Entertainment Facility Rule
The entertainment facility rule is wicked. The rule denies you any deduction “[w]ith respect to” a facility “used in connection with” any activity generally considered to constitute entertainment, amusement, or recreation.1
Entertainment facilities include yachts, hunting lodges, fishing camps, swimming pools, tennis courts, and even automobiles and airplanes if used for entertainment.2
Out-of-pocket exception. Out-of-pocket expenses incurred during business entertainment are deductible even if the entertainment occurs in or on an entertainment facility.3
1 IRC Section 274(a)(1)(B).
2 Reg. Section 1.274-2(e)(2).
3 Reg. Section 1.274-2(e)(3)(iii).