Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-38

1965-1 C.B. 151

Sec. 274

Full Text

Rev. Rul. 65-38

In an effort to increase sales by promoting the company's general goodwill and familiarizing the public with its product, a company which is engaged in the business of producting and marketing a consumer product authorizes its salesmen, in the course of regular calls on the company's customers, to purchase company products from its customers for free distribution to the customers' patrons. This is followed by a brief discussion on the quality of the taxpayer's product.

Expenses for items made available by a taxpayer to the general public, including expenditures for distributing samples to the general public, are not subject to the entertainment expense disallowance rules of section 274(a) of the Internal Revenue Code of 1954 or the substantiation requirements of section 274(d) of the Code. (See section 274(e)(8) of the Code and section 1.274-5(c)(7) of the Income Tax Regulations.)

Held , expenses incurred in the activity described constitute expenditures for items made available to the general public and, therefore, are not subject to the entertainment expense disallowance rules of section 274(a) of the Code or the substantiation requirements of section 274(d) of the Code. However, whether such expenses are deductible as ordinary and necessary business expenses under section 162 of the Code and the regulations thereunder depends upon the facts and circumstances in each case.