Dr. Richard A. Sutter sent flowers to nurses' groups and hospitals, gifts to medical associates and candy and tickets to secretaries and parking lot attendants. He was generous.

But the Internal Revenue Service was not. It disallowed his deduction of the gifts. It said the presents were not helpful in earning his income.

Sutter practiced industrial medicine at a University City, Mo., surgical clinic. His clients were the organizations that employed his patients or the insurance companies that insured such organizations.

The court agreed with the IRS. Sutter didn't show how these gifts contributed to his financial success.

For deductibility, gifts to clients, customers and business contacts must be helpful in earning income and also appropriate. The next case helps show what is appropriate.

Donald G. Teeling was a successful manufacturers' sales representative. He frequently invited customers and prospects to dine with him at restaurants. If a customer couldn't join him for dinner, he sent steaks to the customer with a note: "In lieu of eating with Teeling." He gave some customers film during the year and at Christmas.

The IRS disallowed the deduction for the gifts.

The judge partially reversed the agency. He allowed the cost of the steaks because this was similar to customer entertainment, and he allowed the Christmas film expenses. But he disallowed the film given during the year. He said there was no reason or occasion for these gifts.

THE MORAL: Don't steak your tax deduction on a flimsy gift.

As noted the courts say gifts must be helpful and appropriate. The IRS tried to restrict business gifts further. Because some companies prohibit employees from accepting cash gifts, the agency said the person who makes a forbidden gift doesn't get a deduction.

Arthur E. Bondy from Woodstock, Conn., sold soft goods such as tablecloths and curtains to stores. Every year before Christmas, he would give some store employees up to $25 cash, the maximum deductible per donee. This violated the store's policies so the IRS denied the deduction.

A court disagreed. The gifts were not kickbacks that carried criminal penalties. And, since they weren't criminal, they were deductible.(more at Business)