Masonry Magazine June 1989 Page. 17
TAX MATTERS
Irving L. Blackman is the most published CPA in the country and spreads his tax knowledge as a dynamic speaker. Mr. Blackman specializes in closely held businesses and will consult with readers of this column. He is a partner in Blackman Kallick Bartelstein, a Chicago-based accounting and business consulting firm. Direct your questions to 300 S. Riverside Plaza, Chicago, IL 60606, or call (312) 207-1040.
You Can Mix Pleasure with a Business Convention
You study it hard. What? Another one of those make-it-tax-deductible ads describing a business convention in Hawaii and boasting about mixing business with pleasure. Why can't I take advantage of such a tax giveaway? Well, you can. But first a warning: Most of those ads are not what they're cracked up to be. Deducting business conventions mixed with travel-pleasure trips is much more difficult, according to the IRS, than the advertisements claim or imply. Yet, it can be done.
Here is the general rule: Travel expenses incurred to attend a convention are deductible if your attendance benefits or advances your trade or business.
The IRS will allow or disallow the deduction based on whether they think you took the trip primarily for (1) business or (2) pleasure, and will scrutinize carefully how you claim your time was divided between these two activities. For example, a convention held in sunny Palm Beach is more likely to attract IRS scrutiny than a convention in overcast Seattle. This is the key: regardless of the site, if the purpose of the trip is truly primarily for business, it is deductible. On the other hand, that part of the trip or attendance at the convention attributable to pleasure, except for incidental activities, is not.
Conventions in the U.S.-The business portion of such trips is fully deductible. This includes travel expenses such as airfare, lodging and meals (only 80% deductible), tips, telephone, telegraph and taxicab costs. It also includes the business expense of convention or seminar registration fees. Lodging, meals and other expenses for pleasure are not deductible.
Conventions Outside the U.S.-If the temptation to deduct travel within the United States is great, then the temptation to deduct travel expenses for conventions abroad is irresistible. First, it must be shown that it was "as reasonable" to hold the convention outside North America (which includes the U.S., Canada, Mexico and certain Caribbean Basin and Central American countries) as inside. If that is done, the costs are 100% deductible if:
1. the trip is for seven consecutive days or less; and
2. less than 25% of the time is spent on pleasure activities; or
3. the taxpayer had no control over the travel (i.e., it was at the behest of and on behalf of his employer); or
4. the taxpayer can substantiate that the trip and convention were primarily for business purposes and not for obtaining a personal vacation or holiday.
Otherwise, you must allocate your trip between business and vacation days, deducting only expenses for business. The entire trip does not have to be primarily for business. For example, if only five out of 15 trip days are spent at a foreign convention on business, those five days' expenses are deductible.
Cruise Ship Convention-You've heard of a floating
crap game. How about a floating tax deduction? Deductions for conventions held on cruise ships are deductible if, in addition to the limitations in general listed above, the ship is registered in the U.S. and all its ports of call are located in the U.S. or its possessions. The deduction is limited to $2,000 per individual per year.
Would you like to learn how to deduct the maximum amount of your meals, travel and entertainment expenses legally? Send for the companion Special Reports The Complete Guide to Building Your ENTERTAINMENT Deductions... Legally, and The Complete Guide to Building Your TRAVEL Deductions... Legally; $19 each, or $28 for both, to Book Division, Blackman Kallick Bartelstein, 300 South Riverside Plaza, Chicago, Illinois 60606.
Post Office Losses Return: Taxpayer Suffers
If you worry about things that can go wrong, this is must reading. Until now, it was commonly thought that mailing a tax return to the IRS meant you could assume the tax return was filed. A recent tax case (Walden, 90 TC 61) holds otherwise.
Here's the story: Mr. Walden delivered the envelope containing his tax return to the post office two days before the deadline. The envelope had been pre-addressed to the IRS by the CPA who prepared the return. Mr. Walden double-checked with the clerk that the correct amount of postage was affixed. The IRS never received the return and assessed the Waldens with late filing penalties.
The court sided with the IRS. Yes, there is a strong presumption that the return was filed when it was deposited in the mail correctly addressed with the proper postage. But the fact that the IRS did not actually receive the return is enough to rebut the presumption. The court held it is up to the taxpayer to file the return, which means it must be delivered to and received by the IRS. The Waldens must bear the risk that the return was not filed.
Like it or not, this case is now the law. If you want to protect yourself when filing a tax return, the court tells you how to get off the hook-send the return by registered or certified mail.
Taxpayer Wins Loan vs. Dividend Battle
Many closely held corporation owners use their business as a private bank. How? By paying personal expenses with company funds. It's a dangerous game. The taxpayer claims nontaxable loans, and the IRS claims taxable dividends. Here's a real case (Turner, 59 AFTR 2nd 87-839) play-by-play of how one taxpayer won the game.
Mr. Turner traveled a great deal on behalf of his corporation, and he often took his family with him. He was concerned more with the details of business matters than recordkeeping and charged all of his travel expenses to his corporation. Later, his attorneys and accountants deter-more next page
MASONRY-MAY/JUNE, 1989 17