[Gregmarlow]

Hey guys,

I'm looking for some advice here. I'm a professional pilot, American Airlines and for the last few years full time USAF Reservist flying C-17's in Iraq and Afghanistan.

Can I claim the RV build and all things associated with it (tools, etc.) as a professional education expense? I'm learning as I go and I would classify this project as highly educational.

The construction of this plane will definately help me in my professional career, no doubt.

Any ideas? Thanks in advance.

Greg

 

[Yukon]

You can deduct just about anything, but whether it will hold up under IRS scrutiny is another matter. I think you might have a hard time making that case.

How about deducting it as a business, with a resale in mind after completion?

 

[John Clark]

Boats and Airplanes

There are two things that will raise red flags all over the IRS, pleasure boats and light aircraft. The money saved by the deductiion will not cover the fees charged by the accountant and attorney to get you out of trouble. The only option, as mentioned by Yukon, is a business. Be aware of the "tests" that the IRS will apply to see if it is a real business. They want to see advertising, accounting, insurance, and other items. Interestingly you don't need to make a profit, but you have to show "the intent to make a profit."

John Clark
RV8 N18U "Sunshine"
KSBA

 

[Mel]

There are two things that will raise red flags all over the IRS, pleasure boats and light aircraft. The money saved by the deductiion will not cover the fees charged by the accountant and attorney to get you out of trouble. The only option, as mentioned by Yukon, is a business. Be aware of the "tests" that the IRS will apply to see if it is a real business. They want to see advertising, accounting, insurance, and other items. Interestingly you don't need to make a profit, but you have to show "the intent to make a profit."

John Clark
RV8 N18U "Sunshine"
KSBA

But then, it wouldn't be an amateur-built. How would you license it? You're gonna have to lie to somebody, one way or the other.

 

[DGlaeser]

Good try, but...

Hey guys,

I'm looking for some advice here. I'm a professional pilot, American Airlines and for the last few years full time USAF Reservist flying C-17's in Iraq and Afghanistan.

Can I claim the RV build and all things associated with it (tools, etc.) as a professional education expense? I'm learning as I go and I would classify this project as highly educational.

The construction of this plane will definately help me in my professional career, no doubt.

Any ideas? Thanks in advance.

Greg

The only time you can take an education deduction is if your employer requires it to maintain your job. My wife is a teacher and has to take classes to maintain her certification, so that's deductable.
If the education is needed or used to get a better job, that's not deductable (or else we'd all be able to deduct our college educations - wouldn't that be great?)
Trying to make it a business may work for the IRS, but that would make you a professional builder, which wouldn't fly with the FAA.
If someone ever figures out a legal way to do this, it will be the hottest advice to ever hit the internet

 

[tonyjohnson]

fees

John Clark has a very good point about the fees associated with defending your position with the IRS.

I once owned a sailboat that I used in the charter business. I did the legal research to determine how to do it correctly (I am a lawyer). As someone else mentioned in an earlier post, if you try to deduct expenses for a boat or airplane, you can COUNT on an audit.

No problem, I thought. I have done it exactly correctly according to the caselaw established by tax courts. Well, it was indeed a problem. The IRS folks that made the decision at the lower level had no understanding of the details of the caselaw. They ruled against me. It took several layers of appeals before my case finally got to a level where someone understood that I had followed all the rules established by the caselaw. By that time I had spend thousands of dollars in CPA expenses. By the way, the IRS does not even say they are sorry for not understanding their own rules, much less pay your accounting costs to defend a valid claim.

In the end, it turned out to be a wash, or worse. You have to have a sense of humor.

 

[Ironflight]

My accountant friend thanked me for the laugh...

I had this same thought a couple years ago....gee, I'm an aeronautical engineer, building an airplane will make me a better one, without qualifying me for another job ....metts the idea of the IRS definition of educational expense. And the FAA DEFINES experimental/amateur built category as "educational....how can I go wrong!!?

My tax accountant friend thanked me for giving her the best laugh of the season....like it was said up above - you might be able to argue this in a tax court, and maybe even win....but you are definitely going to tax court for trying it! Huge red flag....I don't want that kind of scrutiny!

Paul

 

[Low Pass]

Offering legally allowable for-profit instruction (transition training) would be applicable. Some "marketing" concurrent to your travels might work.

Also, flight testing of homebuilt-specific devices and other goods manufactured by a business should also be applicable.

I took a "marketing" trip to Reno years back under my then current sub-s consulting corporation with no probs.

But doesn't mean I wouldn't get audited if I did it again the exact same way this year.

 

[Jalanci]

Business transportation

I'm still waiting for the wings to get going again, so I have a while to worry about the capital depreciation. I'm now using a flying club spam can to travel to destinations where I can save time, usually anything over 100 miles or across Long Island. Log book entries are made, I would think this should be as similar to using a car for transportation to a job.

 

[BlackRV7]

AH.......No/Maybe/Sign this waiver/Do What?/Go Ahead, retainer is due now. Tax Court is extra.

This refers only to the intent of the original question

Please add CPA (to some people this time of year being Certified Pain in the #$%^) to signature line.............now back to reality...............and tax returns Yes, I am starting to get slap happy, come on April 17th.!!!!

 

[John Clark]

Offering legally allowable for-profit instruction (transition training) would be applicable. Some "marketing" concurrent to your travels might work.

Also, flight testing of homebuilt-specific devices and other goods manufactured by a business should also be applicable.

I took a "marketing" trip to Reno years back under my then current sub-s consulting corporation with no probs.

But doesn't mean I wouldn't get audited if I did it again the exact same way this year.

All valid expenses in your example and unlikely to be looked at if kept to rational amounts.

The original question though, was expensing the whole build, tool and shop costs. Might work, but the resulting fight will cost more than the savings. As a practical matter it is all about how it "looks." Taking a business trip and writing off the IRS allowed auto mileage (48.5 cents per mile in 2007) isn't going to raise many flags. Writing off a $70-$100K airplane build over a few years will.

But then I am not an attorney or an accountant and I don't play either on TV.

John Clark
RV8 N18U "Sunshine"
KSBA

 

[Deuskid]

juice worth the squeeze?

I had a client [died a few years ago] who hated the IRS and Fed Gov't so much [and had more $$$ than he could ever spend] tell me he'd pay me $2 for every $1 I kept from them.

I don't adhere to this rule tho and tell my clients many times that if you take a position that is likely to be contested the juice won't be worth the squeeze and unless the gained 'utility' [economics term for value] simply from the fight then do the smart thing and take what you can and leave what you must on the table.

As a rich farmer once told me [when the CPA I was working for was recommending a [wrong] tax strategy... "son, I don't think so... pigs git fat ... hogs git butchered.."... [the guy didn't get rich being stupid]]...

Now... back into the fray for one more week and then ... life will return to a crazy level of normal rather than a crazier level of crazy...

my advice: don't be hoggish

YMMV

John [another certified pugnatious accountant]

 

[Bryan Wood]

There is a job out there that requires that you build as an amateur to get qualified. At least I think so. Mel, are you still reading this post. Isn't somebody who wants to become a DAR to earn some extra money supposed to become educated in the field somehow? If becoming a DAR was my stated intention going in, and then a kit purchased to begin the education process to allow me to reach that goal then why couldn't it be legitimite?

???

 

[John Clark]

Experience

I have a hunch that it took Mel more than one kit build to get the experience to be appointed a DAR

John Clark
RV8 N18U
KSBA

 

[BlackRV7]

There is a job out there that requires that you build as an amateur to get qualified. At least I think so. Mel, are you still reading this post. Isn't somebody who wants to become a DAR to earn some extra money supposed to become educated in the field somehow? If becoming a DAR was my stated intention going in, and then a kit purchased to begin the education process to allow me to reach that goal then why couldn't it be legitimite?

???

Bryan, at the very best when you started generating income with the skills gleaned from this business asset, you would be either amortizing prior R&D or depreciating the asset. Do you really want to expose yourself to examination just to recapture the depreciation taken in the form of capital gain. The income tax savings up front get paid later...........it is a classic pay me now or pay me later scenerio. Way too much information is those two long sentences.
You guys are REALLY stretching this Classic client question, "I can deduct that, right!? (question and statement all in one), My reply, "Sure, will it stick, Nah" Here is an excerpt within my engagement letter with clients:

It is important for you to know that the law imposes a penalty if a taxpayer makes a substantial understatement of tax liability. For individual taxpayers, a substantial understatement is when the understatement for the year exceeds the greater of 10% of the tax required to be shown on the return or $5,000. The penalty is 20% of the tax underpayment. It may be necessary to make certain disclosures in the return to avoid exposure to penalties. I will discuss tax positions that may increase the risk of exposure to penalties and any recommended tax return disclosures with you before completing the preparation of the returns. You should also know that IRS audit procedures will almost always include questions on bartering transactions and on deductions that require strict documentation such as travel and entertainment expenses and expenses for business usage of autos and computers. In preparing your returns, I rely on your representations that I have been informed of all bartering transactions and that you understand and have complied with the documentation requirements for your expenses and deductions. If you have any questions about these issues, please contact me.

I repeat.................Retainer up front, Tax Court is extra.............Better yet, let's go on extention and you can pay me in August......nice summer bonus

April 17th, April 17th, April 17th (with eyes closed, sitting with legs crossed, thumbs touching index fingers, chanting...................Ops sorry, secretary just walked in with stranger than normal look on her face.

 

[Phyrcooler]

"Non-Profit"

Now THERE'S the REAL scam...

I didn't realize its full use until a vacation in Hawaii a couple years ago. As we left the harbor to go out on a dive excursion with the wife - one of the crew stepped up to the PA and started out with "since we are technically a non-profit..." and proceeded to give a two minute discussion on how wonderful the ocean is. On the way back to shore in the afternoon, we were sipping rum-laden drinks on the trampoline - and I engaged one of the other crew on their "non-profit" status. He all but admitted that this was the best gig they could have ever imagined. Not only did they collect fares for the service... but stupid tourists actually would DONATE to help them "save the whales". They kept records on the numbers of folks they "educated" and a couple other mundane things like number of dolphins seen.

We dove and/or sailed off of 4 different islands - and found that every one of the tour operators was "non-profit".

Later back on the mainland - I did a bit more snooping... and to this day still think this whole non-profit thing is a HUGE way for people to have a hobby and let others pay for it. Here on the mainland - a friend retired from the Fire Service and set up a beautiful museum of fire equipment and memorabilia... all paid for and "owned" by his non-profit.

Establish a board using your spouse and maybe another RVing couple. Open up your shop to the public once a week or invite a couple of interested high-scholars. It's supposed to be educational anyway. Take a kid flying once a month.

It seems to work for others.

 

[BlackRV7]

Now THERE'S the REAL scam...

It seems to work for others.

Whoa, time to end my participation...............seriously don't want to be involved in this conversation.

Like the old adage, "it's all fun until someone gets an eye poked out"......read, it's OK until you get caught.

See ya, it's been fun.

 

[Deuskid]

There is a job out there that requires that you build as an amateur to get qualified. At least I think so. Mel, are you still reading this post. Isn't somebody who wants to become a DAR to earn some extra money supposed to become educated in the field somehow? If becoming a DAR was my stated intention going in, and then a kit purchased to begin the education process to allow me to reach that goal then why couldn't it be legitimite?

???

Developing skills that enables you for a new trade or business are explicitly not deductible.

It would be a stretch for a A&P or a DAR to deduct the cost of building a RV to maintain/improve skills and as Dana pointed out w/ cap gains rates so low not worth the risk.

My fear is if too many start tring this it'll simply cause more problems w/ the IRS monitoring GA/experimentals with greater scrutiny and no benefit to those trying.

The position is too weak to pursue. If a client of mine wanted to do this [and believe me I'm 'aggressive'] I'd decline. Life is simply too short to create battles that are un-winnable. The reason professionals are necessary is deferring to expertise in which the client is ill prepared. Its why I didn't perform my mom's surgery Tuesday [and if the surgeon who performed her surgery does his own taxes or wealth management then he has a fool for a client :d].

Assuming a combined tax rate of ~ 50% [Fed income, Self employment and state], a/c value of $75K and deducting over a 3 year build the NPV of the deduction would be something like 33-34K in taxes saved [temporarily until the audit from ****]. If you went out and found a part time job [e.g., teaching college part time] you'd more than make up that and you wouldn't get audited, hammered and aggravated.

John

 

[DGlaeser]

gotta read the fine print...

There is a job out there that requires that you build as an amateur to get qualified. At least I think so. Mel, are you still reading this post. Isn't somebody who wants to become a DAR to earn some extra money supposed to become educated in the field somehow? If becoming a DAR was my stated intention going in, and then a kit purchased to begin the education process to allow me to reach that goal then why couldn't it be legitimite?

???

Because the IRS rules are that it must be required to keep your existing job, not get a new one
Now if the DARs could convice the FAA to require ongoing building experience a requirement to maintain their DAR authority, then it would be deductable!

 

[Mel]

Two things to remember when dealing with the IRS; You must use YOUR money to defend yourself. And They use YOUR money to prosecute you.

 

[Gregmarlow]

Thanks guys!

Pretty much what I expected to hear, and my accountant basically said the same thing. Not worth the almost guaranteed audit.

Oh well, it's nice to dream. I was thinking what an awesome panel I was going to have if it were all deductable!

Greg

 

[Phyrcooler]

Whoa, time to end my participation...............seriously don't want to be involved in this conversation.

Like the old adage, "it's all fun until someone gets an eye poked out"......read, it's OK until you get caught.

See ya, it's been fun.

I had hoped that my sarcasm was clear enough... but my terming it a scam with it's negative connotations relates my true - pixxed off taxpayer beliefs. While I had a wonderful time in Hawaii - I found myself quite irritatated by their unbelievable and to the best I can determine - legal tax-free operations. The bit of research I did turned me quite cynical about most "non-profits" and "Charities". YMMV. Personally folks, I believe that everyone needs to pay his due in a reasonably equitable fashion.
I am not much of a risk-taker when it comes to the tax-man. So you won't find me trying anything outside the realm of normal every-man's deductions! Just sharing what I found to be an eye-opener.