Question

Armor Corporation, a "C" Corp., manufactures & sells medical equipment. In 2017, Armor had gross revenues of $12 million. It incurred $450,000 in entertainment expenses. These expenses included sporting events, concerts, golf outings, dinners, operas and company parties.

These expenses, common in the industry, were incurred by its sales force servicing current customers with regular contact to ensure equipment purchased is operating properly, and evaluating the need for additional equipment. The sales force also uses entertainment settings to generate new business.

In some cases, tickets are given to clients without Armor employees accompanying them at events. In other cases, tickets were given to Armor employees without clients accompanying them to events. Sales have increased by 15% due to these expenses. Armor Corporation wants to determine how these expenses may be deducted on its current year corporation tax return.

Instructions:

Identify the relevant facts to determine a method to research the area of tax area of corporation business and entertainment expenses. Locate the proper tax authorities to determine if these deductions will be allowed. Would your advice for 2017 tax year be the same as 2018 tax year?

Prepare a memo for the tax file (using the FIRAC method),

Answer 1

Fact: Entertainment expenses incurred to increase the sales of Armor corporation @ 15%.

Issue: Whether these entertainment expense can be claimed as expenditure in tax perview.

Rule: As per section 37 of incometax act 1961, any expenditure which is not covered from sec30 to sec36 & spent for the purpose of business can be claimed as general expenditure only.

Analysis: As the given question involves entertainment expenses i.e., tickets are given to clients without Armor employees accompanying them at events. In other cases, tickets were given to Armor employees without clients accompanying them to events. Sales have increased by 15% due to these expenses is covered under section 37 of income tax act 1961.

Conclusion: The given entertainment expenses was allowed in the current year i.e.,2017 as general expenditure only.

My advice will be the same for 2018 year also.