Tax memorandum and dividend Essay Example | Topics and Well Written Essays - 1250 words

Tax memorandum and dividend - Essay Example She makes 16 to 17 hour trips for every trip and takes naps at suitable locations where she stops. While Mark captains a ferry boat that takes up to 15 to 17 hours journeys with 6 to 7 hour overlay. During the over lay Mark takes a four hour nap at the cot restored in the pilot house. The applicable law in these two cases is the overnight rule which is found in section 162(a) (2) of the internal revenue Code of 1954. Specific issues Is Tracy allowed to deduct the cost of meals purchased during the trip? And is Mark allowed to deduct the cost of meals purchased during the trip? The overnight rule only applies if the nature of the taxpayer’s employment is such that it requires him to sleep or rest when away from home. His expenditures which include incidental expenses such as tips are deductible travelling expenses this under section 162(a) (2) of the 1954 Code. It however does not include the brief period of time whereby an employee may be released from duty for the purpose of eating rather than sleeping. In normal circumstances meals are normally nondeductible under section 262 of the Internal Revenue Code of 1954. For meals to be deductible as travelling expenses the petitioner has to prove that the meals were eaten while they were travelling away from home in carrying out their employment duties or trade as well as to show they slept substantially away from home. Conclusion Tracy was therefore not eligible for a deduction under the overnight rule, as per the Frederick. J. Barry, pro se. She was only eligible for tax deduction on entertainment expenses during the trips that she made. While Mark was eligible for tax deduction as the layover was mandatory after a 15 to 17 hour shift so as to get the passengers safely back to shore. He was however not going to eligible during the peak season. Support In Marks case, a Ferry captain qualified as being â€Å"away from home† in Code Sec. 162 (a) (2) purposes during off-season tours that were completed w ithin 24 hours and included 6 to 7 hours layovers. This is because of the demanding nature of taxpayer’s job since the captain needed to be alert during the long work hours to ensure passengers and crew safety. This was evidence enough that is was reasonable to obtain sleep and rest to be able meet job exigencies and demands. A 6 to 7 hour layover is more than sufficient duration to reflect increased expenses incurrence. This was not applicable though during peak season tours because rest periods during those hours were not part of the layover released time. The Ferryboat captain deduction for M&IE incurred during off-season tours that were 15 to 17 hours long were subject to Code Sec. 274 (n)(1) deduction limitation. Expenses, which taxpayer computed and substantiated pursuant to operative revenue procedures and federal rate, were treated as food and beverage expenses within meaning of Code Sec. 274(n) (1). In Tracy’s case Frederick J. Barry, pro se. Barry argued that the meals paid for during the 17 hour to 18 hour trips he made to see his clients was deductible under section 162(a), independently of section 163(a) (2). Barry made this trips and stopped at a suitable place to rest in the car before he went back home. He kept a blanket and a pillow in his car for this purpose. The petitioner did not substantially show that his meals where under the ordinary and necessary provision section 162 (a). The case was found to be indistinguishable from Correl. The petitioner was therefore not away from home when section 162(a) (2) was considered during his one day trips during 1966. The petitioner kept detailed records of amounts spent on meals during his one day trips in 1966, this amounted to $, 348.47. From that amount $1, 535. 26, was deductible as entertainment exp