This summer's company outing could get you in trouble with the Internal Revenue Service, which is already planning to audit more small businesses. Although regulations governing such expenditures are fairly broad -- requiring only that companies link them to business -- the IRS does sometimes find fault. Consider the fate of Townsend Industries. The Altoona, Iowa, manufacturer has held an annual fishing trip ( following a two-day sales meeting ) for almost half a century. During a 1997 audit, however, the IRS decided that the trip did nothing for Townsend's bottom line, and therefore the cost was taxable as wages. A court agreed, ordering the company to pay $55,000 in back taxes; Townsend is now appealing. Companies wishing to justify trips can start by making them mandatory -- and saying as much on invitations -- and by watching costs. "The more lavish a trip is and the less bang for your buck you're getting, that will send up a red flag," says Deborah Schenk, a New York University tax-law professor. "If you take 400 clients to the Super Bowl, the IRS will notice."
Jul 1, 2003