Every once and a while I stumble over something in my work that I find ever so entertaining. It just happened again when I came across a decision by the Court of Appeals for the Sixth Circuit involving a dispute between the IRS and Townsend Industries of Altoona, Iowa.

The company manufactures the T-51, a product that allows offset printers to produce two-color documents in a single pass through a printing press. The IRS was arguing that the per-employee costs of Townsend's annual fishing trip to an Ontario, Canada resort were employee wages and a portion of those "wages" should have been withheld for income tax, social Security, and Medicare taxes. Townsend argued that they were deductible business expenses.

The Court of Appeals ruled in favor Townsend. The fun part began in the opinion with a discussion of whether the trip was really voluntary. It reads, " Although the trips were voluntary, nearly all of the Townsend employees who testified felt an obligation to attend and some felt that it was part of their job. Moreover, Robert Townsend, the owner, testified that while he felt it would be antithetical to his business philosophy to make the trips mandatory, he and other senior management 'definitely encourage' employees to attend and '[w]hat we want to do is to get them to go, and we do lean on them.'"

I chuckled when the Sixth Circuit distinguished a case in which the costs of a corporate trip to the Super Bowl was found to be a nondeductible business expense. But I really cracked up when the Townsend decision ended with a caution to taxpayers: "We pause to note that our decision does not stand for the proposition that in all cases in which a corporation sponsors hunting, fishing, or other trips to 'luxury' vacation spots that the sponsoring corporation can avoid including the per-employee cost of the trip in its employee's wages merely by presenting testimony relating to business allegedly conducted during the sojourn."

I would like to tell you more about the decision, but the Practical Accountant editorial staff has to catch a plane. We are off for our 1st Annual Accountants Media Group trip to Rome.

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