The IRS has long treated advertising expenditures as ordinary and necessary costs of doing business. However, as Congress continues to take up corporate tax reform—and the related issue of tax inversions—the full deductibility of advertising is coming under threat.
Proposals have been introduced in the U.S. House and Senate that would lower, by 50 percent, the deductibility of advertising and then amortize and tax the remaining expenditure over a five-to-ten-year period. A reduction in deductibility could mean advertisers spend less on advertising, with complex and potentially devastating effects on the ad industry. This reduction of exemption is intended to offset any government revenue losses that result from the lowering of the corporate marginal rate (currently 35 percent). Advertising is one of the ten largest expense deductions taken by companies today and thus lends itself as a leading candidate for revenue to the Federal government.
The preservation of the full deductibility of advertising is not a new battle, rather one that 4A’s has fought successfully over the past 30 years and continues to do so:
At the start of 2017, the new administration and Congress set tax reform as one of their highest priorities. As work on that began in earnest, it became clear that the reduction in the full deductibility of advertising was once again in play. The 4A’s, in concert with other advertising groups, launched a massive effort of congressional contact, both in Washington and at the grassroots level across states and congressional districts, to blunt this attempt to limit full deductibility.