For Each of the Following Situations, Determine Whether the Item

question 76

Essay

For each of the following situations, determine whether the item is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions which would determine the treatment) and any limitations that might be placed on the deduction.
a. Monica took a client out to dinner to discuss the tax aspects of the client's proposed acquisition of a rival company. After dinner, Monica took the client to see a play.

1. Assume Monica is self-employed
2. Assume Monica is an employee of GHQ Corporation. GHQ does not reimburse its employees for entertaining clients.

b. Sergio owes Edward $5,000. During the current year, Sergio files for bankruptcy. Sergio's attorney indicates that due to Sergio's poor financial condition his creditors will be lucky to get $.80 on the dollar for their debts.

1. Assume Sergio is a customer of Edward's (an accrual basis taxpayer) and the $5,000 debt is from an account receivable related to Edward's business.
2. Assume Sergio is a business associate of Edward's. Edward loans Sergio the $5,000 to pay off some gambling debts. Edward owns a meat packing plant.
a.Monica took a client out to dinner to discuss the tax aspects of the client's proposed acquisition of a rival company. After dinner, Monica took the client to see a play.

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Definitions:

Premises

Statements or propositions that are taken as true and used as the basis for an argument leading to a conclusion.

Transitivity Relationship

A principle in mathematics and logic where if relation holds between a and b, and between b and c, it also holds between a and c.

Valid Inference

A logical conclusion drawn from premises known or assumed to be true.

Ominous Results

Findings or outcomes that are perceived as threatening or indicative of future negative events.