Academic journal article Journal of Accountancy

IRS Allows Statistical Sampling for M&E Costs: New Procedure May Increase Taxpayer Deductions

Academic journal article Journal of Accountancy

IRS Allows Statistical Sampling for M&E Costs: New Procedure May Increase Taxpayer Deductions

Article excerpt

There is very good news for CPAs whose clients face the often burdensome administrative costs of claiming allowable expense deductions for meals and entertainment (M&E)--the IRS now will permit the use of statistical sampling to account for such expenses.

OVERVIEW

Although most M&E expenses are subject to a 50% limit, exceptions permit 100% deductibility. To facilitate accounting for fully deductible M&E, the IRS issued revenue procedure 2004-29, which establishes guidelines for using statistical sampling methods to account for these expenses, whether in art original return, under IRS examination, in litigation or when making a refund claim.

LIMITS ON DEDUCTIBILITY

IRC section 162 allows a deduction for all ordinary and necessary expenses paid or incurred during the tax year in carrying on a trade or business. Section 274(n)(1) generally limits the M&E deduction by 50%, but allows 100% deductions for costs

* Treated as compensation (section 274(e)(2)).

* Related to food and beverages excludible as de minimis fringe benefits (section 274(n)(2)(B)).

* For events that involve a ticket (section 274(n)(2)(C)).

* For taxable payments or reimbursements for moving expenses (section 274(n)(2)(D)).

* For food or beverages that federal law requires to be provided to certain crew members (section 274(n)(2)(E)).

Revenue procedure 2004-29 not only permits the use of statistics, but also explains sampling standards. By using statistical sampling, a taxpayer can take deductions without incurring costs in excess of the related tax benefit. …

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