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How do you do? Ladies and gentlemen, I'm pleased to have as my guest at this time the Commissioner of Internal Revenue, Mortimer Caplin. This is the man that directs all the internal revenue agents around the country and does all the tax collecting for the nation. Mr.

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Captain, the outside. I would like to remind you that we in Florida are a tourist state, essentially our biggest businesses. Tourism. There are many hotels, restaurants, people who work in hotels and restaurants were greatly concerned that the new business expense law and regulations are going to hurt their business.

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Uh, would you mind commenting on that? Yes, Senator. I'm very happy to be with you and the people of Florida. I visited your state many times and have enjoyed it immensely. Most of my life has been spent representing businessmen, and we are very much concerned about administering the new regulations in such a way that will end abuses but not interfere with reasonable and legitimate business deductions.

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We have to follow the law that Congress passed. Congress says that it wants, um, some recommendations, some substantiation of the amount of time, the place, the business purpose and the business relationship with the expenditure. This, we hope, can be accomplished with a minimum of burden. We're not asking for any long written tomes.

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The slightest reference would normally take care of identification. And as I've mentioned to you, Senator, that we have instructed our reagents to adopt a rule of reason to be fair, to be decent. And I would hope that if both the revenue agent and the individual uses a common sense practical approach that most of these difficulties will be alleviated Well, I'm sure there they will be most pleased to hear that from you.

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May I ask you this question with respect to substantiation of claimed expenses, deductions, what will they have to have other than just a diary? What kind of substantiation recommendation will a taxpayer who wants to claim an expense What will he have to produce? Well, for the average person, a diary maintained currently on this type of expenditure would take care of beyond that.

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If he had any individual expenditure of more than $25 then we have recommended that he keep a receipt. This would be a normal thing to do. On the other hand, if we should overlook the receipt. This does not preclude him from claiming the deduction. We're prepared to accept a secondary evidence to support this diary entry.

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And we might even add about a diary. Persons do not have to record it. Any special book. They might have it in their books of account. Their own correspondents would soon take care of this and and record the fact that this event occurred. And you sound very reasonable and very fair and very sensible.

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And I'm just wondering if all the agents who worked for you around in Florida and throughout the nation do they have the same attitude that you have? Well, we have 14 revenue agents throughout the country, and naturally, everyone isn't alike. But we have a very strong communication system.

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I meet with them. I appear at conventions. I write personal letters to them. We have regional commissioners, district directors who are in close touch with me. And this philosophy is being emphasized throughout the service. A fair, reasonable, common sense approach. Well, that's fine. Now, one other question.

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You mentioned the word conventions. I had a hotel owner tell me just the other day that within one week he had four cancellations of conventions. And the reason giving for the given for the cancellations was uncertainty about these regulations and how tough you people are going to be on allowing the people who came to conventions to call it a legitimate deduction.

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Do you have any comment to make about that? Yes, I think there's been an overreaction of with any new law. You have that and a great deal of misunderstanding. And we're hopeful that by the end of March we will have released our second batch of regulations, which will set out in great detail the line between the improper and the proper.

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And I think when this is understood and when it circulated among the public when it's recognised that the normal luncheon or dinner, uh, does not require an actual discussion of business so long as you're with a person in a natural business relationship. When it's understood that convention bona fide a convention set the stage for a proper expenditure which would be deductible, and that for a pleasurable meetings in between, the business sessions of the convention give rise to the goodwill deduction, which is one of the major exceptions in the law and I suspect that you contributed to having that legislation passed.

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Well, thank you very much, Mr Commissioner. That's a finance, sir. We appreciate your appearance here. We appreciate your remarks. Thank you, ladies and gentlemen, for looking in. I hope you're looking again at the same time next week. Mr. Commissioner, there apparently is some misunderstanding. Or there's something wrong with the law, I'm afraid.

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Which permits a deduction for a prospectively client's wife, but would not permit the deduction of the businessman's wife himself. And with the result that some senators are saying that it's all right then for a businessman to take his secretary along and entertain somebody else's wife. But he can't take his own.

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How do we get into this situation? What can we do about it? Well, this has been a quirk in the law for a long time. And as a former tax practitioner, is one that I've had difficulty explaining the clients over the years after my own wife.

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I might say, as the law says, that an ordinary and necessary business expenses deductible and on the bona fide, um, entertainment. If you're entertaining a customer under certain circumstances, you're allowed to take as a deduction, the customer and his wife. But your your own life, on the other hand, is not regarded as an ordinary, necessary business expense unless she happens to be an employee or something very close to that.

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And you get this, what a time seems to be a ludicrous result of the customers wife being deductible when with the customer and your own wife not being now. This was highlighted just the other day in a in a court decision where a president of an organization was found to entertain and then he needed his wife to entertain.

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And yet they said that this was the normal thing you'd expect from a wife, and none of her expenses were deductible. Now, as I understand it, this is not new. Law is what you're saying. This has been the rule right along, so there's no restriction with respect to the new law on this.

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That's right. So this this goes back for many, many years. Well, now do you? While you're not in the policy making a division, I wonder if you would care to comment as to whether or not you think maybe the Congress should act in this field because I'm sure you recognize, as most of us do, that the wives, sometimes in some operations, actually are as useful to a man making a successful business deal as as he is.

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Do you recognize that as being a factor in some instances or not? Yes, I do. And right now we're drafting these regulations under the new statute, and we have a position where the customer's wife would be deductible in the so called goodwill exception before and after a bona fide a business meeting.

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And we are making every effort to come up with a rational result. Now, if we cannot have a rational result in this situation, it may well be that we will go back to the Treasury and ask them to consider some recommendations to the Congress of the contract.

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All right, now, let's talk just briefly about this new travel provision, which I'm afraid is already in the law, in which you, of course, have to carry out which in effect says that the A travel expense will be eligible on the basis of how much time the man spends on work as related to on personal pleasure.

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Things of that character. How does that work? And what is your opinion about it? What the statute states is that if a man is on a business trip on travel status for more than a week and 25% of that time or more is spent on a side trip or for non business reasons, then he must allocate that percentage of non business time against the travel course and would be denied a deduction for them.

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Now this becomes very difficult for a corporate employee, for example, who is sent to a place he must conduct the business. And then perhaps he will take some leave time vacation. And by taking this leave time, he converts what would have been a simple amount of him in to a tax problem.

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Now again, in the drafting of the final regulations, we are trying to make a distinction between the employee who does not control his corporation and the owner employee who does control. And we're trying to come up with the result that if you're in a non controlled situation that you would have no special problem even under the statute.

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Now I think the conception of the statute it was certainly defensible and reasonable, but I think there are many problems that people didn't foresee. Yes, well, that's in the statute. And it may be the Congress should change it. Commissioner, I certainly want to thank you for taking the time to give us your opinions about these very important matters.

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And, ladies and gentlemen, I know you're all appreciative of these remarks from the Commissioner of Internal Revenue, Mr Mortimer Caplin. I thank you for listening in. I hope you're listening again at the same time next week.