Yacht crew per diem

[RobGB]

Hi, I have a client who works on a yacht and is in international waters most of the time.

The owner of the yacht treats him as a private contractor - the yacht's owner is a foreign national and does not want American tax issues (like anyone would blame him) - so all he does is pay my client.

Question: does my client have a per diem (even reduced) that he can claim? Meals are provided as is a place to bunk so I really don't see any real expenses. I figure he is going to get hit with Self Employment tax pretty hard but wanted to know if there was anything out there.

My thanks in advance.

[New York Enrolled Agent]

Hi, I have a client who works on a yacht and is in international waters most of the time.

The owner of the yacht treats him as a private contractor - the yacht's owner is a foreign national and does not want American tax issues (like anyone would blame him) - so all he does is pay my client.

Question: does my client have a per diem (even reduced) that he can claim? Meals are provided as is a place to bunk so I really don't see any real expenses. I figure he is going to get hit with Self Employment tax pretty hard but wanted to know if there was anything out there.

You might want to look at 115 TC 210 Marin Johnson. The Tax Court addressed the issue of allowable expenses when meals & board were given to a fisherman on a boat. Very limited deduction for the incidental expenses of the MI&E. For CONUS $2 per day. I'll paste a relevant snip (underlines added) from the case. I agree with your conclusion - a very limited deduction.

Given our conclusion that petitioner may use the revenue procedures to ascertain the amount of his deductible incidental expenses, petitioner asks the Court to allow him to use the full M&IE rates to ascertain those deductions. We decline to do so. We do not read the revenue procedures to allow a taxpayer to use the full M&IE rates when he or she incurs only incidental expenses. The M&IE rates represent the amount that the Government pays daily to its traveling employees to compensate them for four items of traveling expense; namely, breakfast, lunch, dinner, and incidental expenses. See 41 C.F.R. sec. 301-7.2(a)(2) (1994 & 1996). Specific amounts are apportioned under the travel regulations to each of these four items, depending on the point of travel. The portion of the M&IE rates that is attributable to incidental expenses incurred in all of the CONUS locations is $2. See 41 C.F.R. sec. 301- 7.12(a)(2)(i) (1994 & 1996). The portion of the M&IE rates that is attributable to incidental expenses incurred in any other location varies from $1 to $53, depending on the M&IE rate for that location. See 41 C.F.R. ch. 301, app. B (1994 & 1996). We believe that petitioner's deductions for his incidental expenses are limited under the travel regulations, which are incorporated by reference into the revenue procedures, to the incidental expense portion of the applicable M&IE rate. 10 See 41 C.F.R. sec. 301-7.12(a)(2) (1994 & 1996), which provides that the M&IE rate must be reduced “When all or part of the meals are furnished [pg. 228]at no cost or at a nominal cost to the employee by the Federal Government”.

[Gretel]

...this is what I have used for my sailor "$2 for incidental expenses only". However, this rate is not subject to the 50% limitation.