Amounts paid to an employee under an accountable plan for tickets to a sporting event must meet several conditions, in addition to the usual accountable plan requirements, to be deductible as a business expense by the employer. For an employer to claim a deduction for tickets purchased to a sporting event, Regs. Sec. 1.274-2(c) requires that the sporting event be directly related to the conduct of business. This generally requires that the employee actively engage in a business meeting, negotiation, discussion, or other bona fide business transaction during the event on behalf of the employer.
Although this generally is not a difficult test to meet when the employee is meeting with clients or prospects to develop new or existing relationships, the regulations include two additional stipulations that can result in the disallowance of this type of deduction. First, no deduction is allowed when tickets are provided to a client or prospect, and an employee or other representative of the company providing the tickets is not present. Any such tickets presented to a client or prospect would be considered a gift, deductible under Sec. 274(b)(1) only to the extent total gifts during the year do not exceed $25.
Second, substantial distractions at the event may lead the IRS to conclude that no business transactions could be conducted there. Although it might be possible to argue otherwise, general seating at a sporting event often is not conducive to conducting business transactions due to the volume of the audience and the distraction of the event. Therefore, it is recommended that employers either use a more secluded suite without the distractions of general seating or document business transactions that occurred before or after the sporting event.
Another issue that arises often with sporting events is whether tickets purchased for family members of employees, clients, or prospects can be deducted. Regs. Sec. 1.274-2(d)(2) allows a deduction for tickets purchased for spouses of individuals involved in the business transactions, but it does not mention other family members.
Many businesses also rent luxury suites at sporting events. Suite rental agreements often include several components such as tickets for admission, advertising expense, food and beverage costs, and fees for use of the suite. However, the rental agreement often does not break down the rental price into its component parts. Businesses should work with the venue to identify the portion of expenses related to each component.
Regs. Sec. 274(l)(2) limits the business deduction for luxury suite seats to the face value of non-luxury box seats. The highest face value of non-luxury box seats may be used in determining this limitation; however, to determine its deduction, a taxpayer may not use the price of seats that are not offered to the public generally and that are available only to a limited group of purchasers. The amount identified for the deductible ticket price, along with any food and beverage expense, is deductible subject to the 50% limit generally applicable to meals and entertainment expenses. Any amounts identified as advertising expense should be fully deductible as an ordinary and necessary business expense. Any remaining expense for use of the suite generally is considered a nondeductible expense for the use of an entertainment facility.
For a detailed discussion of the issues in this area, see "Deducting Expenses for Sporting Events Under an Accountable Plan," by David J. Holets, CPA, in the September 2015 issue of The Tax Adviser.
—By Alistair M. Nevius, editor-in-chief, The Tax Adviser
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