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Tax court clarifies conflict in tax code clauses

Business expenses are deductible. That’s the general rule in the U.S. tax code. However, not every expense is always 100 percent deductible, and where exceptions exist there can be room for disagreement.

Differences of opinion can trigger audits by the IRS, which can lead to taxpayers receiving notices of deficiency. Negotiation and compromise often resolves the issues, but when tens of thousands of dollars are at stake, sometimes a trip to U.S. Tax Court proves necessary.

Considering how big hockey is in Minnesota, the following case might well resonate with readers. It certainly should for any business manager that regularly sends teams into the field to troubleshoot crisis situations at customer locations. If those trips require extended time away from the company’s home base, it could be especially meaningful.

At the center of this tax fracas is the management of the National Hockey League’s Boston Bruins. In 2009 and 2010, the owners deducted the full costs of away game meals for the team and the traveling support staff. The IRS rejected the full deduction, pointing to a section of the tax code stating that only 50 percent of the costs could be claimed since the meals were not provided at a facility owned or leased by the team, at or near the team’s home location.

However, there are some exceptions to that rule and the team argued that it qualified. Specifically, Bruins owners argued that the meals met the standard of being a de minimis fringe benefit. They said the meals ensured the players were prepared to play to their best potential and that meals were not provided on a discriminatory basis. All traveling staff were fed.

The tax court agreed, saying that winning games is a key feature of the Bruins’ business success, that the travel was required for work and the meals contributed to achieving business goals.

What broader impact this decision might have on the business world is uncertain. However, at least one observer suggests that many businesses could now make the case that feeding their crews on the road to ensure best performance is something that falls under the same de minimis fringe benefit rule.

Whether the ruling might be applicable otherwise depends on the specifics of the case. To avoid receiving a whistle on the play, working with experienced legal counsel is always advised.

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