If a club restricts membership based on specific characteristics, what tax implications does it have for business expenses?

When a club restricts membership based on specific characteristics, it can impact the deductibility of business expenses because the IRS has strict guidelines regarding the nature of deductions for memberships and associated expenses. If a club discriminates based on specific characteristics, expenses related to that club may not meet the criteria for business deductions, as they could be viewed as non-deductible personal or discriminatory expenditures.

The IRS allows deductions for business-related expenses that are both necessary and ordinary in the course of conducting business. However, if a club does not allow open membership and instead discriminates, the expenses may not qualify under these criteria. Consequently, no deductions would be permitted for expenses related to those membership fees, as they can be classified as not being for a legitimate business purpose. This interpretation aligns with IRS regulations emphasizing that expenses involved in discriminatory practices are generally not deductible. Thus, this option accurately reflects the tax implications of restricted membership clubs.