As any tax specialist can tell you, certain areas of the tax law are "hot" at any given time. When Congress tinkers with the basic revenue laws—as it does virtually every year these days—tax professionals pounce immediately and figure out all the new angles to save their clients money. Of course, as soon as it becomes apparent to the IRS what's happening—that somehow, somewhere, a taxpayer is saving money—a counterattack is launched. Usually the entire issue is resolved in the federal courts, from the US Tax Court on up. Sometimes the IRS can't win a victory there and turns to Congress to get the law changed, as with the vacation-home tax break that so many taxpayers were enjoying in the 1970s.
I can see the waves building on the newest "hot" area of the tax law. Before it's all over, a whole bunch of taxpayers are going to save lots and lots of money. The tax angle? Combining tax advice and information and return preparation with…well, let's call it a "working vacation."
Investment seminars in places like the Bahamas, Hong Kong, Costa Rica, and Switzerland have long been popular. The entire cost of such seminars, including getting there and back, is deductible—a fact that is widely advertised. Section 162 of the Internal Revenue Code allows deductions for this as well as for business conventions. The purpose of the convention or seminar, usually held in some wonderfully exotic place, must be related to a person's trade or business or to the "management, conservation, or maintenance of property held for the production or collection of income."
This area of the tax law is excellent for business people and investors and has been well used by them for years. Keep it in mind as you go about your own business and investment life. But it's not the area I'm talking about.
There's another section of the Internal Revenue Code, you see, and you don't have to be engaged in a trade or business or investment activities to take advantage of it. All you need to be is an American and taxed nearly to death, which all Americans are. (Incidentally, did you know that US citizens pay a much higher percentage of tax on their incomes in "capitalist" America than do the citizens of socialist France?)
I'm speaking now of Section 212 of the tax code, a section that seems to be taking off lately. It says that any expense related to "the determination, collection, or refund of any tax" is deductible. Well, hell, whenever you get with your tax advisor to scheme up some new tax-saving strategies, that would seem to fit. Not to mention when you actually sit down with your tax champ and prepare your tax return. Hmm-m-m-m. Nice break. But most people only drive a few miles once or twice a year to do such things; the mileage is deductible, as is the fee, but that's peanuts…compared to getting together with your tax preparer, in some faraway spot. Nice, hah? Or say you're just attending a series of tax seminars. That's related to "determination" of your tax bill, isn't it? If you're learning all about how to reduce the ugly specter of paying taxes, wouldn't that qualify?
At least one "Big Eight" international accounting firm thinks the answer is yes—and is teaming up with a resort enterprise to make the best of it. The Denver office of Touche Ross & Co. is offering five-day Super Saver Tax Holiday Seminars this winter. On each day, there will be a 1½-hour session in the morning and another in the afternoon—and it's happening in some of the best ski country in North America. They don't guarantee that the entire cost of the trip will be deductible, mind you, but the entire plan is set up to maximize that probability under Section 212(3).
Predictably, the IRS has already started grumbling. Some of the tax bureaucrats have said that "it all depends." You have to spend a good chunk of time learning about and discussing personal-finance and tax strategies; and the "dominant reason" for taking the trip has to be tax/finance-related. Otherwise they'll disallow the deductibility of the travel. And they just might, in any event, demand what's called an "allocation." You have to divide your time spent on the trip into tax/finance (deductible) and non-tax/ finance (nondeductible) portions. If you don't "allocate," the favorite tactic of the IRS is to refuse any deduction at all. That will be their predictable attack.
In any event, it appears that at least a portion of any such trips will be deductible (no, we won't be able to deduct our ski-rental or scuba-diving costs). And if the trip is "primarily" related to tax and finance, then the cost of getting there and getting home should be entirely deductible—just as with business and investment conventions.
Now, most of the above will be attractive only to the Big People. After all, they're the ones with the bucks, and they have to know how to save, 50 percent tax bracket and all. What about us Little People?
Maybe, my friends, you should all consider locating a tax specialist somewhere else in the country? Somewhere you'd like to visit a couple of times a year? You know, skiers go to Colorado; divers, sailors, and sun freaks to Florida; museum and art buffs to New York or Washington, D.C.; Easterners like to visit California; West Coasters like to take a break from the craziness, say in Maine or North Carolina; and so forth.
Does everybody get the picture? How do you go about finding a tax helper in a far-off land? Ask anyone you know who lives there. Or get a current phone directory for that area and make some calls. Visit in the middle of the year and talk with a few tax advisors. Select one you like—one with the right attitude about the subject of this column, for example.
One last thing: if you're going to do it, do it now, because the war is going to heat up fast. Pretty soon everyone and his sister's going to be taking advantage of the situation—as they should. The IRS will counterattack with a heavy propaganda barrage, new disclosure questions on the tax-return forms, and in court. If they can't get their way in court (and they shouldn't, given the state of both the statutory and case law), they'll go to Congress. And Congress, being the way it is, just might give the tax-guzzlers what they want.
So join the fray right away. Fly the friendly skies of the Tax Deductible Vacation. Your tax specialist is ready when you are. Or, he or she had better be ready!
Tim Condon is an attorney and tax specialist practicing in Florida.
This article originally appeared in print under the headline "Taxes: Deduct Your Vacation?".