Description/Scope: Expenses incurred while away from home (your "tax home") overnight on business.   This focus is on business trips that do not involve performing services for a client or customer, do not include a sales call or other visit to a place of business of a current or prospective customer or supplier.   However, the focus may "stray" to the other subjects as they are very close.  The Accountable Plan and Non-Accountable plan are NOT discussed herein and are covered under a separate topic.   Per Diem methods are provided in the travel - however Per Diem is covered as a separate topic.

(1) under section 162 or 212 for any traveling expense (including meals and lodging while away from home),

(2) for any item with respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such an activity,

(3) for any expense for gifts, or

(4) with respect to any listed property (as defined in section 280F(d)(4)), unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement

§§§ SECTION 1.162-17. REPORTING AND SUBSTANTIATION OF CERTAIN BUSINESS §§§

(c) EXPENSES FOR WHICH THE EMPLOYEE IS NOT REQUIRED TO ACCOUNT TO HIS EMPLOYER.

(d) SUBSTANTIATION OF ITEMS OF EXPENSE.

(1) Although the Commissioner may require any taxpayer to substantiate such information concerning expense accounts as may appear to be pertinent in determining tax liability, taxpayers ordinarily will not be called upon to substantiate expense account information except those in the following categories:

(i) A taxpayer who is not required to account to his employer, or who does not account;

(ii) A taxpayer whose expenses exceed the total of amounts charged to his employer and amounts received through advances, reimbursements or otherwise and who claims a deduction on his return for such excess;

(iii) A taxpayer who is related to his employer within the meaning of section 267(b); and

(iv) Other taxpayers in cases where it is determined that the accounting procedures used by the employer for the reporting and substantiation of expenses by employees are not adequate.

(2) The Code contemplates that taxpayers keep such records as will be sufficient to enable the Commissioner to correctly determine income tax liability. Accordingly, it is to the advantage of taxpayers who may be called upon to substantiate expense account information to maintain as adequate and detailed records of travel, transportation, entertainment, and similar business expenses as practical since the burden of proof is upon the taxpayer to show that such expenses were not only paid or incurred but also that they constitute ordinary and necessary business expenses. One method for substantiating expenses incurred by an employee in connection with his employment is through the preparation of a daily diary or record of expenditures, maintained in sufficient detail to enable him to readily identify the amount and nature of any expenditure, and the preservation of supporting documents, especially in connection with large or exceptional expenditures. Nevertheless, it is recognized that by reason of the nature of certain expenses or the circumstances under which they are incurred, it is often difficult for an employee to maintain detailed records or to preserve supporting documents for all his expenses. Detailed records of small expenditures incurred in traveling or for transportation, as for example, tips, will not be required.

(3) Where records are incomplete or documentary proof is unavailable, it may be possible to establish the amount of the expenditures by approximations based upon reliable secondary sources of information and collateral evidence. For example, in connection with an item of traveling expense a taxpayer might establish that he was in a travel status a certain number of days but that it was impracticable for him to establish the details of all his various items of travel expense. In such a case rail fares or plane fares can usually be ascertained with exactness and automobile costs approximated on the basis of mileage covered. A reasonable approximation of meals and lodging might be based upon receipted hotel bills or upon average daily rates for such accommodations and meals prevailing in the particular community for comparable accommodations. Since detailed records of incidental items are not required, deductions for these items may be based upon a reasonable approximation. In cases where a taxpayer is called upon to substantiate expense account information, the burden is on the taxpayer to establish that the amounts claimed as a deduction are reasonably accurate and constitute ordinary and necessary business expenses paid or incurred by him in connection with his trade or business. In connection with the determination of factual matters of this type, due consideration will be given to the reasonableness of the stated expenditures for the claimed purposes in relation to the taxpayer's circumstances (such as his income and the nature of his occupation), to the reliability and accuracy of records in connection with other items more readily lending themselves to detailed recordkeeping, and to all of the facts and circumstances in the particular case.

Engaging in Business Activities v. Travelling Simply to Travel

The following is an excerpt from the tax code identifying the paragraphs which prohibit a taxpayer from claiming deductions for travel when there is no Business Activity such as seminars, courses, contacting customers, suppliers, etc.  IF there is Business Activity then separate and unique rules apply instead of the following rule - therefore when there is travel primarrily for business you have deductions!  The following addresses a focus of travel for Business Education.

1.162-5(m)

(m) ADDITIONAL LIMITATIONS ON TRAVEL EXPENSES

(1) LUXURY WATER TRANSPORTATION

(A) IN GENERAL

No deduction shall be allowed under this chapter for expenses incurred for transportation by water to the extent such expenses exceed twice the aggregate per diem amounts for days of such transportation. For purposes of the preceding sentence, the term "per diem amounts" means the highest amount generally allowable with respect to a day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States.

(B) EXCEPTIONS

Subparagraph (A) shall not apply to--

(i) any expense allocable to a convention, seminar, or other meeting which is held on any cruise ship, and

(ii) any expense described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e).

(2) TRAVEL AS FORM OF EDUCATION

No deduction shall be allowed under this chapter for expenses for travel as a form of education.

(3) TRAVEL EXPENSES OF SPOUSE, DEPENDENT, OR OTHERS

No deduction shall be allowed under this chapter (other than section 217) for travel expenses paid or incurred with respect to a spouse, dependent, or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel, unless--

(A) the spouse, dependent, or other individual is an employee of the taxpayer,

(B) the travel of the spouse, dependent, or other individual is for a bona fide business purpose, and

(C) such expenses would otherwise be deductible by the spouse, dependent, or other individual.

The following are pre-requisites for deducting the travel:

If more than 50% of the time is spent on education for your current occupation then only one more test must be satisfied, that is the ordinary and necessary test. 

Examples and comments:

  Maintaining or Improving Job Skills: Curent job skills, meets the express requirements of the employer or meets the requirements of regulations as a condition to maintaining the taxpayer's job, pay rate or status.  There is no deduction for a new job training or qualify the taxpayer for a new trade or business.  Ordinary and Necessary: The expenses must be normal, usual or customary in the taxpayer's trade or business.   Necessary means appropriate or helpful, not indispensable or required.  Reasonable: This is a part of the ordinary test.  The expenses cannot be lavish.  Primarily:   The greatest portion of the time must be expended on the courses or business.

2. Essential Elements - What to Prove

(a) IN GENERAL. No deduction shall be allowed for any expenditure with respect to:

(1) Traveling away from home (including meals and lodging) deductible under section 162 or 212,

(2) Any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such an activity, including the items specified in section 274(e), or

(3) Gifts defined in section 274, unless the taxpayer substantiates such expenditure as provided in paragraph (c) of this section. This limitation supersedes with respect to any such expenditure the doctrine of Cohan v. Commissioner (C.C.A. 2d 1930) 39 F. 2d 540. The decision held that, where the evidence indicated a taxpayer incurred deductible travel or entertainment expense but the exact amount could not be determined, the court should make a close approximation and not disallow the deduction entirely. Section 274(d) contemplates that no deduction shall be allowed a taxpayer for such expenditures on the basis of such approximations or unsupported testimony of the taxpayer. For purposes of this section, the term "entertainment" means entertainment, amusement, or recreation, and use of a facility therefore; and the term "expenditure" includes expenses and items (including items such as losses and depreciation).

(b) ELEMENTS OF AN EXPENDITURE--

(1) IN GENERAL. Section 274(d) and this section contemplate that no deduction shall be allowed for any expenditure for travel, entertainment, or a gift unless the taxpayer substantiates the following elements for each such expenditure:

(i) Amount;

(ii) Time and place of travel or entertainment (or use of a facility with respect to entertainment), or date and description of a gift;

(iii) Business purpose; and

(iv) Business relationship to the taxpayer of each person  entertained, using an entertainment facility or receiving a gift.

(2) TRAVEL. The elements to be proved with respect to an expenditure for travel are:

(i) AMOUNT. Amount of each separate expenditure for traveling away from home, such as cost of transportation or lodging, except that the daily cost of the traveler's own breakfast, lunch, and dinner and of expenditures incidental to such travel may be aggregated, if set forth in reasonable categories, such as for meals, for gasoline and oil, and for taxi fares;

(ii) TIME. Dates of departure and return for each trip away from home, and number of days away from home spent on business;

(iii) PLACE. Destinations or locality of travel, described by name of city or town or other similar designation; and

(iv) BUSINESS PURPOSE. Business reason for travel or nature of the business benefit derived or expected to be derived as a result of travel.

(3) SUBSTANTIATION BY OTHER SUFFICIENT EVIDENCE. If a taxpayer fails to establish to the satisfaction of the district director that he has substantially complied with the "adequate records" requirements of subparagraph (2) of this paragraph with respect to an element of an expenditure, then, except as otherwise provided in this paragraph, the taxpayer must establish such element:

(i) By his own statement, whether written or oral, containing specific information in detail as to such element; and

Establishing Business Purpose

(4) SUBSTANTIATION IN EXCEPTIONAL CIRCUMSTANCES. If a taxpayer establishes that, by reason of the inherent nature of the situation in which an expenditure was made:

(i) He was unable to obtain evidence with respect to an element of the expenditure which conforms fully to the "adequate records" requirements of subparagraph (2) of this paragraph,

(ii) He is unable to obtain evidence with respect to such element which conforms fully to the "other sufficient evidence" requirements of subparagraph (3) of this paragraph, and

(iii) He has presented other evidence, with respect to such element, which possesses the highest degree of probative value possible under the circumstances, such other evidence shall be considered to satisfy the substantiation requirements of section 274(d) and this paragraph.

(5) LOSS OF RECORDS DUE TO CIRCUMSTANCES BEYOND CONTROL OF TAXPAYER.

Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer's control, such as destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures.

§1.274-5A(c)(2)(ii)(b)

§1.274-5T(c)(3)(ii)

§§§ Cases §§§

Travel to Your CPA For Tax Advice and Preparation - Bookkeeping, etc.

Travel expense for tax advice.-- A supermarket sales clerk was permitted to deduct traveling expenses incurred when consulting her income tax preparer. She was also allowed to deduct related telephone expenses.

C.R. Bosworth, 55 TCM 748, Dec. 44,746(M), TC Memo 1988-190.  (Please read the case as reproduced below)

Travel expense for tax advice.-- A taxpayer was entitled to deduct only the ordinary and necessary portion of his unsubstantiated travel costs incurred during trips to see his tax preparer. He was not entitled to deductions for any unsubstantiated meal, lodging, or telephone costs incurred in providing information to his tax preparer.

C.F. Gettings, 55 TCM 1361, Dec. 44,928(M), TC Memo. 1988-328

Travel expense for tax advice.-- An individual was allowed deductions for automobile and airline trips to obtain legal advice in connection with the removal of federal tax liens from his properties.

T.A. Meersman, 65 TCM 1878, Dec. 48,854(M), TC Memo. 1993-47.

I HAVE INCLUDED THE ENTIRE OPINION OF THE CR BOSWORTH US TAX COURT DECISION.  DO NOT DISREGARD IT BECAUSE IT IS OLD OR BECAUSE IT MAY NOT LOOK LIKE IT APPLIES TO YOU.  IT HAS BEEN PRESENTED BECAUSE IT INFORMS YOU OF THE IRS AND THE COURT THOUGHT PROCESSES ON SUBSTANTIATION OF TRAVEL EXPENSES (AND BECAUSE IT INDICATES THE COURT WILL ALLOW TRAVEL TO THE CPA FOR TAX PREPARATION AND TAX ADVICE).

Notice that where the documentation was non-existent neither the court, nor the IRS auditor would take any further steps to determine whether the expenditure qualified for employee, business, investment or other tax deductible expenses.  First the taxpayer must present the proof the money was spent, the taxpayer spent the money and when it was spent.  Without those items, you will not get to first base with the Court or an IRS Auditor of Taxpayer Records.  The first and main purpose you have is to establish the proof from third parties of the expenditures.  There are many requirements in addition, however lack of proof of payment, in all probability, be a strike-out.

United States Tax Court
CAROL RUTH BOSWORTH,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 1988-190
Docket No. 874-87
Date of Decision: May 3, 1988
Judge: Couvillion, opinion
Principal Code Reference: Section 162

Summary

Carol Ruth Bosworth filed a Schedule A, itemizing her deductions for her 1983 and 1984 tax years. The Service disallowed certain deductions,
including Bosworth's claim of a charitable contribution deduction based on three percent of her gross income and determined deficiencies and additions to taxes for both years. Bosworth filed a Tax Court petition. At the trial, she was generally unable to produce cancelled checks, receipts, or other documentary evidence to substantiate the amounts claimed in excess of the deductions allowed by the Service. The date on some of her receipts appeared to be altered. She explained that her lack of documentation was because her records were destroyed by a flood in February 1983.

Tax Court Special Trial Judge Couvillion has sustained the Service on almost all of the disallowed deductions. The court allowed Bosworth $100 for property contributed to charity in both years, after she produced receipts from a charity for contributions of property with a total value of $450 and $610. However, the court found that Bosworth demonstrated callous disregard of the tax laws in claiming arbitrary charitable contributions and submitting altered receipts. The court sustained the Service on the section 6653(a)(1) and (2) additions to tax.

Full Text

Filed May 3, 1988.
Carol Ruth Bosworth, pro se.
Steven W. LaBounty, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION COUVILLION, SPECIAL TRIAL JUDGE:

This case was assigned pursuant to the provisions of section 7443A(b) of the Internal Revenue Code of 1986. /1/ Respondent determined the following deficiencies and additions to petitioner's Federal income taxes: Additions to Tax
________________________________________
Year Deficiency Section 6653(a)(1) Section 6653(a)(2)
____ __________ __________________ __________________

1983 $1,110.59 $55.53 *
1984 $1,166.00 $58.30 **

* 50% of the interest due on $886.00.
** 50% of the interest due on $1,166.00

By stipulation, respondent conceded several adjustments in the notice of deficiency and, at trial, orally conceded several other adjustments. Additionally, in the stipulation, respondent conceded petitioner's entitlement to Schedule A interest deductions in excess of amounts petitioner claimed on her 1983 and 1984 income tax returns. At trial, petitioner asserted a claim for a bad debt deduction for 1984.

As a result of respondent's concessions, petitioner orally moved during the trial, pursuant to section 6512(a) and (b), to amend her pleadings to claim an overpayment of taxes for 1983 and 1984.

The remaining issues for decision are: (1) Schedule A, miscellaneous deductions; (2) Schedule A, contributions deductions; (3) Political contribution credits; (4) Residential energy credit for 1983; (5) additions to tax under section 6653(a)(1) and (2); and (6) the bad debt deduction claimed by petitioner for 1984. /2/

Some of the facts were stipulated and are so found. The stipulation of facts and exhibits annexed thereto are incorporated herein by reference. For purposes of convenience, the Court's findings of fact and opinion have been consolidated.  At the time the petition was filed, petitioner's legal residence was St. Louis, Missouri.   As to all issues, petitioner bears the burden of proof. Respondent's determinations in the notice of deficiency are presumed correct. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a).

With respect to the Schedule A, miscellaneous deductions, the following tables show the amounts claimed by petitioner on her returns, the amounts allowed in the notice of deficiency, the amounts conceded by respondent at trial, and the amounts at issue:

1983

1984

All of the amounts at issue were disallowed by respondent for lack of substantiation.

Petitioner was a sales clerk for The Kroger Company, a national supermarket chain. The item "On Job Needs For Work" was comprised of several expenses petitioner claims she incurred: Cleaning uniforms she was required to wear at work, hand cream to facilitate her handling of currency as a sales clerk, foot pads to stand on at work, and support hosiery. The foot pads and hosiery, petitioner claimed, were necessary to alleviate a back condition. /3/

At trial, petitioner had virtually no records to support the $495.76 and $764.77 at issue. Her only documentary evidence consisted of a few store receipts totaling approximately $32, which appear to have been for hosiery and unidentified drugs. Petitioner's explanation was that most of her records were destroyed when her home flooded in early 1983; however, she offered no explanation for her lack of records following the flood.

Without passing upon the question whether the clothing petitioner was required to wear at work qualified as uniforms, thus allowing petitioner a deduction for her expenses in cleaning the uniforms, /4/ or whether the other items in the category of "On Job Needs For Work" were properly incurred in connection with and as ordinary and necessary expenses of her employment, the evidence presented by petitioner to establish that she in fact incurred such expenses fell woefully short of the degree of proof necessary to convince this Court that she incurred such expenses. As such, the Court sustains respondent on this category of expenses.

For 1983 and 1984, petitioner claimed a Schedule A miscellaneous deduction of $74.56 each year for income tax assistance, consisting of $50 to her income tax preparer, phone calls to him, and mileage. Petitioner testified she lived 28 miles from her preparer and made two trips each year to his office for the preparation of her returns. Her testimony was corroborated by the preparer who testified at trial. Respondent conceded the $50 fee paid to the preparer but disallowed the $24.56 related expenses. The Court is satisfied that petitioner sustained her burden of proof with respect to the $24.56 for travel and telephone and, accordingly, sustains petitioner on this item for each year.

Petitioner owned 40 acres of land which she and her husband had acquired several years previously for purposes of starting a tree farm which never materialized. The property produced no income during the years in question and was located approximately 85 miles from petitioner's home. On Schedule A of her return for 1983, petitioner claimed a deduction of $365.10 for inspection trips to this property and $12 for long distance calls made with respect to the property. For 1984, petitioner claimed $518.88 for such trips.

Section 212(1) and (2) allows a deduction of all ordinary and necessary expenses paid or incurred for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. Petitioner's evidence to substantiate these expenses was scant. Aside from her testimony, the only corroborating evidence she produced was a copy of her check register, which reflected a check of $122 issued to Dale Head. She produced no evidence to establish the number of trips she made to the property, the dates, or any bills reflecting the motel expenses she allegedly incurred on these trips. Petitioner clearly failed to substantiate these expenses and, on this record, respondent is sustained. /5/

With respect to the Schedule A, Contributions deductions, this issue is posited in the same fashion as the Schedule A, Miscellaneous deductions:

1983

* Consists of: $ 52.00 United Way; 50.00 Peter Popoff Evangelistic Assn., Inc.; 45.00 700 Club; Total: $147.00

** Respondent conceded Petitioner's entitlement to the $75.00 shown.

1984

* Consists of: $285.00 Shambach Revival; 97.00 Peter Popoff Evangelistic Assn., Inc.; 20.00 700 Club; Total is $402.00

** United Way.

As to the church contributions and other listed charities for 1983 and 1984, petitioner produced no canceled checks, receipts or other documentary evidence to substantiate the amounts claimed in excess of those allowed by respondent. She testified that the contributions were in cash and included contributions to the Nazarene Church and door-to-door solicitations at home and where she worked. With no more evidence than that, this Court is unable to allow petitioner any deduction in excess of the amounts allowed by respondent. Accordingly, respondent is sustained on these two items for 1983 and 1984.
Petitioner and her return preparer testified that the "3% AGI for other charities" and "Other charities not listed," in the amounts of $659.55 and $756, respectively, for 1983 and 1984, represented an arbitrary amount the preparer determined, based on 3% of petitioner's adjusted gross income, as a "catch all" for numerous, out-of-pocket contributions to various charities. This Court rejects such determination as authority for a charitable contribution deduction. Since no substantiation was presented to support these amounts, respondent is sustained on this item for 1983 and 1984.

The final item, clothing and other properties, $400 and $412.90, respectively, for 1983 and 1984, represented property petitioner contributed in kind to the Salvation Army and the Missouri Federation of the Blind. Petitioner testified these contributions consisted of clothing, shoes, furniture, and other household items. She was not able to substantiate her contribution to the Salvation Army; however, she produced receipts for both years from the Missouri Federation of the Blind, totaling $450 for 1983 and $610 for 1984. These amounts were described on the receipts as the "value" of the property given. The receipts did not describe the property, except in general terms.
A deduction for charitable contributions is allowed under section 170(a). Under section 1.170A-1(c)(1), Income Tax Regs., if the contribution is property other than money, the amount of the deduction is the fair market value of the property at the time of the contribution. Under section 1.170A-1(c)(2), Income Tax Regs., fair market value is the price at which the property would change hands between a willing buyer and a willing seller, with both informed as to the relevant facts and neither being under any compulsion to buy or sell. The question is one of fact to be resolved from a consideration of all relevant evidence in the record. Jarre v. Commissioner, 64 T.C. 183, 188 (1975).

The Court is satisfied that petitioner made contributions of property to the Missouri Federation of the Blind in 1983 and 1984; however, petitioner failed to establish exactly what property she gave, her cost of the property, or its fair market value, except the values indicated on the receipts, which the Court considers was most imprecise. Nevertheless, the Court is satisfied that petitioner did in fact make deductible charitable contributions to the Missouri Federation of the Blind during both years. Using our best judgment on the basis of this record, the Court concludes that the fair market value of the property contributed by petitioner to the Missouri Federation of the Blind in 1983 and 1984 was $100 for each year. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). The Court denies petitioner a deduction for contributions to the Salvation Army for lack of substantiation, and we decline to exercise our discretion to estimate any allowance because the record simply does not provide any basis to do so. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

On her 1983 and 1984 returns, petitioner claimed credits against the tax of $50 each year under section 41(a), contributions to candidates for public office. /6/ The credits were disallowed by respondent for lack of substantiation. At trial, petitioner presented no receipts, canceled checks, or other evidence to establish that she made any political contributions in 1983 or 1984. On this record, therefore, respondent is sustained on this issue.

On her 1983 return, petitioner claimed a residential energy credit of $300 based on the following claimed energy conservation expenditures on her principal residence during 1983:
$ 375.00 Insulation
2,500.00 Storm windows or doors
100.00 Caulking, weatherstripping, and labor
_________
$2,975.00 Total

In the notice of deficiency, respondent disallowed all the energy conservation expenditures, for lack of substantiation, except $502.74 for storm windows. In the stipulation, respondent conceded an additional $726.86 for storm windows, leaving at issue $1745.40.

Section 44C /7/ provides a tax credit to individuals for qualified energy conservation expenditures made to their principal residence. The credit is 15% of qualified energy conservation expenditures up to $2,000. Insulation and storm windows are qualified energy conservation expenditures. Section 1.23-2(c), Income Tax Regs.; section 1.23-2(d)(4)(iv), Income Tax Regs.

At trial, petitioner presented several receipts evidencing purchase of various materials from a hardware and "do-it-yourself" store along with copies of several checks. The Court is satisfied that two of the receipts were altered to show a date of 1983 instead of 1982. The checks submitted by petitioner are not corroborated with any statements or invoices; consequently, the Court is unable to conclude from the record whether these checks were identifiable with payment of qualified energy conservation expenditures supporting petitioner's claimed credit for 1983. Respondent, therefore, is sustained on this issue.

Respondent determined additions to tax under section 6653(a)(1) and (2). Section 6653(a)(1) applies if any part of an underpayment of tax is due to negligence or intentional disregard of rules or regulations. Section 6653(a)(2) applies only to that portion of an underpayment attributable to negligence or intentional disregard of rules or regulations. Negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).

The Court is satisfied from the record that petitioner did not sustain her burden of establishing that these additions to tax were improper. The record establishes petitioner's callous disregard of the tax laws in, for example, claiming arbitrary charitable contributions based on a percentage of her adjusted gross income, or in submitting altered receipts in substantiation of claimed expenditures. Although we accept petitioner's testimony that some of her records were destroyed when her home flooded, it is obvious that many of her claimed expenses could have been corroborated by other available evidence, which she failed to produce. Moreover, the storm damage in which petitioner claims her records were destroyed occurred in February 1983 -- early on in the two years in question with no explanation why records subsequent to February 1983 were not available. Respondent, therefore, is sustained on the additions to tax under section 6653(a)(1) and (2).

At trial, petitioner claimed a bad debt deduction of $370.95 for 1984. The debt is evidenced by a canceled check by petitioner dated July 17, 1984, payable to Friedman Railroad Salvage Co. The check bears a notation "For Fran." Petitioner testified that "Fran" (who was not further identified) was a friend, whose home was destroyed by fire, and petitioner purchased furniture for her. Petitioner contends there was no donative intent on her part, that Fran was expected to reimburse petitioner the $370.95, and the debt was never repaid.

Section 166(a) allows a deduction for any debt which becomes wholly or partially worthless during the taxable year. Under section 1.166-1(c), Income Tax Regs., only a bona fide debt which arises from a debtor-creditor relationship, based upon a valid and an enforceable obligation to pay a fixed or determinable sum of money, qualifies for the deduction. The obligation to repay must be unconditional and must be certain to become due at some future date. Birdsboro Steel Foundry & Machine Co. v. United States, 78 Ct. Cl. 100, 3 F.Supp. 640 (1933). Petitioner did not sustain the burden of establishing that a bona fide debt existed with "Fran." The only evidence was petitioner's testimony, with no identification of the debtor (other than the sobriquet "Fran"), or any acknowledgment by Fran of a debt. Even if a bona fide debt existed, petitioner failed to establish any identifiable event or series of events occurring in 1984 which would indicate that the debt, assuming one existed, became worthless that year rather than another year. See Dustin v. Commissioner, 53 T.C. 491, 501 (1969), affd. 467 F.2d 47 (9th Cir. 1972). Petitioner, therefore, is not entitled to a bad debt deduction for 1984.

Decision will be entered under Rule 155.

FOOTNOTES

/1/ Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954, as amended and in effect during the years at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.

/2/ Respondent conceded: (1) Allowance of a dependency exemption to petitioner for 1983 and 1984; (2) Schedule A, interest expenses for 1983 of $3,169.39 instead of $1,462.44 claimed on her return; (3) Schedule A, interest expenses for 1984 of $2,174.40 instead of $1,418.29 claimed on her return. Other concessions by respondent are noted in the body o this opinion.

/3/ Such expenses appear to be more in the nature of medical expenses, deductible under section 213, rather than as employee related expenses. The Court notes, however, that, for the two years in question, petitioner's medical expenses did not exceed five percent of her adjusted gross income, as required by section 213(a). Moreover, petitioner failed to establish that these items were in fact medical expenses. See section 1.213-2(h), Income Tax Regs.

/4/ See Yeomans v. Commissioner, 30 T.C. 757, 767 (1958).

/5/ Petitioner testified the expenses were incurred in her attempts to sell the property and included motel and travel expenses for herself and potential purchasers she brought to view the property. In view of our finding that the expenses were not substantiated, we find it unnecessary to determine whether selling expenses can be considered as "ordinary and necessary," and whether such expenses bore "a reasonable and proximate relation to the production or collection of taxable income or to the management, conservation, or maintenance of property held for the production of income," both of which are conditions for deductibility under section 212(1) and (2), and section 1.212-1(d), Income Tax Regs.

/6/ Section 41(a) was redesignated as section 24(a) by section 471(c) of Pub. L. 85-369, 98 Stat. 826, July 18, 1984, effective for the taxable years beginning after December 31, 1983, and to carrybacks from such years. The Tax Reform Act of 1986, Pub. L. 99- 514, section 112(a), 100 Stat. 2108, repealed section 24.

/7/ Section 44C was redesignated as section 23 by section 471(c) of the Deficit Reduction Act of 1984, 98 Stat. 826. This change affected taxable years beginning after December 31, 1983, Deficit Reduction Act of 1984, 98 Stat. 847.

K incurs $500 in travel expenses for herself and her husband on a business trip. K's husband attends a business lunch but serves no business purpose in doing so, other than general entertaining. K's cost for the trip without her husband, i.e., the cost of a single rather than a double room, K's meals, etc., would be $350. Hence, K may deduct only $350 for her business travel expenses since her husband's travel expenses are not deductible.

TOP

Tax Killers

Herein you will learn some of the "shortcuts" the law provides you in keeping records for your travel, entertainment and  related expendiitures.

This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth.

Tax is a subject that many view in order to cut costs.  Taxes are a cost just as any other cost.  It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control.  The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.

As the subject is travel expenses, the focus must be on both the law and the requirements placed upon the business owner, self-employed or manager. 

So that the tax deductions are obtained one is required to prove the following items:

1. The date of the expense: Other sufficient Evidence that is Direct Evidence is allowed

2. The amount of the expense: Other sufficient Evidence that is Direct Evidence is allowed

3. Proof it was spent from taxpayer funds: Your records must show your car was used (not anothers) AND/OR any money was disbursed from your funds (someone did not pay it for you).

4. The date of the business activity: Other sufficient Evidence that is Direct Evidence is allowed

5. The description of the activity and how it relates to the business: Usually written, however the code recognizes the proof of the business purpose and relationship may be directly evidenced by the type of business activity and the type of business or occupation.

6. Place: Other sufficient Evidence that is Direct Evidence is allowed

7. Description of the item, service or activity:  A short description, for example - gasoline, oil, lodging, etc.  Although the law does not provide for a specific exception to this element, reason should prevail whenever the other sufficient evidence discloses this element.

Other sufficient evidence can be anything that is a part of your routine records showing any or all of the items #1-5.  For example, an invoice might show a delivery, a charge for a meeting, or other service at a client's address.  You may attend a sales meeting, a trade show, or conduct conference or delivery to an associate's location.  Notes, invoices, delivery tickets, attendance records, certificates showing locations and dates... there are many alternate sources to prove one or more of the above essential elements.

KEEP THEM ALL !!!

Additionally, the law provides for a sampling method if you maintain records as prescribed.  For example you may keep detailed records for the first week of each month of the year.  Making the sample run for the entire calendar year will have more credibility than keeping detailed records for the first calendar quarter.   Furthermore, the more random and the more details, the better for you.

The following expenses are deductible - some are limited by law

1. Transportation

2. Lodging

3. Meals

4. Tips

5. Local transportation, including to and from the airport - such as cab fares, etc.

6. Incidentals - such as  dry cleaning

Click here to see a table of the types of expenses you are allowed to deduct - Table of Deductions

If you decide, you may use the per diem for meals and incidentals.   The per diem rate, doe NOT replace the requirement to prove you were away from home, the length time away, the dates, and the business purposes.

Other methods of recording:  In addition to the other suficient evidence (usually a routine part of your records) other media, other than "paper records" you already use - You may find the use of a small personal tape recorder convenient.  If the information needs to be transcribed for an examination of your travel records, you can do that from the tape.  Laptop computers now provide for dictation, therefore if you have a laptop you can use the dictation into the computer to record the elements.

Essential Elements

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Cost Killers

This is about Activity Based Costing  - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.

Airline tickets

Generally, the more advance the ticket purchase, the less the cost.   A purchase of a ticket within 22 days of the use will be the most expensive of all.   Purchase and plan well in advance of the travel.  The first class is usually more costly than coach.  Sometimes airlines have special offers that make it less expensive to fly to an airport near the destination and pay for a rental car to drive to the destination.  Sometimes one airport is more expensive than another - again a reason to fly to the lower cost air terminal and drive to your destination.  Ask about discounts for special groups or consumer groups.  Sometimes the time of day influences the cost of the ticket.  Non-refundable tickets are less costly then a ticket for which you may claim a refund.  Price different airlines.  Ask travel agents.   Consider calling the same airline at a different time of day or on a different day and ask for prices - sometimes you will be pleasantly surprised.

Car Rental

Check different rental agencies.  The agencies away from the airport may be less expensive, because the airport charges an extra fee for the car being located at the air terminal.   Ask about special rates.  Sometimes, the rental agency will not offer unlimited mileage.  You may want the unlimited mileage!   Ask about special rates for discount clubs, consumer groups, professional groups or other groups.

If you do not use a national rental agency, the rental car may not be allowed to be driven across the state boundary.  You are cautioned to inquire. 

Insurance is always an issue with the car rental.  Some credit cards include the insurance for you.  Usually, your own car policy will include the liability - ask about the collision.  Usually, no policy outside the agencies offering will include the added rent due or processing costs you must pay if the vehicle is damaged and cannot be used for rental purposes.  Most of the rental contracts require you to pay the full rental value until the car is placed back into service.   Some will charge you a fee for processing the insurance claim, hauling the vehicle to the garage, transporting it back to the rental agency and other administrative costs relating to the activities to ready the car for rental after the damage.

Be certain to walk around the vehicle with the checkout personnel.   Look closely at the body, glass, trim AND the interior.  Have the person checking you out mark down all the damages, scratches, dents, stains, upholstery damages, etc.

Lodging

All overnight lodging will have in season and out of season rates that are quite different.  Furthermore, some holidays or special events may draw more visitors than normal.  The more demand for the rooms and the fewer vacancies that are projected, the more the cost.  You may find it less expensive to plan business travel so that the times for the special events are avoided.  Some national franchises offer special discounts for those who routinely stay at those units.  You may find anywhere from a 10% to 20% discount from the rates.

Some offer to let kids stay for no charge in the same room as the parents.   In that case, the entire amount of the room charge is deductible as a business expense.  Some of the chains offer free breakfast - in that case there is no separate meal cost for any person.

It has also been discovered that as you near any area for Casinos along the Gulf Coast, the cost of lodging may increase $20 - $60 more for each night.  You may find it advantageous and more economical to arrange the overnight stops so those areas are avoided.

Risks - Vehicle Accidents, Work Accidents, Other

You will want to read the section on Alerts and Risks in addition to this section.  Insurance is one method of covering property damage, personal injury and death.  However, you may decide to purchase additional coverage or you may decide to check with the insurance company to be certain the business trip and activities will be covered. 

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What to gather - preparing for your CPA, your attorney, or preparing to start the job on your own

Credit Card Statements and receipts.  Canceled checks.  Bank statements.

Certificate of attendance records and all/any other information pertaining to the business activities.

Diary books and travel logs, appointment calendars, notes about activities and business meetings.  Expense reports.

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Assistance - What To Do - Forms - checklists, time-line to do, etc.

Trip Primarily for Business

You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a nonbusiness side trip, or had other nonbusiness activities, you can deduct your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

Example. You work in Atlanta and take a business trip to New Orleans. On your way home, you stop in Mobile to visit your parents. You spend $630 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $580. You can deduct $580 for your trip, including the cost of round-trip transportation to and from New Orleans. The cost of your meals is subject to the 50% limit on meals mentioned earlier.

Trip Primarily for Personal Reasons

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip.

Travel for days you depart and return. For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance. You can do so by one of two methods.

1. You can claim 3/4 of the standard meal allowance, or
2. You can use any method that you consistently apply and that is in accordance with reasonable business practice.

Example. Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p.m. Jen's employer gave her a flat amount to cover her expenses and included it with her wages.

Under Method 1, Jen can claim 2 1/2 days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday.

Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would be limited to only 2 1/2 days.

What travel (for business) is tax deductible?

Transportation:  The method does not matter.

Lodging: The cost of lodging is deductible to the extent of the business portion.   Additional costs for family cannot be deducted.  Overnight for vacation or non-business is not deductible.  Extravagant costs are not deductible.

Meals and Incidentals:  The costs of meals are deductible with limits prescribed by the tax rules.  However, the costs of meals for family or the costs for meals while on the personal portion of the trip are not deductible.

Weekends, holidays and other standby days are counted as business days, only if they fall between business days.

The law requires you to keep records.  The law does not mandate how or what kind of records you keep - only the information that all the records must contain.   Please read the text on car expenses about this subject. Car - Rules for Substantiation You may be interested in Car Defenses of Use.  For other topics refer to the "Car" topics.

You will need a receipt and canceled check for every travel or entertainment expense exceeding $75.  No Receipt - No Deduction!  The receipt or a diary entry must also show the business purpose.  Even if the expenditure is less then $75 you must have a diary entry.  The receipts and/or diary entries must show:

1. The Payee, name, city, date

2. What it was for

3. Where it was spent

4. When

5. Why

6. How much

If the expenditure was for entertainment you must have all the above and in addition:

1. Name and location of the restaurant

2. The number of people served or attending

3. The date

4. The amount

5. The business purpose - for example "Joe Smith, legal counsel for our current client regarding the gift tax return due this month."

To prove the amounts you must submit canceled checks, paid bills or other proof.  If you cannot find the items, the IRS Agent will probably disallow a part or all of the expenses.  If you use the per diem rates or standard mileage you are required to prove all the remaining essential elements, however you will not be required to prove the amounts.

The following will assist you with maintaining the records - retention of and finding the paid bills or other evidence "you were there" cannot be over emphasized.  The forms themselves will not establish the essential elements.

Car Expenses

Car Mileage

Cover page for the paid bills and canceled checks

Weekly expense report (can be used as a cover page for the paid items also)

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Spreadsheets & Computations

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Contracts, Trusts, etc.

Accountable plans

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Reports Required

These reports can be used for self-employed records, accountable and non-accountable plans.

Car Expenses

Car Mileage

Cover page for the paid bills and canceled checks

Weekly expense report (can be used as a cover page for the paid items also)

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Checklists for Deployment

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Checklist for Monitoring

Management should be informed of any employee not complying with the policies and procedures.  Management may find special reports to assist in the monitoring of costs.  If some customers continually require last minute trip planning, those customers are driving the travel costs upward.  If some employees always make trip plans at the last minute, those persons must be trained to plan in advance so that the lower costs can be obtained.

Management may find that travel costs per dollar of sales, travel costs per mile, or other unit may assist in evaluating the performance of those seeking travel reimbursements.  Management should define the activities that use travel.   Activities that can be associated with travel costs are:

1. Calling on new customers

2. Calling on existing customers for new orders

3. Calling on existing customers - customer contact

4. Purchasing

5. Hiring

6. Training of employees

7. Training for specific services or products offered

8. Promotion at trade shows

9. Vacation

It is important to recognize the actions or activities that drive the costs of the travel.  Identifying the costs with a person, customer, or suppliers may not allow the manager to make informed and rational decisions.

The methods to reduce the costs should become a part of the business decision making.  Road blocks to those techniques should be identified and methods applied to remove the blocks so that the cost containment procedures can be applied.

This will usually require a team effort as management will need help with the workload.

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Financial Accounting: Bookkeeping & Financials

The travel and entertainment expenses need to special reporting for financial reporting purposes.  However, for management reporting there may be special reports which aid management in controlling the costs.  See the special section for cost killers.

General there is not a requirement to provide footnotes for travel or entertainment costs.

The entries will be made by using canceled checks, credit card statements (or the charge tickets) and expense reports from owners and employees.  The reports should be formatted to allow you to place codes on the categories required by management and appropriate tax accounting, record new charges for liability purposes, and provide you with information about the amount of any expense advances or ATM draws used by the person receiving the advance or draw.  The person should disclose the amount of cash retained by him or her and if you want return the unused portion to you - and you can make a new advance to the person if needed.

The law requires you to keep records.  The law does not mandate how or what kind of records you keep - only the information that all the records must contain.   Please read the text on car expenses about this subject. Car - Rules for Substantiation You may be interested in Car Defenses of Use.  For other topics refer to the "Car" topics.

You will need a receipt and canceled check for every travel or entertainment expense exceeding $75.  No Receipt - No Deduction!  The receipt or a diary entry must also show the business purpose.  Even if the expenditure is less then $75 you must have a diary entry.  The receipts and/or diary entries must show:

1. The Payee, name, city, date

2. What it was for

3. Where it was spent

4. When

5. Why

6. How much

If the expenditure was for entertainment you must have all the above and in addition:

1. Name and location of the restaurant

2. The number of people served or attending

3. The date

4. The amount

5. The business purpose - for example "Joe Smith, legal counsel for our current client regarding the gift tax return due this month."

To prove the amounts you must submit canceled checks, paid bills or other proof.  If you cannot find the items, the IRS Agent will probably disallow a part or all of the expenses.  If you use the per diem rates or standard mileage you are required to prove all the remaining essential elements, however you will not be required to prove the amounts.

  The following will assist you with maintaining the records - retention of and finding the paid bills or other evidence "you were there" cannot be over emphasized.  The forms themselves will not establish the essential elements.

Records Required

Protecting the Deductions

Car Expenses

Car Mileage

Cover page for the paid bills and canceled checks

Weekly expense report (can be used as a cover page for the paid items also)

To record a check you will debit the expense category (meals and entertainment must be separated from all other expenditures for the tax accounting purposes) and credit cash.

To record the charging of an expense you will credit the credit card liability account and debit the appropriate expense category.  To record the payment on the credit card - then debit the liability account and the credit bank account.

To record the ATM draw, will depend upon when you receive the report on the expenses.  If you receive the bank statement before the report then you must credit the bank account and debit an expense advance for that specific person.  If you receive the expense report first then you can debit the expense categories and credit the bank account.

If you or your company uses the normal method of advancing cash for expenses then you will follow these procedures for recording and reconciling.  Write a check for the amount of the cash advance - debit an account for expense advances with this person's name identifying it, and credit the bank account.  When the person returns for more money or with the report, then you can record the totals for the appropriate categories of expenses and credit the amount advances to that person.   When the person returns you may decide it is more straightforward to ask them to return all unused money and you issue a new check for the next advance.

The cash method for travel will usually mean that you record from the canceled checks and bank statements.   You may find it difficult to use a strict cash method if credit cards are used.  In the instance credit cards are used, you will find it easier to record credit card transactions using the accrual method.

   The most dangerous entity is the Corporation.  If the owner fails to qualify for travel and related (such as entertainment) expenses by not being meticulous about the recordkeeping, then not only will the corporation pay taxes on the lost deductions, but the owner will be charged with the taxes also.  The worst nightmare !  Double taxation!

Usually the bookkeeper will suffer the consequences.

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Compliance - what is required for protection, defense, etc.

Records Required

Protecting the Deductions

Car Expenses

Car Mileage

Cover page for the paid bills and canceled checks

Weekly expense report (can be used as a cover page for the paid items also)

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Alerts & Dangers - Risks, Asset Protection, IRS Defense

  Constructive Dividends

Considering Double Taxation the most dangerous entity is the Corporation.  If the owner fails to qualify for travel and related (such as entertainment) expenses by not being meticulous about the recordkeeping, then not only will the corporation pay taxes on the lost deductions, but the owner will be charged with the taxes also.  The worst nightmare !   Double taxation!

Work accidents and vehicle accidents:  Always a threat, however on business travel the potential financial risks are, perhaps, greater and have a wider range from other sources.

If you are incorporated do not believe the money and other assets outside the corporation are protected.  If any opposing counsel can convince a judge or a jury you were personally negligent, or it would be against good "public policy" to allow you to be without punishment while another suffers then the court will order your personal assets and wealth to be used for compensation, awards, settlements or judgements.

Failure to deduct the expenses - needlessly squanders the wealth.

Failure to document and qualify the deductions places the hard earned assets at risk.  Seizures, enforcement actions, all can be used to collect the tax.   This is true even where the tax deductions would have qualified except for the sloppy documentation. 

Insurance: When using your personal car for business travel be certain your insurance company knows about the business use.  The car may not be covered and the liability may not be covered.  If the trip is a mixture of business and personal, ask.  If you allow someone else to drive that is your employee, then be certain to ask.  Usually the insurance company will require a special addendum to the policy for employees that drive your car.  The cost is not usually enough to warrant the added risk from a potential lawsuit.

Good and meticulous records and being able to find the records is important.  In addition contact BOB PARRISH CPA PC

Prepare for the meeting and read information herein and in the Cars section.

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Pack a laptop with your bathing suit on your next vacation.

There is no law prohibiting you from combining a business trip with a vacation. And if you do mix and match, don’t forget to keep your receipts.

The Internal Revenue Service concedes that you’re entitled to deduct expenses for taking a business trip or attending a business convention. While such trips must benefit or advance your business to qualify as a tax deduction, there’s no reason why the trip or convention couldn’t coincide with your vacation. Why do you think that most large conventions are held in cities like New York, Palm Springs and Miami?

Convention and business travel expenses are deductible to both employees and the self-employed. Such expenses would include convention costs, hotels, meals and entertainment, and travel expenses to and from the convention. If a business purpose can be established, the expenses of your spouse may also be deductible. The business conventions or seminars must specifically relate to your business or profession. This rule could be called the "resort investment seminar" rule.

The IRS specifically says you can’t deduct the expenses for attending an investment or financial planning seminar in a resort area.

The deductibility rules differ depending on whether the trip is within or outside the United States, and whether it’s a foreign convention or a cruise convention. We will examine each:

I would recommend that if you’re going to visit a client, you should write to this person and receive in return a letter confirming the planned visit to discuss business matters. That letter validates the business purpose of your trip.

The amount of time that you spend on business will be a factor in answering the question of whether the trip was mostly for fun or work. For example, if you spend five days conducting business and three days sightseeing and seeing shows, the trip will be considered primarily for business and all of your transportation will be deductible.

Alternatively, if you conducted business for two days and enjoyed the sites for the remaining six days, the trip would be considered primarily personal and no transportation expenses would be allowed. It’s important to recognize that travel days count as business days in the "primary" computation.

Even if the trip is mostly personal, any expenses you incur that are mostly business-related -- meals, lodging or incidental expenses, for example -- can be deducted.

If the trip is outside the United States, as defined by the IRS to include Canada, Mexico, the Pacific Islands and certain Caribbean countries, special allocation rules apply. If you were out of the country for seven days or less, or if less than 25% of your trip was spent enjoying the scenery, you don’t have to follow the special allocation rules. Furthermore, no allocation is required if you had no substantial control over the trip arrangements and if the desire for a vacation was not a major factor in taking the trip.

Alternatively, if the trip was primarily for pleasure, none of the transportation expenses will be deductible. In all other cases, all travel expenses must be allocated between business and personal expenses (with travel days counting as business days).

For example, assume you took a trip from New York to London primarily for business purposes. You were away from home July 20 through July 29 and spent three days vacationing and seven days conducting business (including two travel days). Suppose your airfare was $500 and your meals and lodging amounted to $75 per day. You could deduct 70 percent of your transportation expenses (seven out of 10 days) and $75 per day for seven business days, as you were away from home for more than seven days and more than 25% (three out of 10 days) of your time was devoted to business. (Remember that only 50% of your meals would be deductible.)

If your trip is subject to the allocation rules, there is a planning strategy to maximize your tax deduction. When booking your flight, if you can, arrange for a stopover within the United States at the point closest to your destination. That way, the portion of the trip between your home and the stopover point will be fully deductible. You will then only have to allocate the cost of the remainder of the trip.

Further restrictions are imposed on foreign conventions. No deduction will be allowed for expenses attributable to a foreign convention unless it is "reasonable for the convention to be held outside North America." In other words, you can’t deduct the trip if you can’t show it had to be over there rather than over here. Note here that we’re only talking about conventions. These rules don’t apply to other foreign business meetings. Three factors are considered in determining the reasonableness of the convention location:

1. The purpose of the meeting and the activities taking place at the meeting;
2. The purpose and activities of the sponsoring organization or group;
3. The residence of the active members of the group and where prior or future meetings will be held.

While there is no limit on the number of foreign conventions/vacations you can attend and deduct on your taxes, the rules change if you try to do it on cruise ships. Uncle Sam has a hard time understanding how serious conventions are when held aboard luxury cruise liners, unless:

Even then, the maximum deduction is $2,000 for each taxpayer and you must attach two written statements to your return. The first statement, signed by you, must include information as to the number of days that were devoted to scheduled business activities. The other, signed by a representative of the sponsoring organization, must include a schedule of the business activities each day, and the number of hours you were in attendance.

Remember that the key to deducting your vacation as a business expense is prior planning. Make sure that you can substantiate your business purpose for the trip and your expenses. Properly planned trips that combine business with pleasure will allow you to deduct the cost -- or at least a portion of your cost -- for nearly everything you do.

I have found that perhaps the easiest way to maintain a record to prove you really did work on that trip to Tahiti is to keep a diary or account book of such expenses. After all, if you’re in the 31% bracket, a $10,000 business and vacation trip would be subsidized by the IRS to the tune of $3,100!