DEFINITION of 'Clear Business Setting Test'
A test for deductibility of business-related dining and entertainment expenses. The clear business setting test mandates that there can be no other motive for incurring these expenses except to further the taxpayer's business. For example, paying dining and entertainment expenses for an associate with whom the taxpayer has no social or personal connection will usually qualify as a deductible business expense.
BREAKING DOWN 'Clear Business Setting Test'
Qualifying expenses can include meals and entertainment related to generating publicity, price rebates for regular hotel or restaurant customers, and the cost of renting a display room at a convention. Usually, however, the taxpayer must be present at the function and there cannot be substantial distractions, such as at a nightclub or sporting event. If the associates present are a mixture of business and personal associates, then the costs incurred are also generally nondeductible.