Travel agents

[Zee]

I obviously can't jump to conclusions about the motives of the client without knowing all the facts, but it seems to me that seeking the services of a responsible tax professional might indicate the client has a sincere desire to do things above board and comply with tax law. I'd be willing to bet that Linda F has never done anything to suggest to the client that she's going to advise anyone to take illegitimate deductions. If the client was truly going for tax advoidance as a primary motive, you'd think they'd seek out someone with less knowledge or more cynical intentions.

But it's impossible to know for sure without being there.

Agreed. Good point.

[Luis Mopeo]

My purpose in giving this presentation to this group is not to give them the okay to take trips and count them as business deductions. I am not going to give them ways to skirt the correct way of doing things.I will not tell them this is a good way to get to take free trips or write off trips.

I obviously can't jump to conclusions about the motives of the client without knowing all the facts, but it seems to me that seeking the services of a responsible tax professional might indicate the client has a sincere desire to do things above board and comply with tax law. I'd be willing to bet that Linda F has never done anything to suggest to the client that she's going to advise anyone to take illegitimate deductions. If the client was truly going for tax advoidance as a primary motive, you'd think they'd seek out someone with less knowledge or more cynical intentions.

But it's impossible to know for sure without being there.

[Zee]

My purpose in giving this presentation to this group is not to give them the okay to take trips and count them as business deductions. I am not going to give them ways to skirt the correct way of doing things.I will not tell them this is a good way to get to take free trips or write off trips.

I do intend to go over very carefully what constitutes a necessary and ordinary business expense, what documentation they need to have, the records they need to keep. I usually tell self employed people they should have a business plan. This helps them develop a more definite vision for their business and where they want it to go. It is also helpful in an audit (I have been told) because it would show the IRS that the person was serious about their business.

Last year I attended Georgia Society of Enrolled Agents convention, Florida Enrolled Agents covention and the IRS forum. It was emphasized so many times what documentation IRS wants to see and that we need to make sure our clients are keeping accurate records. And that is what I tell my clients. I even give them calendars and books to keep their mileage and expenses in.

There might be some in this group that are just looking for a tax break for travel. But then there are probably a lot of them that are really trying to make some extra money, like mothers with small children that would like to work from home rather than put the kids in day care, people with health problems, retired people, etc. All people with home based businesses are not trying to scam the government. If so, I guess I would be one of them since my business is in my home.

Zee, I remember the "Tax People". They contacted me to prepare taxes for their people. I did get one very good client out of that. She quit the company but has been my client for about 5 years and has sent me several referrals.

Sandy Botkin was briefly associated with them, but left the group when he saw what was going on. I had a set of tapes from him that my mother had gotten several years before. He has some very good points, but he definitely tells to keep accurate records and his advice is not leaning toward dishonest practices.

Thanks for the suggestions. I'll look at them and let you know if I find some good information.

Linda F

I'm sure your presentation will be very good. In fact, it might be "too good" and cause some to "rethink" about becoming an online travel agent. That's positive. I don't think everyone considering this type of activity is "out to scam the government". However, those signing people up tend to over-emphasize the potential tax benefits. You'll probably also discover travel agent's commissions have been drastically cut over the last few years and with the increasing use of the internet there's almost no need to use a travel agent for "bargains".

Recruiting those that want to earn a little "pocket change" with the lure of excessive tax benefits is the problem. You'll also find that those booking few trips per year aren't going to be offered highly discounted cruises, etc.

I also agree (Sorry George) that Sandy Botkins tapes are very good. I bought them on Ebay for $10 to see what he had to say. He does a very good job of stressing documentation and business purpose, but they are indeed a very aggressive approach when it comes to what he considers a valid business purpose at lunch, etc. His strategies aren't anything "new"...everyone here knows them. Most will work fine in a small or medium-sized business with reasonable profits. They won't fly well in businesses with consistent marginal profits offset by expenses that are questionably reasonable & necessary for the type & size of business.

[George Boutwell]

Speaking of "Sandy Botkin" and "travel agency", this is the flotsam that surfaces with a Google search for those two terms. He's probably being misquoted, but he's making it easy for others to do it.

>>we are pleased to introduce a sure fire way to not only travel wholesale for your business needs, but to ensure that ALL travel costs are 100% tax deductible. As quoted by Sandy Botkin, a former IRS attorney, he says, “if the average American knew everything that is provided to them in a virtual or home based business tax system, they would increase tax deductions by at least $5,000 - $15, 000 or more. The key is having a virtual business.” By accommodating an in-house travel agency, you become a wholesaler, and all travel related costs, even personal, become tax deductible.<<

http://notaxcosttravel.com/

[George Boutwell]

Why proclaim that the taxpayer in question is a "kitchen-table wannabe who think(s) they can convert personal expenses into tax deductions?"

Because when you have several clients in the business and you have seen or heard stories about this scam year after year for a couple of decades, it's hard to draw any other conclusion about some former owner of a marginal second-hand store who decides instead to recruit a couple dozen of her closest friends to compete with Thomas Cook.

[oceanlovin'ea]

google

I did a google search with "travel agents" tax deductions and all kinds of websites come up. I'll have to read them tomorrow.

Travel industry was too general, I think. It included airlines, etc.

So I just changed one word and got results.

Thanks for the tip.

Linda F

[oceanlovin'ea]

Points well taken

My purpose in giving this presentation to this group is not to give them the okay to take trips and count them as business deductions. I am not going to give them ways to skirt the correct way of doing things.I will not tell them this is a good way to get to take free trips or write off trips.

I do intend to go over very carefully what constitutes a necessary and ordinary business expense, what documentation they need to have, the records they need to keep. I usually tell self employed people they should have a business plan. This helps them develop a more definite vision for their business and where they want it to go. It is also helpful in an audit (I have been told) because it would show the IRS that the person was serious about their business.

Last year I attended Georgia Society of Enrolled Agents convention, Florida Enrolled Agents covention and the IRS forum. It was emphasized so many times what documentation IRS wants to see and that we need to make sure our clients are keeping accurate records. And that is what I tell my clients. I even give them calendars and books to keep their mileage and expenses in.

There might be some in this group that are just looking for a tax break for travel. But then there are probably a lot of them that are really trying to make some extra money, like mothers with small children that would like to work from home rather than put the kids in day care, people with health problems, retired people, etc. All people with home based businesses are not trying to scam the government. If so, I guess I would be one of them since my business is in my home.

Zee, I remember the "Tax People". They contacted me to prepare taxes for their people. I did get one very good client out of that. She quit the company but has been my client for about 5 years and has sent me several referrals.

Sandy Botkin was briefly associated with them, but left the group when he saw what was going on. I had a set of tapes from him that my mother had gotten several years before. He has some very good points, but he definitely tells to keep accurate records and his advice is not leaning toward dishonest practices.

Thanks for the suggestions. I'll look at them and let you know if I find some good information.

Linda F

[Luis Mopeo]

IBut it's dangerous to lift language from an opinion based on how travel agencies operated before the Internet, involving one that had more than a million dollars in annual sales, and apply it to the kitchen-table wannabes who think they can convert personal expenses into tax deductions.

It's also dangerous to jump to conclusions based on incomplete information.

Why proclaim that the taxpayer in question is a "kitchen-table wannabe who think(s) they can convert personal expenses into tax deductions?"

It just seems too easy.

I'm continually distressed that the IRS has succeeded in turning independent tax professionals into government enforcement agents who are so quick to proclaim that a taxpayer is cheating. I wish the bias of tax professionals would get back to being aggressive advocates for the taxpayer. I believe that a tax professional should at least get all the facts before proclaiming a taxpayer is committing fraud.

Are there really any taxpayer advocates any more?

[George Boutwell]

Thus, in general, it appears that "familiarization" trips can and have stood the test of the courts, and a legitimate travel agent, whether as an employee or self-employed, is entitled to deduct such expenses if reasonable.

No, it doesn't appear that way at all. It appears that more than 20 years ago, in dicta (that's just a comment by a judge that is not necessary to reach a result), the observation was made that it might be ordinary and necessary under certain facts and circumstances.

[George Boutwell]

The same is true about many of the home-based business tax strategies touted by many. Significant cautions are in order to ensure the deductions can stand the test of audit including profit motive, documentation of business purpose, etc.

I have an idea .... let's start a company called The Travel People .... we could run it out of Wichita and find a retired District Director to give it legitimacy . . .

[Bees Knees]

In 1979, Frank Leamy was an airline pilot and his wife, Charlotte was a school teacher . In 1977, the couple purchased a travel agency. As a corporate policy, the agency allowed for reimbursement of some employee expenses including some of those incurred on "familiarization" trips to vacation destinations. Almost every agent took at least one such trip annually.

Interesting the IRS did not go after all these employees who were reimbursed tax free for their "familiarization" trips. For it to be a tax free reimbursement, it has to meet the ordinary and necessary expense test.

Thus, in general, it appears that "familiarization" trips can and have stood the test of the courts, and a legitimate travel agent, whether as an employee or self-employed, is entitled to deduct such expenses if reasonable.

You want to argue whether the person is a real travel agent, fine. But nothing in the original post indicates otherwise, and the deducting of "FAM" trips does not turn this taxpayer automatically into a "kitchen-table wannabe" travel agent.

[Zee]

I agree. But it's dangerous to lift language from an opinion based on how travel agencies operated before the Internet, involving one that had more than a million dollars in annual sales, and apply it to the kitchen-table wannabes who think they can convert personal expenses into tax deductions. It's especially reckless when the taxpayers lost the case because the Court did not have to reach the issue of whether the expenses were ordinary and necessary.

I

Agreed. That's my point also. The same is true about many of the home-based business tax strategies touted by many. Significant cautions are in order to ensure the deductions can stand the test of audit including profit motive, documentation of business purpose, etc.

[George Boutwell]

I certainly would agree that FAM trips, etc. could be considered ordinary & necessary for agents actively engaged in the travel business with a profit intent. I think many of the problems arise when new agents are provided information that suggests that a "sideline" business with little (if any) profit motivation will still allow them to deduct many personal expenses.

I agree. But it's dangerous to lift language from an opinion based on how travel agencies operated before the Internet, involving one that had more than a million dollars in annual sales, and apply it to the kitchen-table wannabes who think they can convert personal expenses into tax deductions. It's especially reckless when the taxpayers lost the case because the Court did not have to reach the issue of whether the expenses were ordinary and necessary.

In 1979, Frank Leamy was an airline pilot and his wife, Charlotte was a school teacher . In 1977, the couple purchased a travel agency. As a corporate policy, the agency allowed for reimbursement of some employee expenses including some of those incurred on "familiarization" trips to vacation destinations. Almost every agent took at least one such trip annually. Together and individually, Frank and Charlotte made several "familiarization" trips after purchasing the agency and claimed business expense deductions. They treated themselves as commissioned sales agents.

>>Frank testified that during the years at issue, the agency (Vacations Unlimited, or VU) had actual gross sales of about 1.4 to 1.6 million dollars. VU had two different kinds of employees, salaried employees and commissioned employees. Salaried employees were paid a regular salary. During the years at issue, VU had from three to eight salaried employees. Commissioned employees negotiated their compensation with VU. Commissions negotiated ranged from 40 to 60 percent of the income they generated for VU.<<

[Bees Knees]

No, it did NOT give an opinion that such trips are allowed. The court specifically stated that it was not deciding that question. The rest of the paragraph is speculation about issues that could be successfully raised in other circumstances.

Same thing. In other words, if the other issues were not issues, that is the way the court would have ruled. That is why it gave your so called non-deciding speculation under the heading; "Opinion".

[jainen]

it did NOT give an opinion

>>But the court did give its opinion that if those other issues were OK, FAM trips in themselves by a legitimate travel agent are allowed as ordinary and necessary business travel deductions.<<

No, it did NOT give an opinion that such trips are allowed. The court specifically stated that it was not deciding that question. The rest of the paragraph is speculation about issues that could be successfully raised in other circumstances.

Apply the same tests as any other business travel. Is it PRIMARILY business in nature, especially considering time spent in business activities other than the travel itself? Is there a REALISTIC expectation of profit? Are the expenses reasonably PROPORTIONAL to the income generated?