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According to Internal Revenue Code Section 162, business expenses are deductible only if they pass a two-step test. The first requirement is that the outlays are "ordinary." The other one is that they are "necessary." Given that loosely worded language, gray areas abound and many deduction disputes need to be covered in Internal Revenue Service rulings or resolved by the United States Tax Court.

For instance, the Tax Court disallowed payments made by an author to get his book published by Vantage Press, one of those "vanity" outfits that publishes at the author's expense, which is the reverse of the usual publisher-pays-author arrangement. But "publish or perish" outlays passed muster. The court sided with a research scientist who paid for publication of a paper on his research; in his field of work, published papers were considered a prerequisite to job advancement.

The way the IRS reads the law, professional athletes should not be allowed to claim the cost of answering fan mail. The court thought otherwise in a dispute involving a hockey player.  It is immaterial that his contract does not require him to answer letters.

A remodeling firm's president asked the IRS about the deductibility of his payment for a transcendental meditation seminar. His contention was that the practice of TM made him more creative on the job. Unfortunately for him, the karma was wrong. Although the agency agreed that the seminar "may have been of some benefit to the business," that was insufficient reason to go along with the deduction; "TM by its very nature generates benefits which are primarily personal."

But the feds conceded that an executive who leaves his commuter train without an attaché case stuffed with important business documents can deduct a reward for its return, as well as a newspaper ad offering the reward.

An unimpressed Tax Court barred deductions by J. Michael Springmann, ex-commercial attache at the U.S. Embassy in New Delhi, for pay to servants, regardless of his need to maintain his social standing in cost-conscious India. Ditto for a lawyer-CPA whose justification of a write-off for operating a boat flying a red, white and blue pennant bearing the number "1040" was that this gimmick generated some tax clients.

A judge's remark that "hope springs eternal in the heart of the American taxpayer" might have been the inspiration for a Los Angeles physician to deduct payments to his children for answering the telephone at home. Predictably, the court saw nothing special in his situation and reminded him that "children normally answer the family home telephone."

A skeptical court refused to uphold a deduction by a company for legal expenses paid on behalf of its principal shareholder in a divorce action in which his wife sought to acquire an interest in his stock. The company's unpersuasive argument: The wife suffered from mental problems and her intrusion in its affairs would have jeopardized its continued success.

What is extravagant for one taxpayer might be an ordinary and necessary expense for another. The court rebuffed the IRS's pinched view of what is "extravagant" and permitted an investment adviser to claim the cost of transporting potential customers in chauffeur-driven Cadillac's. What proved persuasive? The nature of the adviser's business, testimony that many of his clients were wealthy Europeans, and the court's awareness of "the generally obnoxious traffic situation in midtown and lower Manhattan."