By: A.J. Cook

If you enjoy it -- don't deduct it, says the Internal Revenue Service.

James C. Bower loved basketball. His Indiana commodity brokerage firm sponsored the Lafayette Bower Trading Hustlers. They played against other amateur teams and one year qualified for the AAU National Finals Basketball Tournament.

Bower believed the team was a great advertising tool. It got a lot of publicity in the local paper and radio and television stations. Many of his clients, mostly sports minded males, mentioned the team. Furthermore, after the games he met with customers to discuss business.

At tax time Bower deducted the team's travel expenses, gym rental and uniforms. The IRS whistled foul and ejected the Hustlers from his return: The sponsorship didn't help his business.

He appealed. The judge said the team's substantial publicity and the increase in regular clients from 50 to 200 since Bower formed the team indicated a relationship between basketball and business goals. He ruled for the broker even though "there was an element of personal satisfaction connected with his basketball activities."

The Moral: A business must score to court a deduction.

Ronald G. Marquart owned 49 percent of a computer software design company.

Marquart, a racing fan, suggested the business try to attract potential computer programmers by sponsoring a racing car he would drive. He said people interested in racing were "superprogrammer" types: "innovative, independent and intense people who like a challenge."

Over the next four years, Marquart discussed his business with three or four people he met through racing -- but hired none.

The IRS threw up the red flag when the company deducted the sponsorship.

The company went to court. The judge said this was not deductible "by a wide margin," because "clearly" the business gained no substantial benefit. In fact, the personality traits sought by the company "are not unique to race car drivers and superprogrammers." It's not unusual to run into people like this "in any social or recreational environment." For a deduction, the judge added, there must be a close relationship between the expenditure and the business.

The Moral: If you're racing IRS, you better be in the fast lane.

When tax specialist Robert Henry docked his boat, Bar Bill 2nd, you could see a red, white and blue flag on top its mast bearing the numerals 1040.

The New York City CPA and his wife, Betty, hoped fellow yacht enthusiasts would inquire about the flag. They did.

The numerals come from the income tax form, and by the way, Robert is a tax specialist. The couple had this standard answer. What the couple didn't have was a single new client.

The judge disallowed Henry's boat expenses of $13,429 saying the boat was used for recreation, not to make a profit.

Unusual advertising and public relations deductions have long been a bone of contention between taxpayers and the Internal Revenue Service. The courts have the job of settling the issue. The IRS frequently challenges promotional expenses that appear to be personally motivated.

Leon and Mary Boomershine owned a Tulsa, Okla., business that erected metal buildings. The couple had the words "BOOMERSHINE STEEL ERECTORS," the name of the company, painted on racecars.

In the two years the IRS examined, the company deducted $52,823 for auto racing expenses.

The IRS tore down that deduction.

In court the couple showed that many people who used their service attended car races in Tulsa. Leon showed he established several business contacts through advertising and won two contracts because of the car ads. The judge allowed the deductions.

Planning Tip: For unusual promotional methods, follow the Boomershine case. Keep records of new jobs and also new contacts that might result in future business.

California attorney Albert J. Fihe, famous for getting the patent on the first hamburger patty molding machine, believed he must project his reputation. He bought expensive business suits. He said, "If I don't look pretty prosperous, I don't get patent business."

When Fihe deducted the cost of the suits as a business expense, the IRS disallowed it. In court he said the IRS agents were out to get him. Fihe's testimony had helped send an agent to jail in connection with a tax fraud conspiracy. He claimed agents required the couple to go to many long meetings at the IRS and subjected them to repeated expressions of disbelief at their tax returns.

The judge said evidence didn't support Fihe's claim of persecution. As to the deduction, clothing is generally a personal, not a business expense.

The Moral: You can't deduct whatever suits you.