IRS Strict on Writeoffs for Gifts
Question: As Christmas gifts, I gave several hundred dollars to the messengers, doormen and maitre d’s whom I rely on all year. As far as I’m concerned, these gifts are all tax deductible because they all help me, either directly or indirectly, in my business. But an associate of mine tells me he thinks I’m wrong about this. Am I?--L.S.
Answer: Your friend is right. The Internal Revenue Service and the Tax Court have ruled repeatedly over the years that year-end gifts to maitre d’s, elevator operators, messengers, doormen and the like aren’t tax deductible.
At the heart of their ruling is the argument that business gifts would have to meet the IRS test of “ordinary and necessary business expenses” to qualify as tax writeoffs. And they don’t--even when they are made strictly to speed up or otherwise improve the service such people provide to a business.
Such was the case in a recent Tax Court ruling against an outside salesman of television time for a TV network.
In defending several tax deductions for business-related Christmas gifts, the salesman argued that all of the gifts were designed strictly to help him sell TV time more efficiently.
The salesman claimed that he generously tipped six maitre d’s at Christmastime--and claimed the tips as tax deductions--because they helped him get good tables at restaurants, which in turn impressed his clients and won him more business.
Similarly, giving Christmas money to delivery boys ensured him speedier delivery of business packages. Gifts to doormen improved his chances of getting cabs quicker. And gifts to elevator operators made it more likely that they would hold the elevator when they saw him coming--a time saver, as well as a way to impress clients and win business, he argued.
The Tax Court disagreed, arguing that the salesman failed to show that the gifts were “appropriate and helpful, or indeed even proximately related to his selling activities.”
Q: Do you know of any studies that show how much time the average employee wastes at work?--T.E.
A: Robert Half International, an accounting and research firm, has studied the work habits of employees who work in offices and found that the average office worker pilfers about 4 hours and 39 minutes every 40-hour work week.
Included in that total are hours wasted through late arrivals, long lunches and feigned sickness.
The cost of such pilfering to U.S. business? About $170 billion a year, the firm claims, based on interviews with executives of 330 companies.
Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Los Angeles Times, 780 Third Ave., Suite 3801, New York, N.Y. 10017.
