T&E substantiation.

• Author: Schell, Wayne M.
• Position: Trusts and estates

In Townsend Industries, Inc., 342 F3d 890 (8th Cir. 2003), the Eighth Circuit reversed and remanded a district court decision (SD IA, 8/21/02). The case debated the inclusion of the cost of a company's annual fishing trip in employee compensation. The Eighth Circuit ruled that the trip's cost was a Sec. 132 working-condition fringe benefit and qualified as a business expense under Secs. 162 and 274.

Facts

Townsend Industries, Inc. was founded in the 1950s by Robert Townsend, its sole shareholder and president. The company's main product was the T-51 printing press attachment, which printed documents in more than one color. It was produced at a factory located at the company headquarters in Altoona, IA, and sold nationally and internationally.

Each June, the company held a meeting for its sales personnel at its Altoona headquarters, followed by a four-day fishing trip at a five-star resort in Ontario, Canada. The trip was for all sales personnel and factory employees, but not their spouses and children.

During the year, there was not much contact between the two groups. Even at the annual sales meeting, there was very limited participation by factory employees. Thus, the trip's purpose was to encourage business discussions, by bringing sales personnel and factory employees together in a comfortable and pleasant setting.

Although factory employees were encouraged to go on the trips, attendance was not mandatory. Those who did attend received their regular pay for that week. Employees who did not go worked their regular hours or took a vacation. Typically, more than half the employees attended the fishing trip.

Employees testified that although the trip was enjoyable, it was considered as part of their job. Further, company business was discussed from one to four hours per day. The "discussions took place on the bus trips, at meals, on boats, and in cabins." To encourage these discussions, boat and cabin assignments placed specific individuals together.

Activities and schedules were somewhat flexible, although there was one banquet and motivational speech. Although most of the participants fished, they could also play golf or go hiking. Cabin and boat assignments could be changed for any reason. Nonetheless, there was substantial testimony from employees that the business discussions on the fishing trip not only improved their job performance, but also were important in solving specific product problems. Contemporaneous, written evidence of...