Easing Expense Accounts

Internal Revenue Commissioner Mortimer Caplin, a onetime amateur boxer who has been taking some quick professional jabs at expense-account living, last week issued his "final" rules on tax deductions for business entertainment. Every time Caplin has tried before to clarify what can or cannot be written off, he has only upset more businessmen, who are inconsolable anyway. This time, under pressure from the hotel and restaurant lobbies, he taxed himself to show sweet reasonableness by liberalizing the rules. Businessmen will find it easier than they had thought to charge off casual lunches, parties at home or a night out with wives. Main items:

sbTHE 100-TO-l-SHOT LUNCH. Busmessmen are supposed to show "more than a general expectation of a direct business benefit" from entertaining a prospect, but the payoff need not come immediately. Caplin stressed that a prospect can be wined and dined on the 100-to-l chance that a contract might follow.

sbQUIET BUSINESS MEAL. A customer can be entertained in any setting that is conducive to a quiet business chat, even if the talk never gets around to business. But claims may be rejected for money spent on leggy floor shows, sporting events or big cocktail parties--all of which offer "major distractions."

sbHOME ENTERTAINMENT. Deductible if the party is "commercially rather than socially motivated."

sbTIME LIMITS. Out-of-towners may be entertained in almost any manner on the evening before or after a "substantial and bona fide business discussion." It is not necessary that more time be devoted to business talk than to just plain fun.

sbCOUNTRY CLUBS & YACHTS. Deductible only if used more than 50% for business. Example: if a taxpayer uses his country club 75% for business, he may deduct 75% of the dues, plus out-of-pocket costs for entertaining customers at the club.

sbTHE WIFE. Her expenses--for entertainment, travel, hotels--are deductible almost every time she joins her husband for "legitimate" and "necessary" business missions, at home or away. (Husbands of businesswomen are similarly deductible.)

Though interpretations will vary with individual tax examiners, and Congress may jiggle the rules later, it looks as if almost any businessman with a sharp pencil, a touch of imagination and the patience to keep detailed records can deduct fairly freely. But few businessmen who cater to the expense-account trade seemed to be overjoyed. "It certainly doesn't do anything for me," grumped Broadway Producer David Merrick. The consensus was that the earlier, tougher proposals for cutbacks on deductions have frightened off many prospective spenders and have given companies an excuse to trim their entertainment budgets. "The major damage has already been done," says Fred Hayman, resident manager of the Beverly-Hilton Hotel. "As a result of the initial crackdown, many big corporations tightened the expenses of their employees, and they are not about to liberalize them again." If so, Caplin has won some powerful allies to help him take the cheating out of the expense account.

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