Agents won't be allowed to challenge whether casino comps to high-rolling patrons qualify for treatment as promotional expenses, according to a memo released by the Large and Mid-Size Business Division of the Internal Revenue Service.
According to the memo, section 274 of the tax code sets limits on the deductibility of meals and entertainment expenses, though an exception does exist for goods, services and facilities made available to the general public for promotional purposes. Casinos have usually marketed their comp programs in such a way that the costs are treated as promotional expenses -- being given to gamblers based on a casino's expected win calculated from the gambler's prior activity. Most regular patrons participate in casinos' favored customer programs, commonly called slot clubs.
The IRS memo said that it was ordering its agents to stop questioning the validity of such expenses after having spent "many audit resources in this area of uncertainty.""Unless the manner in which a casino awards comps to its patrons differs markedly from the method described [in the memo], agents are directed not to challenge whether the comps qualify for treatment as promotional expenses," the memo said. "This directive is intended to conserve examination resources by providing guidance on the deductibility of complimentary goods and services provided by casinos to its patrons as an inducement to encourage gaming activity. It reflects a management decision that balances resources and workload priorities."
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