Tax Notes


 

 
TAX NOTES
The Treasury Department and the IRS in May issued a revenue procedure providing guidance on using statistical sampling to assess the deductibility of business meal and entertainment (M&E) expenses ( www.irs.gov/pub/irs-drop/rp-04-29.pdf ). Although generally no more than 50% of each such expense can be deducted, certain ones may be fully deductible. To quickly establish which items in a large M&E account are entirely deductible, taxpayers can use the guidance’s sampling methodology.

The GAO in April provided the IRS with findings and recommendations relating to its audit of the service’s financial statements and internal controls ( www.gao.gov/new.items/d04553r.pdf ). The GAO report, which was based on the watchdog agency’s 2002 and 2003 audits of the service’s financial statements and assessment of the effectiveness of its internal controls, said the IRS should improve its controls on budgeting, operating costs, financial reporting and the safeguarding of taxpayer receipts. The IRS agreed with all but one of the report’s 15 recommendations and said it would reassess risks in that area—the composition of courier teams responsible for transporting taxpayer remittances to depository institutions—and advise the GAO of any related changes it makes. In its fiscal year 2004 audit, the GAO will examine the IRS’s conclusions in this respect and evaluate whatever corrective actions the service may have taken in response to any of the report’s recommendations.

The IRS issued a reminder—as it has done in recent presidential election years—that charities, educational institutions, religious and other federal-income-tax-exempt organizations described in IRC section 501(c) are prohibited from participating or intervening in any political campaign for or against any candidate for public office ( www.irs.gov/newsroom/article/0,,id=122887,00.html ). Such entities cannot, for example, make donations, raise funds or distribute literature. Tax-exempt organizations the IRS finds involved in such undertakings risk losing their favored status and being subject to an excise tax on their politically related expenditures.

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