Evening star., 1942-10-25
Cost Of Advertising
Is Held DeduciibIe
From Income Tax
Internal Revenue Bureau
ExpIoins Ruling in
Formal Statement
By the Associated Press.

0y tuc AScociAtso FIeSS.
The Internal Revenue Bureau
said yesterday in formal state
ment on deductions for advertising
in figuring income taxes that it
recognized advertising as "a neces-
sary and legitimate business expense
SO long as it is not carried to an
unreasonable extent or does not
become an attempt to avoid proper
tax payments"
The bureau said that no definite
rule for determining what was
reasonable could be laid down in
advance to fit all situations, and
that, therefore, it would consider
applications for individual rulings.
It indicated desire to limit these
as much as possible, however, and
said individual rulings should not
be necessary except under most un-
usual circumstances if the general
rules were followed.
The statement follows:
Advice is requested as to the ex-
tent expenditures for advertising
will be deductible from gross income
for Federal income tax purposes.
ITO be deductible, advertising ex-
penditures must be ordinary and
necessary and bear a reasonable re-
lation to the business activities in
which the enterprise is engaged. The
bureau recognizes that advertising
Is a necessary and legitimate busi-
ness expense so long as it is not
carried to an unreasonable extent or
does not become an attempt to
avoid proper tax payments.
The bureau realizes that it may
be necessary for taxpayers now en-
gagged in war production to main
tain, through advertising, their trade
names and the knowledge of the
quality of their products and good
will built up over past years, so that
when they return to peace time pro-
duction their names and the quality
OF their products will be known to
the public.
Six Factors Included.
"In determining whether such ex-
penditures are allowable, cognizance
will be taken of % the size of the
business, CD the amount of prior
advertising budgets, 90 the public
patronage reasonable to be expected
in the future, "a the increased cost
OF the elements entering into the
total OF advertising expenditures,
go the introduction of new products
and added lines, and 60 buying
habits necessitated by war restric-
tions, by priorities and by the un-
availability of many of the raw
materials formerly fabricated into
the advertised products.
Reasonable expenses incurred by
companies in advertising and adver-
tlsing technique to speed the war
effort among their own employees,
and to cut down accidents and un-
necessary absences and inefficiency
will be allowed as reductions. Also,
reasonable expenditures for adver-
tisements, including the promotion
OF Government objectives in war
time, such as conservation, salvage,
or the sale of war bonds, which are
signed by the advertiser, will be de-
ductibfe provided they are reason
able and are not made in an attempt
to avoid proper taxation,
No definite rule for determining
what is reasonable in the case OF
expenditures for advertising can be
laid down in advance so as to fit all
situations and all classes Of taxpay-
ers. In determining whether the
amounts are reasonable, it is neces-
sary to take into consideration all
the facts and circumstances in each
particular case.
THE bureau will consider applica-
tions for individual rulings. 1t is,
however, busy with an unusual vol
ume of work, and it is believed that
if taxpayers will keep in mind the
foregoing general rules. individual
rulings will not be necessary except
under most unusual circumstances "