Employer payments for club dues, meals, entertainment and spousal travel.

• Author: Elinsky, Peter I.

The IRS has issued proposed regulations addressing the income tax consequences to employees when their employer's deduction for club dues, meals, entertainment or spousal travel expenses has been disallowed as a result of the changes made by the Revenue Reconciliation Act of 1993 (RRA).

Meals and entertainment

The RRA amended Sec. 274 to disallow a deduction for 50% of business meal and entertainment expenses. According to the preamble to the proposed regulations, the legislative history to the RRA indicates that Congress did not intend this disallowance to result in income to employees. Thus, proposed regulations under Sec. 62 provide that if a portion of a reimbursement or advance for business meal or entertainment expenses is treated as paid under a nonaccountable plan solely because of the 50% disallowance rule, that portion will not be considered wages subject to withholding and employment taxes.

Club dues and spousal travel

The RRA also amended Sec. 274 to disallow a deduction for (1) amounts paid or incurred for membership in any club organized for business, pleasure, recreation or other social purpose and (2) spousal travel expenses - i.e., amounts paid or incurred with respect to a spouse, dependent or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel unless the accompanying individual is an employee of the taxpayer, the travel of that individual is for a bona fide business purpose and the travel expenses would otherwise be deductible by the accompanying individual.

Prop. Regs. Sec. 1.132-5(s) provides that the...