By: A.J. Cook

William S. Frisbie Jr. operated his real estate business from a 50-foot Gulfstar cruising ketch. He docked the sailboat on Clear Lake outside Houston. Other brokers rented office space. Not Frisbie, that was too mundane. He sold with a flair, driving a Jaguar or Rolls Royce and got attention in his spare time as a champion water skier and skydiver.

His flamboyant image worked well for him in Tulsa, Okla., so why not in Houston? It did. During a five-year period, he swamped the Houston real estate market with sales of $40 million, while still selling $30 million in Tulsa.

The lavish image produced record sales, so Frisbie thought the cost of the boat should be deductible. The Internal Revenue Service thought otherwise.

Frisbie explained he used the boat for meetings and lodging related to business. He said he also used it for his clients' sailing pleasure and only occasionally for his own.

But, the IRS concluded his deductions of $167,354 during two years for a boat were not an ordinary, usual or customary expense of his type of business. The Tax Court agreed.

The Moral: Too big a splash won't sail through the tax court as a deduction.

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It's hard to convince the IRS image costs should be deductible. It challenged LeRoy W. Gillis even though he didn't operate with the Frisbie flair.

Gillis, district sales manager for Home Beneficial Life Insurance Co. in Salisbury, Md., supervised four staff managers and 20 field agents. The appearance of his office was important. He met there with agents and clients.

When the company moved into new quarters, all the offices had new furniture -- except his. It had an old metal desk and an old worn chair.

The furniture fiasco resulted, in part, from a personality clash between Gillis and the man Beneficial designated to furnish the new building. As a result, Gillis had a dilemma. He didn't want to ruffle feathers by complaining to the man's superior, but at the same time he knew he couldn't maintain his status in such surroundings. He worked it out by furnishing the office with his own money. He had his office chair re-upholstered, and he bought draperies, a walnut desk and a naugahyde sofa. He didn't ask Beneficial for reimbursement.

The IRS disallowed his deduction of these costs. The court, however, was more perceptive. It said Gillis exercised prudence in not going over the decorator's head for help. His desire not to upset the apple cart, coupled with the necessity of maintaining his image as a successful district manager, justified the expenditures.

THE PLANNING TIP: The two cases illustrate when image expenses are deductible. It's not sufficient that the expenditure is helpful to the business. The amount also must be appropriate for the type of business you are in.