Schedule A - Taxable Income

Gross income.   Under section 832, gross amounts of underwriting and investment income should be computed on the basis of the underwriting and investment exhibit of the NAIC annual statement to the extent not inconsistent with the Internal Revenue Code and its Regulations. Gross income, however, does not include extraterritorial income that is qualifying foreign trade income. Use Form 8873, Extraterritorial Income Exclusion, to figure the exclusion. Include the exclusion in the total for Other deductions on line 31.

Note.   In computing the amounts for lines 2, 3, and 4, take all interest, dividends, or rents received during the year, add interest, dividends, or rents due and accrued at the end of the tax year, and deduct interest, dividends, or rents due and accrued at the end of the preceding tax year. For rules regarding the accrual of dividends, see Regulations section 1.301-1(b).

Line 3a, column (a). Gross interest.   Enter the gross amount of interest income, including all tax-exempt interest.

Line 3b, column (a).   Section 103(a) excludes interest on state or local bonds from gross income.

This exclusion does not apply to any:

1. Private activity bond which is not a qualified bond as defined by section 141;
2. Arbitrage bond as defined by section 148; or
3. Bonds not meeting the requirements of section 149 (regarding the registration of tax-exempt bonds).

Lines 3a and 3b, column (b). Amortization of premium.   Enter on line 3a, column (b), the total amortization of bond premium, including amortization on tax-exempt bonds. Enter on line 3b, column (b), the amortization of bond premium on tax-exempt bonds only.

Note.   Insurance companies electing to amortize discount for tax purposes must reduce the amortization of premium by any amortization of discount.

Line 4. Gross rents.   Enter gross rents, computed as indicated under the instructions for Gross income above. Deduct expenses, such as repairs, interest, taxes, and depreciation, on the proper lines for deductions.

Line 6. Capital gain net income.   Every sale or exchange of a capital asset by a corporation must be reported in detail on Schedule D (Form 1120), Capital Gains and Losses, even if there is no gain or loss.

Generally, losses from sales or exchanges of capital assets are only allowed to the extent of gains. However, corporations taxed under section 831 may claim losses from capital assets sold or exchanged to get funds to meet abnormal insurance losses and to pay dividends and similar distributions to policyholders. Do not include those types of losses here, but instead, report them on Schedule G.

The net capital loss for these corporations is the amount by which losses for the year from sales or exchanges of capital assets exceed the gains from these sales or exchanges plus the smaller of:

1. Taxable income (computed without gains or losses from sales or exchanges of capital assets); or
2. Losses from the sale or exchange of capital assets sold or exchanged to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders.

Subject to the limitations in section 1212(a), a net capital loss can be carried back 3 years and forward 5 years as a short-term capital loss.

Line 8. Certain mutual fire or flood insurance companies.   A mutual fire or flood insurance company whose principal business is the issuance of policies:

1. For which the premium deposits are the same (regardless of the length of the term the policies are written for), and
2. Under which the unabsorbed portion of such premium deposits not required for losses, expenses, or establishment of reserves is returned or credited to the policyholder on cancellation or expiration of the policy, must include in income an amount equal to 2% of the premiums earned on insurance contracts during the tax year with respect to such policies after deduction of premium deposits returned or credited during the same tax year. See section 832(b)(1)(D).

Line 9. Income on account of the special income and deduction accounts.   Corporations which write the kinds of insurance below must maintain the following special accounts. A corporation which writes:

1. Mortgage guaranty insurance, must maintain a mortgage guaranty account;
2. Lease guaranty insurance, must maintain a lease guaranty account; and
3. Insurance on obligations the interest on which is excludable from gross income under section 103, must maintain an account with respect to insurance on state and local obligations.

Amounts required to be subtracted from these accounts under sections 832(e)(5) and 832(e)(6) must be reported as income on line 9. See section 832(e) for more information.

Line 10. Income from protection against loss account.   Although section 1024 of P.L. 99-514 repealed section 824 relating to the protection against loss (PAL) account, PAL account balances are includible in income as though section 824 were still in effect. Attach a schedule showing the computation.

Line 11. Mutual interinsurers or reciprocal underwriters - decrease in subscriber accounts.   Enter the decrease for the tax year in savings credited to subscriber accounts of a mutual insurance company that is an interinsurer or reciprocal underwriter.

Line 12. Income from a special loss discount account.   Enter the amount from Form 8816, Part II, line 6.

Line 13. Other Income.   Enter any other taxable income not reported on lines 1 through 12. List the type and amount of income on an attached schedule. If the corporation has only one item of other income, describe it in parentheses on line 13. Examples of other income to report on line 13 are:

• The amount of credit for alcohol used as fuel (determined without regard to the limitation based on tax) entered on Form 6478, Credit for Alcohol Used as Fuel.
• Refunds of taxes deducted in prior years to the extent they reduced income subject to tax in the year deducted (see section 111). Do not offset current year taxes against tax refunds.
• The amount of any deduction previously taken under section 179A that is subject to recapture. The corporation must recapture the benefit of any allowable deduction for qualified clean-fuel vehicle property (or clean-fuel vehicle refueling property) if the property later ceases to qualify. See Regulations section 1.179-1 for details.
• Ordinary income from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or Form 1065-B)). Do not offset ordinary losses against ordinary income. Instead, include the losses on line 31. Show the partnership's name, address and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership.

Deductions

Limitations on Deductions

Section 263A uniform capitalization rules.   The uniform capitalization rules of section 263A require corporations to capitalize, or include in inventory, certain costs incurred in connection with the production of real property and tangible personal property held in inventory or held for sale in the ordinary course of business.

Interest expense paid or incurred during the production period of designated property must be capitalized and is governed by special rules. For more details, see Regulations sections 1.263A-8 through 1.263A-15.

For more details on the uniform capitalization rules, see Regulations sections 1.263A-1 through 1.263A-3.

Transactions between related taxpayers.   Generally, an accrual basis taxpayer may only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. See sections 163(e)(3), 163(j), and 267 for limitations on deductions for unpaid interest and expenses.

Section 291 limitations.   Corporations may be required to adjust deductions for depletion of iron ore and coal, intangible drilling and exploration and development costs, certain deductions for financial institutions, and the amortizable basis of pollution control facilities. See section 291 to determine the amount of the adjustment. Also, see section 43.

Golden parachute payments.   A portion of the payments made by a corporation to key personnel that exceeds their usual compensation may not be deductible. This occurs when the corporation has an agreement (golden parachute) with these key employees to pay them these excess amounts if control of the corporation changes. See section 280G.

Business startup expenses.   Business startup expenses must be capitalized unless an election is made to amortize them over a period of 60 months. See section 195 and Regulations section 1.195-1.

Reducing certain expenses for which credits are allowable.   For each credit listed below, the corporation must reduce the otherwise allowable deductions for expenses used to figure the credit by the amount of the current year credit.

• Work opportunity credit.
• Research credit.
• Enhanced oil recovery credit.
• Disabled access credit.
• Empowerment zone and renewal community employment credit.
• Indian employment credit.
• Employer credit for social security and Medicare taxes paid on certain employee tips.
• Orphan drug credit.
• Welfare-to-work credit.
• New York Liberty Zone business employee credit.

If the corporation has any of these credits, be sure to figure each current year's credit before figuring the deduction for expenses on which the credit is based.

Line 15. Compensation of officers.   Enter deductible officers' compensation on line 15. Do not include compensation deductible elsewhere on the return, such as elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

Include only the deductible part of each officers' compensation on line 15. (See Disallowance of deduction for employee compensation in excess of $1 million below.) Attach a schedule for all officers using the following columns:

1. Name of officer;
2. Social security number;
3. Percentage of time devoted to business;
4. Amount of compensation.

If a consolidated return is filed, each member of an affiliated group must furnish this information.

Disallowance of deduction for employee compensation in excess of $1 million.   Publicly-held corporations may not deduct compensation to a covered employee to the extent that the compensation exceeds $1 million. Generally, a covered employee is:

• The chief executive officer of the corporation (or an individual acting in that capacity) as of the end of the tax year or
• An employee whose total compensation must be reported to shareholders under the Securities Exchange Act of 1934 because the employee is among the four highest compensated officers for that tax year (other than the chief executive officer).

For this purpose, compensation does not include the following:

• Income from certain employee trusts, annuity plans, or pensions and
• Any benefit paid to an employee that is excluded from the employee's income.

The deduction limit does not apply to:

• Commissions based on individual performance,
• Qualified performance-based compensation, and
• Income payable under a written, binding contract in effect on February 17, 1993.

The $1 million limit is reduced by amounts disallowed as excess parachute payments under section 280G.

For details, see section 162(m) and Regulations section 1.162-27.

Line 16. Salaries and wages.   Enter the amount of salaries and wages paid for the tax year, reduced by:

• Work opportunity credit from Form 5884,
• Empowerment zone and renewal community employment credit from Form 8844,
• Indian employment credit from Form 8845,
• Welfare-to-work credit from Form 8861, and
• New York Liberty Zone business employee credit from Form 8884.

See the instructions for these forms for more information. Do not include salaries and wages deductible elsewhere on the return, such as elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

If the corporation provided taxable fringe benefits to its employees, such as the personal use of a car, do not deduct as wages the amount allocated for depreciation and other expenses that are claimed elsewhere on its return.

Line 18. Rents.   If the corporation rented or leased a vehicle, enter the total annual rent or lease expense paid or incurred during the year. Also complete Part V of Form 4562, Depreciation and Amortization. If the corporation leased a vehicle for a term of 30 days or more, the deduction for the vehicle lease expense may have to be reduced by an amount called the inclusion amount. The corporation may have an inclusion amount if:

The lease term began:	And the vehicle's FMV on the first day of the lease exceeded:
After 12/31/98 and before 1/1/03	$15,500
After 12/31/96 but before 1/1/99	$15,800
After 12/31/94 but before 1/1/97	$15,500
After 12/31/93 but before 1/1/95	$14,600
If the lease term began before January 1, 1994, or the corporation leased vehicle was an electric vehicle, see Pub. 463, Travel, Entertainment, Gift, and Car Expenses, to find out if the corporation has an inclusion amount. The inclusion amount for lease terms beginning in 2003 will be published in the Internal Revenue Bulletin in early 2003.

Line 19. Taxes and licenses.   Enter taxes paid or accrued during the tax year, but do not include the following.

• Federal income taxes.
• Foreign or U.S. possession income taxes if a credit is claimed (however, see the Instructions for Form 5735 for special rules for possession income taxes).
• Taxes not imposed on the corporation.
• Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property. (These taxes must be treated as a part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition.)
• Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.)

See section 164(d) for the apportionment of taxes on real estate between a seller and a purchaser.

Line 20a. Interest.  

Note.   The deduction for interest is limited when the corporation is a policyholder or beneficiary with respect to a life insurance, endowment, or annuity contract issued after June 8, 1997. For details, see section 264(f). Attach a statement showing the computation of the deduction.

The corporation must make an interest allocation if the proceeds of a loan were used for more than one purpose (e.g., to purchase a portfolio investment and to acquire an interest in a passive activity). See Temporary Regulations section 1.163-8T for the interest allocation rules.

Do not deduct the following interest:

• Interest on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. For exceptions, see section 265(b).
• Interest and carrying charges on straddles. Generally, these amounts must be capitalized. See section 263(g).
• Interest on debt allocable to the production of designated property by a corporation for its own use or for sale. The corporation must capitalize this interest. Also capitalize any interest on debt allocable to an asset used to produce the property. See section 263A(f) and Regulations section 1.263A-8 through 1.263A-15 for definitions and more information.

Special rules apply to:

• Interest on which no tax is imposed (see section 163(j)).
• Foregone interest on certain below-market-rate loans (see section 7872).
• Original issue discount on certain high-yield discount obligations (see section 163(e) to figure the disqualified portion.)

Line 20b. Less tax-exempt interest expense.   Enter interest paid or accrued during the tax year on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. For exceptions, see section 265(b).

Line 21. Charitable contributions.   Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c) and any unused contributions carried over from prior years.

Corporations reporting taxable income on the accrual method may elect to treat as paid during the tax year any contributions paid by the 15th day of the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return, signed by an officer, stating that the resolution authorizing the contributions was adopted by the board of directors during the tax year. Also attach a copy of the resolution.

Limitation on deduction.   The total amount claimed may not be more than 10% of taxable income (line 37, Schedule A) computed without regard to:

• Any deduction for contributions,
• The deduction for dividends received,
• Any net operating loss (NOL) carryback to the tax year under section 172, and
• Any capital loss carryback to the tax year under section 1212(a)(1).

Carryover.   Charitable contributions over the 10% limitation may not be deducted in the tax year but may be carried over to the next 5 tax years.

Special rules apply if the corporation has an NOL carryover to the tax year. In figuring the charitable contributions deduction for the tax year, the 10% limit is applied using taxable income after taking into account any deduction for the NOL.

To figure the amount of any remaining NOL carryover to later years, taxable income must be modified (see section 172(b)). To the extent that contributions are used to reduce taxable income for this purpose and increase an NOL carryover, a contributions carryover is not allowed. See section 172(d)(2)(B).

Substantiation requirements.   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation obtains a written acknowledgment from the donee organization that shows the amount of cash contributed, describes any property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the corporation's return, or if earlier, the date the return is filed. Do not attach the acknowledgment to the tax return, but keep it with the corporation's records. These rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions described below.

For more information on substantiation and recordkeeping requirements, see the regulations under section 170 and Pub. 526, Charitable Contributions.

Contributions to organizations conducting lobbying activities.   Contributions made to an organization that conducts lobbying activities are not deductible if:

• The lobbying activities relate to matters of direct financial interest to the donor's trade or business and
• The principal purpose of the contribution was to avoid Federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor.

Contribution of property other than cash.   If a corporation (other than a closely held corporation) contributes property other than cash and claims over a $500 deduction for the property, it must attach a schedule to the return describing the kind of property contributed and the method used to determine its fair market value (FMV). Closely-held corporations generally must complete Form 8283 and attach it to their returns. All other corporations generally must complete and attach Form 8283 to their returns for contributions of property (other than money) if the total claimed deduction for all property contributed was more than $5,000.

If the corporation made a qualified conservation contribution under section 170(h), also include the FMV of the underlying property before and after the donation, as well as the type of legal interest contributed, and describe the conservation purpose benefited by the donation. If a contribution carryover is included, show the amount and how it was determined.

Reduced deduction for contributions of certain property.   For a charitable contribution of property, the corporation must reduce the contribution by the sum of:

• The ordinary income and short-term capital gain that would have resulted if the property had been sold at its FMV and
• For certain contributions, the long-term capital gain that would have resulted if the property had been sold at its FMV.

The reduction for long-term capital gain applies to:

• Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption and
• Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available (section 170(e)(5)).

Larger deduction.   A larger deduction is allowed for certain contributions of:

• Inventory and other property to certain organizations for use in the care of the ill, needy, or infants (see section 170(e)(3) and Regulations section 1.170A-4A);
• Scientific equipment used for research to institutions of higher learning or to certain scientific research organizations (see section 170(e)(4)); and
• Computer technology and equipment for educational purposes.

Contributions of computer technology and equipment for educational purposes.   A corporation may take an increased deduction under section 170(e)(6) for qualified contributions of computer technology or equipment for educational purposes. Computer technology or equipment means computer software, computer or peripheral equipment, and fiber optic cable related to computer use. A contribution is a qualified contribution if:

• It is made to an eligible donee (see below);
• Substantially all of the donee property's use is:
  1. Related to the purpose or function of the donee,
  2. For use within the United States, and
  3. For educational purposes.
• The contribution is made not later than 3 years after the date the taxpayer acquired or substantially completed the construction of the property;
• The original use of the property is by the donor or the donee;
• The property is not transferred by the donee for money, services, or other property, except for shipping, transfer, and installation costs;
• The property fits productively into the donee's education plan; and
• The property meets standards, if any, that may be prescribed by future regulations, to assure it meets minimum functionality and suitability for educational purposes.

Eligible donee.   The term eligible donee means:

• An educational organization that normally maintains a regular faculty and curriculum and has a regularly enrolled body of pupils in attendance at the place where its educational activities are regularly conducted,
• A section 501(c)(3) entity organized primarily for purposes of supporting elementary and secondary education, or
• A public library (as described in section 170(e)(6)(B)(i)(III).

Exceptions.   The following exceptions apply to the above rules for computer technology and equipment:

• Contributions to private foundations may qualify if the foundation contributes the property to an eligible donee within 30 days after the contribution and notifies the donor of the contribution. For more details, see section 170(e)(6)(C).
• For contributions of property reacquired by the manufacturer of the property, the 3 year period begins on the date that the original construction of the property was substantially completed. Also, the original use of the property may be by someone other than the donor or donee.

Line 22. Depreciation.   Besides depreciation, include on line 22 the part of the cost that the corporation elected to expense under section 179 for certain tangible property placed in service during tax year 2002 or carried over from 2001. See Form 4562 and its instructions.

Line 23. Depletion.   See sections 613 and 613A for percentage depletion rates applicable to natural deposits. Also, see section 291 for the limitation on the depletion deduction for iron ore and coal (including lignite).

Attach Form T (Timber), Forest Activities Schedule, if a deduction for depletion of timber is taken.

Foreign intangible drilling costs and foreign exploration and development costs must either be added to the corporation's basis for cost depletion purposes or be deducted ratably over a 10-year period. See sections 263(i), 616, and 617 for details.

Line 24. Pension, profit-sharing, etc., plans.   Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan generally must file one of the forms listed below, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the corporation does not claim a deduction for the current tax year. There are penalties for failure to file these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f).

Form 5500,   Annual Return/Report of Employee Benefit Plan. File this form for a plan that is not a one-participant plan (see below).

Form 5500-EZ,   Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. File this form for a plan that only covers the owner (or the owner and his or her spouse) but only if the owner (or the owner and his or her spouse) owns the entire business.

Line 25. Employee benefit programs.   Enter contributions to employee benefit programs not claimed elsewhere on the return (e.g., insurance, health and welfare programs etc.) that are not an incidental part of a pension, profit-sharing, etc., plan included on line 24.

Line 27. Additional deduction.   Enter on line 27, the total from Form 8816, Part II, line 5.

Any insurance company taking the additional deduction must:

• Make special estimated tax payments equal to the tax benefit from the deduction and
• Establish and maintain a Special Loss Discount Account. See section 847 and Form 8816 for more information.

Line 29. Dividends to policyholders.   Enter the total dividends and similar distributions paid or declared to policyholders, as policyholders, except in the case of a mutual fire insurance company exclusively issuing perpetual policies. Whether dividends have been paid or declared should be determined according to the method of accounting employed by the insurance company.

Dividends and similar distributions   include amounts returned or credited to policyholders on cancellation or expiration of policies issued by a mutual fire or flood insurance company:

1. Where the premium deposits for the policy are the same (regardless of the length of the policy) and
2. The unabsorbed portion of the premium deposits not required for losses, expenses, or establishment of reserves is returned or credited to the policyholder on cancellation or expiration of the policy.

In the case of a qualified group self-insurers fund, the fund's deduction for policyholder dividends is allowed no earlier than the date the state regulatory authority determines the amount of the policyholder dividend that may be paid. See section 6076 of the Technical and Miscellaneous Revenue Act of 1988 (Act of 1988).

Line 30. Mutual interinsurers or reciprocal underwriters - increase in subscriber accounts.   A mutual insurance company that is an interinsurer or reciprocal underwriter may deduct the increase in savings credited to subscriber accounts for the tax year.

Savings credited to subscriber accounts   means the surplus credited to the individual accounts of subscribers before the 16th day of the 3rd month following the close of the tax year. This is true only if the corporation would be required to pay this amount promptly to a subscriber if the subscriber ended the contract when the corporation's tax year ends. The corporation must notify the subscriber as required by Regulations section 1.823-6(c)(2)(v). The subscriber must treat any savings credited to the subscriber's account as a dividend paid or declared.

Line 31. Other deductions.   Attach a schedule listing by type and amount, all allowable deductions under sections 832(c)(1) and (10) (net of the annual statement change in undiscounted unpaid loss adjustment expenses) that are not deductible on lines 15 through 30. Examples of amounts to include are:

• Legal and professional fees.
• Supplies used and consumed in the business.
• Utilities.
• Ordinary losses from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary income against ordinary losses. Instead, include the income on line 13. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership.
• Extraterritorial income exclusion (from Form 8873, line 55).
• Dividends paid in cash on stock held by an employee stock ownership plan. However, a deduction may only be taken if, according to the plan, the dividends are:
  1. Paid in cash directly to the plan participants or beneficiaries;
  2. Paid to the plan which distributes them in cash to the plan participants or their beneficiaries no later than 90 days after the end of the plan year in which the dividends are paid;
  3. At the election of the participants or their beneficiaries: (a) payable as provided under 1 or 2 above or (b) paid to the plan and reinvested in qualifying employer securities; or
  4. Used to make payments on a loan described in section 404(a)(9).

     See section 404(k) for more details and the limitation on certain dividends.

     Do not deduct fines or penalties paid to a government for violating any law.

Travel, meals, and entertainment.   Subject to limitations and restrictions discussed below, a corporation can deduct ordinary and necessary travel, meal, and entertainment expenses paid or incurred in its trade or business. Also, special rules apply to deductions for gifts, skybox rentals, luxury water travel, convention expenses, and entertainment tickets. See section 274 and Pub. 463 for more details.

Travel.   The corporation cannot deduct travel expenses of any individual accompanying a corporate officer or employee, including a spouse or dependent of the officer or employee, unless:

• That individual is an employee of the corporation and
• His or her travel is for a bona fide business purpose and would otherwise be deductible by that individual.

Meals and entertainment.   Generally, the corporation can deduct only 50% of the amount otherwise allowable for meals and entertainment expenses paid or incurred in its trade or business. In addition (subject to exceptions under section 274(k)(2)):

• Meals must not be lavish or extravagant;
• A bona fide business discussion must occur during, immediately before, or immediately after the meal; and
• An employee of the corporation must be present at the meal.

See section 274(n)(3) for a special rule that applies to expenses for meals consumed by individuals subject to the hours of service limits of the Department of Transportation.

Membership dues.   The corporation may deduct amounts paid or incurred for membership dues in civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. However, no deduction is allowed if a principal purpose of the organization is to entertain, or provide entertainment facilities for, members and their guests. In addition, corporations may not deduct membership dues in any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion.

Entertainment facilities.   The corporation cannot deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for an activity usually considered entertainment, amusement, or recreation.

Note.   The corporation may be able to deduct otherwise nondeductible meals, travel, and entertainment expenses if the amounts are treated as compensation and reported on Form W-2 for an employee or on Form 1099-MISC for an independent contractor.

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