T. & E. Without Sympathy

With the nervous affability of a missionary who has stumbled into a cannibal camp. Internal Revenue Commissioner Mortimer M. Caplin sat down with 700 angry businessmen in Washington last week to explore "the T. & E. problem." T. & E.--for travel and entertainment--will be curtailed sharply as an expense-account item after Jan. i under the tax-law revisions passed in the last session of Congress.

Where once "the rule of reasonableness" applied in expense-account audits. Internal Revenue now expects detailed receipts and notations for such business tools as lunches, conventions and country-clubbing. "We do not want to interfere with legitimate business-expense deductions," Caplin insisted at a two-day hearing on the new rules. But 56 assorted executives who followed him to the rostrum plainly felt otherwise.

Lost Lubricant. They had a point, and so did he. Under the new rules, as the Internal Revenue Service originally chose to interpret them, businessmen would be obliged to provide receipts for all outlays over $10. They would also be required to itemize expenses down to 10-c- telephone calls and report such details as where and how long they entertained clients at expense-account lunches. Executives who made both business and personal use of a country club would be required to keep a log of all visits to the club, including those of their wives and children. Over 50% family use, decreed the IRS, and club dues would no longer be a business deduction.

Some of the outraged or apprehensive witnesses who showed up in Washington last week represented organizations or industries who batten on expense-account living. Henri G. Foussard, president of the St. Paul Chamber of Commerce, insisted that "wives have as much right to eat on the expense account as the First Lady does"* And President Andrew Ziomek of the National Licensed Beverage Association lugubriously predicted massive losses for bars and taverns, which "have provided the lubricant that has greased the wheels of American industry."

But the bulk of the witnesses were little worried by lost lubrication; a recent survey by the Research Institute of America showed that 61% of U.S. executives feel that some rule-tightening would be desirable. What bothered businessmen most was all the bookkeeping that the IRS proposed to inflict on them. Predicted Accountant Jacquin D. Bierman of J. K.

Lasser & Co.: "The new procedures are so detailed and unenforceable that, like Prohibition, they will fall of their own weight."

Happy New Year! Inundated by irate letters since the rules were first promulgated last month, Caplin came to the hearing prepared to make concessions. IRS, he announced, has decided to rewrite the regulations, eliminating such pettifogging requirements as listing local phone calls. There was also a possibility that the $10 maximum for lumped small expenditures might be raised.

But, armed with estimates that the Government loses $100 million in taxes a year as a result of expense-account cheating, Caplin was not about to make any major changes. And despite complaints from accountants that the record-keeping systems required by the new rules would take three months to set up, the Internal Revenue Service was still insisting at week's end that it planned to issue a final version of the regulations "before Christmas" and to enforce them beginning New Year's Day.

* White House expense accounting is as intricate as the average businessman's. The President receives both a $50,000 taxable allowance, for which he is accountable to Internal Revenue but not the Congress, and a tax-free $40,000, for which he is accountable to Congress but not IRS. Any additional expenses which he pays out of private income are handled as income tax deductions, and presumably will have to be reported hereafter in conformity with Caplin's new regulations.

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