Question

Natalie (a CPA), Mathew (an attorney), Jacob (a banker), and Avery (an insurance agent) all live and work in the same community. They have been friends since college. Every Friday, they have lunch together and make it a point to discuss some business matters. They take turns paying for the group’s lunches, and each deducts the amount he or she paid for the lunch as an entertainment expense.

Presuming that one of the four is audited, do you anticipate any difficulty with the IRS? Explain.

Answer 1

In a Business, you are entitles to entertainment expense. Entertainment expense includeds any activity that provides entertainment, amusement or recreation.

Any meal provided to a customer or client may be considered as entertainment expense.

Here, Natalie, Mathew,Jacob and Avery are college friends and not a client or customer to each other. So expenses spent of friday lunch cannot be grouped as entertainment expense. If any one of them is audited the same expense will be disalloqwed by IRS.