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CHAPTER 18 ■TAXATION IN THE UNITED STATES AND AROUND THE WORLD
18.4
Defining the Income Tax Base

APPLICATION
What Are Appropriate Business Deductions?
The difficulties in defining an appropriate, or inappropriate, business
deduction are well illustrated by some classic examples from U.S. tax law:
 A high school geography teacher claimed a $5,047, six-month, 18-country
world tour as a business expense. The trip helped him, the teacher
claimed, to collect experiences and slides of exotic places to aid his
teaching. The tax court disallowed the deduction, concluding that “any
actual educational benefit gained from these experiences was de
minimis.”
 A rabbi claimed as a business expense the $4,031 he spent on 700 guests
who attended his son’s bar mitzvah. The rabbi claimed that his position
obliged him to invite all 725 families from his congregation to the
celebration. The tax court disagreed, finding that the rabbi “was not
required to invite the entire membership of the congregation to David’s
bar mitzvah service and reception as a condition of his employment.”
 The entertainer Dinah Shore claimed several dresses as business
expenses, prompting an investigation by the IRS. She argued that the
gowns had been worn only onstage during her performances. In what is
now called the “Dinah Shore ruling,” the IRS decreed that a dress may be
deducted as a business expense only if it is too tight to sit down in!

Public Finance and Public Policy Jonathan Gruber Third Edition Copyright © 2010 Worth Publishers
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