The term lavish or extravagant is frequently used in the tax code. Unfortunately, nowhere in the Code are the terms lavish or extravagant defined in a measurable way. For example, in relation to business meals, Sec 274(k)(1)(A) says “lavish or extravagant under the circumstances”. So, it boils down to a facts and circumstances determination.

When I discussed this with a tax professor friend of mine, he asked me would a $1,000 bottle of wine purchased at a business meal be considered extravagant? My answer was of course. Then he came at me with this…what if it was a Boeing salesman trying to close a billion-dollar aircraft sale? So, the “under the circumstances” makes a big difference. We hope you get the drift.