6745 lobbying and political contributions although

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¶6745 Lobbying and Political Contributions Although expenses for lobbying and political contributions may be closely related to the taxpayer’s business, Congress has traditionally limited their deduction. Lobbying Lobbying expenditures are deductible only if incurred for the purpose of in fl uencing legislation at the local level. Even at the local level, the taxpayer must have a direct interest in the local legislation before lobbying expenses may be deducted. Political Contributions No deduction is permitted for any contributions, gifts, or any other amounts paid, directly or indirectly, to a political party, action committee, or group or candidate related to a candidate’s campaign. ¶6755 Meals and Entertainment Expenses Under Code Sec. 275(a), entertainment expenses are deductible by a taxpayer if the expenditures can be substantiated and are “directly related to” or “associated with” a taxpayer’s business. Only 50 percent of the amount of otherwise allowable meals and entertainment expenses is deductible subject to certain exceptions. The exceptions allowing full deductibility include meal and entertainment expenses fully taxed as compensation to the recipient, traditional recreational expenses paid by employers for employees, and expenditures for samples and promotional items made available to the general public. Entertainment Facilities Expenditures by a taxpayer relating to the ownership of entertainment facilities such as yachts, hunting lodges, and fi shing camps are generally not deductible as entertainment expenses. Out-of-pocket costs related to the use of entertainment facilities of this type, however, if directly related to or associated with the taxpayer’s business, are deductible for tax purposes. In addition, deductions for club dues are no longer allowed.
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85 Instructor’s Manual © 2009 CCH. All Rights Reserved. Chapter 6 Substantiation of Entertainment Expenses No entertainment deduction is allowed for tax purposes unless the taxpayer substantiates by adequate records or by other suf fi cient evidence corroborating the taxpayer’s own statements the amount of the expense, the time and place of the entertainment. ¶6765 Expenses and Interest Relating to Tax-Exempt Income Under Code Sec. 265, no deduction is allowed for expenses incurred in the production of tax-exempt income. This prohibition extends to interest expense, insurance premiums, legal expenses, and any other expense incurred to generate nontaxable income. ¶6775 Related Party Transactions Code Sec. 265 prohibits taxpayers from deducting a loss on the sale of property to a related taxpayer. Similarly, payments to related taxpayers are generally not deductible by the payer until the tax year in which the recipient recognizes the payment in income.
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