SECTION 3. LAW

Whether payments are ordinary and necessary business expenses under § 162, or are “contributions or gifts” within the meaning of § 170, depends on whether the payments bear a direct relationship to the taxpayer’s business and are made with a reasonable expectation of substantial benefit or financial return commensurate with the amount of the payment, or whether the payments are completely gratuitous. See Rev. Rul. 72–314, 1972–1 C.B. 44 (amounts paid by stock brokerage business to a charitable organization whose purpose is to reduce neighborhood tensions and combat community deterioration are deductible under § 162 because the payments are business related and could reasonably be expected to produce commensurate financial return for the business); Rev. Rul. 72–293, 1972–1 C.B. 95 (payments to the United States Transportation Exposition may be deducted under § 162 or 170 depending on the facts and circumstances); Rev. Rul. 65–285, 1965–2 C.B. 56 (out-of-pocket expenses of invitees to the National Conference on Law and Poverty are deductible under § 170 because invitees are rendering services without compensation to the United States); and Singer Co. v. United States, 449 F.2d 413 (Ct. Cl. 1971) (discounts on a taxpayer’s sales of sewing machines to

certain qualified donees, including churches, hospitals, and government agencies, were deductible (under prior law) as charitable contributions under § 170 because the taxpayer did not expect to receive substantial benefit from those discounts; discounts provided on similar sales to schools, however, were not deductible as charitable contributions under § 170 because the taxpayer expected to receive substantial benefit from those discounts in the form of increased future sales).