Travel and entertainment, or T&E, is one of those accounting entries that sometimes takes on a life of its own. Drivers of company vehicles, particularly cars and SUVs/crossovers, are given those vehicles to sell, or service, the customers. And, part of that process is entertainment; spending time away from the office with customers and prospects.
Entertainment takes many forms; meals, sporting and cultural events, perhaps a drink at a bar. Most companies have some sort of policy governing entertainment; what is permitted, what isn’t, and examples of both. Two items are of most concern to companies: First, are expenses deductible under IRS rules? And, second, what level of entertainment (cost) is acceptable? It is the second question that will be addressed.
Entertaining customers has been a key part of doing business for as long as business has been conducted. Buyers, for the most part, expect it (at various levels); sellers expect to have to do it to remain competitive. Regardless of the form it takes, entertainment helps build relationships, gets the customer away from the distractions of the office, and breaks down barriers to doing business.
That said, entertainment can, if uncontrolled, get out of hand not only in gross cost, but also if it is not tax deductible. For that reason, most companies have a written policy governing what is and isn’t acceptable.
There are those entertainment expenses that are the “norm” — to the extent there is a norm. Meals (taking a customer to lunch or dinner), going to a ball game, even a round of golf are seldom, if ever, questioned. The term de minimis is often used for such entertainment; those activities that are considered in the normal course of doing business.
Is there a point where the chosen entertainment crosses the line from de minimis to excessive, specifically as it pertains to the company entertainment policy? That, of course, depends upon what that policy is, what it defines (and what it doesn’t), and how that policy is applied.
Some companies have very detailed and specific travel and entertainment policies, while others are vague and/or simple. The IRS rules for the deductibility of entertainment expenses are vague, but hardly simple. Corporate policy that mirrors that vagueness allows for a bit of judgment on the part of management.