New ruling expands definition of "North American area" for attendance at foreign conventions.

• Author: Brinker, Thomas M., Jr.

Sec. 274(h) limits deductions for expenses incurred while attending a convention, seminar or similar meeting held outside the "North American area." Generally, no deduction is permitted under Sec. 162 for expenses allocable to such a meeting, unless the taxpayer can establish that they are directly related to the active conduct of its trade or business, while satisfying the stricter standards of reasonableness for the location and a direct business purpose. However, under Rev. Rul. 2007-28 (superseding Rev. Rul. 2003-109), taxpayers are now more easily able to deduct expenses under Sec. 162 for attending seminars, conventions and similar meetings in the Bahamas, Aruba and Netherlands Antilles, as a result of new tax-information-exchange agreements.

Updated definition

Under the ruling, the IRS has updated the definition of North American area under Sec. 274(h). Specifically, Sec. 274(h)(3)(A) defines the term "North American area" as the U.S., its possessions, the territories formerly known as Trust Territory of the Pacific Islands, Canada and Mexico. Further, under Sec. 7701(a)(9), the U.S. consists of the 50 states and the District of Columbia. In addition, as updated by the ruling, the locations that now satisfy the Sec. 274(h) requirements include American Samoa, Antigua and Barbuda, Aruba, Bahamas, Baker Island, Barbados, Bermuda, Canada, Costa Rica, Dominica, Dominican Republic, Grenada, Guam, Guyana, Honduras, Howland Island, Jamaica, Jarvis Island, Johnston Island, Klingman Reef, Marshall Islands, Mexico, Micronesia, Midway Islands, Netherlands Antilles, Northern Mariana Islands, Palau, Palmyra Atoll, Puerto Rico, Trinidad and Tobago, U.S. Virgin Islands and Wake Island. The North American area also includes U.S. islands, cays and reefs that are possessions but not part of the 50 states or the District of Columbia.

In addition, Sec. 274(h)(6)(A) defines the North American area as including any "beneficiary country" for which a tax-exchange agreement is in force. Under Sec. 274(h)(6)(C), an effective agreement must...