Entertainment Expenses:
1.    Code: 162(a); 274(a), (d), (l), (n)
2.    Reg: 1.274-2(a) – (d); 1.274-5T(a)-(c)
3.    162 is still the operative provision; it must be met before you go to 274;
a.    Even if you get to §274, §274(n) creates a 50% ceiling on the deductions
4.    274(d): if you do not have the papers to prove the entertainment expenses, forget it.
a.    274(d)(1): no traveling to entertain
5.    to be deductible, entertainment expense must be:
a.    162: ordinary and necessary; and
b.    274(a): must meet one of two tests:
i.    directly related to the active conduct of the taxpayer’s business, or
1.    directly related has three requirements (1.274-2(c)(3)):
a.    at the time of the expenditure the taxpayer must have a reasonable expectation of deriving income or some other specific business benefit, other than “goodwill” from the business discussion and entertainment; the taxpayer is not required to show that the intended benefit actually resulted
b.    the taxpayer must actively engage in a business discussion, negotiation or some other bona fide business transaction during the entertainment
c.    the business meeting or transaction must be the principal reason for the entertainment; this does not require that more time be spent on business than entertainment 1.274-2(d)(3)(i)
ii.    associated with the active conduct of the taxpayer’s business
1.    associated with has one requirement
a.    entertainment must precede or follow a substantial, bona fide business discussion.  1.274-2(d).
i.    does not require more time spent on business than on entertainment; business must be the principal aspect of the combined activity
ii.    purpose of the business discussion must be to obtain income or some other specific business benefit
iii.    Unlike directly related to, associated with business entertainment can be for the purpose of maintaining customer goodwill, and there is no requirement that any business discussion actually take place during the entertainment.  (Same day is sufficient; but if not, the facts and circumstances must be good 1.274-2(d)(3)(ii).)
6.    if the deduction is permitted, only amounts allocable to the taxpayer and person closely connected with the taxpayer and the persons w/ whom the taxpayer conducted the business during the entertainment may be deducted
7.    1.274-2(c)(4): generally, an entertainment expenditure may be deemed directly related to the active conduct of the taxpayer’s business only if the entertainment occurred in a business setting.
8.    1.274-2(c)(7): if the entertainment expenses are incurred in surroundings in which there is little or no possibility of engaging in business discussions, the expenses will not qualify as directly related.
a.    these are places with substantial distractions
i.    i.e. strip clubs
9.    Walliser v. Commissioner (1979):
a.    Good will hunting won’t cut it for directly related to.  Good will hunting will cut it for associated with, but the problem is that Walliser didn’t link up his good will hunting with anything substantive.  Good will hunting will only work for associated with if you link it up with a hard core business deal.