Need helpthanks Your client a large construction firm organi

Need help?thanks.

Your client, a large construction firm organized as a C corporation, allows certain employees (including the president of the corporation) to use its com- pany-owned airplane for nonbusiness flights. The employees include the value of the flights in their income. Your client is uncertain about how to treat the expenses related to these nonbusiness flights. In certain situations, the expenses of operating the plane are more than the income imputed to the employees, and in certain circumstances, the expenses are less. In doing some of its own research, your client found Sutherland Lum- ber-Southwest, Inc. [114 T.C. 197 (2000)], which suggests that as long as the employee imputes income, the full amount of the related expenses can be deducted. [The decision in the case was affirmed on appeal, Sutherland Lumber-Southwest, Inc. v. Comm., 2001–2 USTC {50,503, 88 AFTR 2d 2001–5026, 255 F.3d 495 (CA–8, 2001).] Should your client follow the approach in Sutherland? Explain.

Solution

Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, “Profits and Gains of Business or Profession”.

In the given case,

Company are incurring expenses for the personal use of employees by allowing their employees to use its company owned for non business flights. Such expenses are disallowed while computing the income u/h PGBP u/s28 of the company.