rr-11-26.pdf

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Part I

Section 274.—Disallowance of Certain Entertainment, Etc., Expenses

26 CFR 1.274-1: Disallowance of Certain Entertainment, Etc., Expenses

Rev. Rul. 2011-26

ISSUE
Section 274(h) of the Internal Revenue Code (the “Code”) limits deductions for
expenses incurred in connection with a convention, seminar, or similar meeting
(collectively, a “convention”) held outside the “North American area.” This revenue
ruling contains an updated list of all geographical areas currently included in the North
American area for purposes of section 274(h).
LAW AND ANALYSIS
Section 274(h) disallows deductions under section 162 for expenses allocable to
attendance of an individual at a convention held outside the North American area unless
the taxpayer demonstrates that the location of the convention satisfies specified
standards of reasonableness.

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A geographical area may be included in the North American area for purposes of
section 274(h) under one of the four provisions described below.
Section 274(h)(3)(A)

Section 274(h)(3)(A) defines the term “North American area” as the United
States, its possessions, the Trust Territory of the Pacific Islands, Canada, and Mexico.
Under section 7701(a)(9), the United States consists of the fifty states and the District of
Columbia. The Internal Revenue Service treats the following as the possessions of the
United States for this purpose: American Samoa, Baker Island, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, Howland
Island, Jarvis Island, Johnston Island, Kingman Reef, the Midway Islands, Palmyra
Atoll, the United States Virgin Islands, Wake Island, and other United States islands,
cays, and reefs not part of the fifty states or the District of Columbia. The jurisdictions
that formerly constituted the Trust Territory of the Pacific Islands -- the Republic of the
Marshall Islands, the Federated States of Micronesia, and the Republic of Palau -- are
now covered by the compacts with the United States described below.
The Compact of Free Association Act of 1985

The Compact of Free Association Act of 1985, Pub. L. No. 99-239, 99 Stat. 1770
(1986), went into effect on October 21, 1986, with respect to the Republic of the
Marshall Islands, and on November 3, 1986, with respect to the Federated States of
Micronesia. Section 405 of Title IV of the Compact provides that, for purposes of
section 274(h)(3)(A) of the Code, the Republic of the Marshall Islands and the
Federated States of Micronesia are included in the North American area.

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The Compact of Free Association Between the United States and the Republic of Palau

The Compact of Free Association between the United States and the Republic of
Palau, Pub. L. No. 99-658, 100 Stat. 3672 (1986), went into effect on October 1, 1994.
Section 225(d) of Title II of the Compact with Palau provides that, for purposes of
section 274(h)(3)(A) of the Code, Palau is included in the North American area.
Section 274(h)(6)

Section 274(h)(6)(A) provides that the term “North American area” includes any
“beneficiary country” if, as of the time a convention begins: (i) there is in effect an
agreement described in section 274(h)(6)(C) providing for the exchange of information
between the United States and the beneficiary country; and (ii) there is not in effect a
finding by the Secretary of the Treasury that the tax laws of the beneficiary country
discriminate against conventions held in the United States.
Section 274(h)(6)(B) defines the term “beneficiary country” as a beneficiary
country as defined in section 212(a)(1)(A) of the Caribbean Basin Economic Recovery
Act, Pub. L. No. 98-67, 97 Stat. 384 (1983), and Bermuda. Under section
274(h)(6)(C)(i), to constitute an agreement that provides for the exchange of information
between the United States and a beneficiary country, an agreement generally must
provide for the exchange of such information (not limited to information concerning
nationals or residents of the United States or the beneficiary country) as may be
necessary or appropriate to carry out and enforce the tax laws of the United States and
the beneficiary country (whether criminal or civil proceedings), including information

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which may otherwise be subject to nondisclosure provisions of the local law of the
beneficiary country such as provisions respecting bank secrecy and bearer shares.
Where an exchange of information agreement between a beneficiary country and
the United States does not qualify as an agreement described in section 274(h)(6)(C)(i)
or is not in effect within the meaning of section 274(h)(6)(A)(i), the beneficiary country is
not included as part of the North American area under section 274(h)(6) for purposes of
determining whether deductions are allowed for expenses incurred in connection with a
convention.
Rev. Rul. 2007-28, 2007-1 C.B. 1039, identified each of the following jurisdictions
as a beneficiary country for which there was in effect an agreement with the United
States as described in section 274(h)(6)(C)(i) and for which there was not in effect a
finding by the Secretary of the Treasury that the tax laws of the beneficiary country
discriminate against conventions held in the United States: Antigua and Barbuda,
Aruba, Bahamas, Barbados, Bermuda, Costa Rica, Dominica, Dominican Republic,
Grenada, Guyana, Honduras, Jamaica, Netherlands Antilles, and Trinidad and Tobago.
Since publication of Rev. Rul. 2007-28, the “Agreement Between the
Government of the United States of America and the Republic of Panama for Tax
Cooperation and the Exchange of Information with Respect to Taxes” entered into force
on April 18, 2011. See
Treas. News Release at http://www.treasury.gov/press-
center/press-releases/Pages/tg1144.aspx (April 18, 2011). This new agreement
qualifies as an agreement described in section 274(h)(6)(C)(i). Panama is a beneficiary
country, and no finding is in effect by the Secretary of the Treasury that the tax laws of

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Panama discriminate against conventions held in the United States. Therefore,
Panama is included within the North American area under section 274(h)(6) as of April
18, 2011.
Three other beneficiary countries -- the Cayman Islands, the British Virgin
Islands, and Saint Lucia -- have entered into tax information exchange agreements with
the United States that are not of the type described in section 274(h)(6)(C)(i) because of
certain limitations in the scope or implementation of those agreements. Accordingly,
these three beneficiary countries are not included as part of the North American area
under section 274(h)(6). In the case of Saint Lucia, certain transition relief has been
provided, as reflected in the Holding below.
HOLDING
For purposes of determining whether deductions are allowed for expenses
incurred in connection with a convention, the following areas are included in the North
American area as of the effective date of section 274(h) except as otherwise indicated:
1. The fifty states of the United States and the District of Columbia;
2. The possessions of the United States, which for this purpose are
American Samoa, Baker Island, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, Guam, Howland Island,
Jarvis Island, Johnston Island, Kingman Reef, the Midway Islands,
Palmyra Atoll, the United States Virgin Islands, Wake Island, and other
United States islands, cays, and reefs not part of the fifty states or the
District of Columbia;

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3. Canada;
4. Mexico;
5. The Republic of the Marshall Islands;
6. The Federated States of Micronesia;
7. The Republic of Palau;
For expenses incurred in attending a
convention that began after:
8. Antigua and Barbuda February 9, 2003
9. Aruba September 12, 2004
10. Bahamas December 31, 2005
11. Barbados November 2, 1984
12. Bermuda December 1, 1988
13. Costa Rica February 11, 1991
14. Dominica May 8, 1988
15. Dominican Republic October 11, 1989
16. Grenada July 12, 1987
17. Guyana August 26, 1992
18. Honduras October 9, 1991
19. Jamaica December 17, 1986
20. Netherlands Antilles March 21, 2007
21. Panama April 18, 2011
22. Trinidad and Tobago February 8, 1990

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The Internal Revenue Service will continue to treat Saint Lucia as not included in
the North American area under section 274(h)(6) with respect to conventions that begin
after April 4, 2007, except with respect to expenses for which the taxpayer
demonstrates a nonrefundable contractual obligation existing as of April 4, 2007.
This revenue ruling will be updated as future developments result in the inclusion
of other areas in, or the exclusion of areas from, the North American area.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 2007-28 is superseded.
DRAFTING INFORMATION
The principal author of this revenue ruling is Terra-Lynn Zentara of the Office of
Associate Chief Counsel (International), Branch 7. For further information regarding this
revenue ruling, contact the principal author at (202) 435-5262 (not a toll-free call).