Mark Kohler walks through four tax court cases that show when you can deduct entertainment and recreation expenses. The key: if employees attend and the primary purpose is for them, it's deductible. Owner-only parties won't pass IRS scrutiny.
There's the Sutherland Lumber case. That's a seminal case that went to tax court that said we're having a recreational event and the IRS is like, no, you can't write that off. And they were able to show it had indirect goodwill to create that culture and won that case. So that was one that started to open up the door even more. So Reid vs Commissioner, American business Service Corp. Regal Inc. And IRS argued again, entertainment should not be deductible. Court held it was primarily for employees, so it's fully deductible, period.
The key part is, is you're making the business case for this. And another critical component is our employees are there. If you're like, well, it's just me, the business owner and my spouse, this is our company party. And on all this meals and stuff, it's going to be tricky to pull that off if the employees aren't invited.
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