose for the expenditure; In this case, Carol and Jerry are bear the burden of proving that the expenses in question are ordinary and necessary business expenses. To be “necessary” within the meaning of § 162, Welch v. Helvering, an expense need to be “appropriate and helpful” to the taxpayer. The be “ordinary”, Deputy v. du Pont (S.Ct., 1940), “the transaction which gives rise to it must be of common or frequent occurrence in the type of business involved.”
The facts in this case are similar to Moss v. Commissioner (7 Cir. 1985), where partner's proportional share of costs incurred by law firm during daily business luncheons denied. Same as Carol and Jerry, partners at Moss firm, discussed firm's business during their lunch; Although court assume it was necessary for Moss's firm to meet daily to coordinate the work of the firm, and also, as the Tax Court found, that lunch was the most convenient time, they did not follow that the expense of the lunch was a necessary
FROM: Azadeh Aarabi-Taft
RE: Carol and Jerry, LLP
Facts
Carol and Jerry, LLP, pays the Good Eats Café each month for the lunches the two accountants eat there each work day. While at lunch, Carol and Jerry always discuss some business. Often, Carol and Jerry invite friends who work at other CPA firms to join them, so they can keep up with what is happening in the accounting community.
Issue and Conclusion 1
Are Carol and Jerry entitled to deduct the lunch expenses they occurred during lunch meeting at Good Eats Café on every work day as an ordinary and necessary business expense?
No, Caro and Jerry cannot deduct the expenses they occurred during lunch as an ordinary and necessary business expense.
Analysis 1
The lunch expenses paid to Good Eats Café are not deductible under § 162(a) as an ordinary and necessary expenses. Generally, based on Welch v. Helvering (S.Ct., 1933) for an expenditure to be an ordinary and necessary business expense the taxpayer must show a bona fide business purpose for the expenditure; In this case, Carol and Jerry are bear the burden of proving that the expenses in question are ordinary and necessary business expenses. To be “necessary” within the meaning of § 162, Welch v. Helvering, an expense need to be “appropriate and helpful” to the taxpayer. The be “ordinary”, Deputy v. du Pont (S.Ct., 1940), “the transaction which gives rise to it must be of common or frequent occurrence in the type of business involved.”
The facts in this case are similar to Moss v. Commissioner (7 Cir. 1985), where partner's proportional share of costs incurred by law firm during daily business luncheons denied. Same as Carol and Jerry, partners at Moss firm, discussed firm's business during their lunch; Although court assume it was necessary for Moss's firm to meet daily to coordinate the work of the firm, and also, as the Tax Court found, that lunch was the most convenient time, they did not follow that the expense of the lunch was a necessary