child amateur rodeo rider & s corp expenses

[spt]

Have a 14 yr old child that is an amateur rodeo rider and travels heavily through the year competing. The father's s corp has been funding this activity. 1099 have been issued in the child's name for winnings. Was going to disallow the expenses and record as distribution and use against the child's winnings or can they be used as sponsorship expense for s corp. If used as sponsorhsip child will have se tax. Child is under a 6 year program to become a professional rider and is graded by national level each year.

[Jesse]

Bump back to top

I'm curious to any response on this. I have a similar situation in which the prior preparer deducted what I would call hobby expenses.

Dad has a very profitable Corp and because some day his kid, now 15, will be making a living out of this activity, snowmobile racing in this case, he claims all expenses as sponsor fees or advertising. Another difference is the fact that the kid wins trophies, not money, I say it's the kids hobby and if he does go Pro, then the kid can operate as a business.

I don't do any corporate tax prep so I wasn't able to help him out, and in this case was glad to be able to say thanks, but no thanks.

[DaveO]

Closest think I've seen was a Father whose daughter was a gymnast with Olympic dreams. Father rented a facility, hired a coach and offered classes. The thing showed huge losses. I inherited the return (I'm not a sole prop like many of you) so couldn't pass on it. I hacked alot of the expense out of it but it still showed losses of $6k or more each year. A 501c(3) took it over and the "expenses" became "charitible deductions" of which I only allowed checks written to the charity not the various entry fees and such not. They moved to another state to be closer to the Olympic training center and I was very glad they found a new more "enlightened" preparer out their who "understood" their special tax situation so much better than I.

I wish the IRS would allow reporting of these not for profit activities on "C" allowing for the profit to come through without SE tax but only allowing expense to the extent of income.

[Burke]

Usually sponsors of athletes, racing car drivers, etc. do extensive advertising of a sort where the sponsor's name/logo, etc are highly visible on all sorts of things connected with the event and/or person involved, in addition to paying expenses. Is this the case in the corp(s) at hand? The fact that in both these cases the recipient of these paid expenses is the owner's child means due diligence needs to be done.

[Jesse]

Just curious

Usually sponsors of athletes, racing car drivers, etc. do extensive advertising of a sort where the sponsor's name/logo, etc are highly visible on all sorts of things connected with the event and/or person involved, in addition to paying expenses. Is this the case in the corp(s) at hand? The fact that in both these cases the recipient of these paid expenses is the owner's child means due diligence needs to be done.

Are the rules different for Corps/S-corps?

If this was a Sole Proprietor I would flat out say no way, with the only exception being the cost of the lettering/advertising on the trailers or vehicles. The cost of the trailer to haul the snowmobile, which is nicer than my home, cost an maintenance on the machines and gas to travel around, meals while away, etc....no way.


Or maybe start capitalizing start up costs?

[Burke]

The ordinary and necessary test is the same for any entity. Advertising is an accepted valid expense IF it meets this test. In either of these two cases, it would be suspect.

[thomtax]

They moved to another state to be closer to the Olympic training center and I was very glad they found a new more "enlightened" preparer out their who "understood" their special tax situation so much better than I.

I wish the IRS would allow reporting of these not for profit activities on "C" allowing for the profit to come through without SE tax but only allowing expense to the extent of income.

Dave, I guess that your client is using a special dictionary. When I look up enlightened, nowhere do I find the definition - One who is willing to cheat, ignore the laws, and do whatever it takes to deduct items that are not allowed to be deducted. And I guess that by "understood their special tax situation" they mean someone who can be bought to achieve the desired results by whatever means necessary.

It reminds me of one preparer in my town. She basically starts with what you want as a refund and then fits in whatever is necessary to achieve this result. When going through returns for people moving from her to me, we find equipment on the return that the people say they don't have and never had. But it gets a bigger depreciation deduction. And this is the same one that tells people if they have ten acres or more, they can file a farm return to get larger deductions.

Frustrating when someone argues that "so and so" told me I could.

LT

[spt]

thanks

Thanks for the replies. After meeting with my client to discuss the s corp return, I told them rodeo expenses for daughter was not for a entity with a profit motive, therefore I felt it was a hobby. An ex-IRS agent is preparing returns for others on the circuit and is deducting all expenses and upkeep as a farm deduction, is what the client is telling me. My client does not have a farm and does not intend to start one. Since s corp paid expenses, I am showing as a non deductible item the expenses on return and for 2009 they will increase salaries to pay for expenses from personal accounts. Once daughter reaches pro status, we will look at the situation again to see what course to take.

Once again thanks for the replies. This was the 1st time to use the forum.

Thanks
spt