Expenses as association board member not deductible?!?!

Scott Witte wrote:

- quote -

> As a regular member, sure. But how do I get around the
> auditor's direct vs. indirect benefit test?

IRS examiners can't make up "tests;" they must exist in
either statute or other cited authority. Ask for the Code
section at issue, which appears can only be 162, and the
authority for such a test. A trade association does no
other things but seek to monetarily benefit a particular
industry. You're in that industry.

If the IRS examiner will not back down, ask to talk to the
manager. Ask the manager for a citation of authority, like
a Ruling or court case. If that fails, appeal the issue.
The review function may kill it, or Appeals may kick it back
to the manager -- asking for a citation of authority or
please kill it.

Maybe the expenses are relatively large, and they're hung up
over that. How much in total?

Fred F.

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Scott Witte <scott[at]nospam-scottwitte.com> wrote:

- quote -

> The reason for the disallowance was "who was the direct
> beneficiary, myself or the association? If myself (such as
> attending a general member educational program as an
> attendee) it was deductible. If the association was the
> direct beneficiary and I benefited indirectly then the
> expense was not deductible.

I can't believe that they would allow a deduction for the
cost of attending an educational program, but not for the
cost of putting it on.

If all indirect business expenses were disallowed, it would
run a lot of people out of business.

- quote -

> > Membership, including all costs of participation, in trade
> > associations should be considered ordinary and necessary
> > expenditures.

> As a regular member, sure. But how do I get around the
> auditor's direct vs. indirect benefit test? I gave what I
> feel might be a good approach yesterday (based on all the
> input I've received so far), suggesting that there are
> overriding direct benefits to me in being a board member and
> therefor associated expenses should be deductible. But I
> remain haunted by Harlan's original reply.

I checked both cases and the regulations. There is no test
that I could find that would distinguish between direct and
indirect benefits. In fact, in every situation where the
notion of indirect benefit came up, it was equated with
direct benefits (usually to disallow a deduction).

Stu

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L K Williams wrote:

- quote -

> I've never heard of this! And I can remember back longer
> that some people on this newsgroup have been alive!

Sounds encouraging but is your experience with trade
association *board* members or just members. That was the
source of my problem.

- quote -

> The question I have is how are you reporting the payments on
> your tax return.

They were just rolled into business expenses on schedule C.
For instance, mileage to board and other chapter
organizational meetings was just included in business miles.
This isn't trivial since it was something like 200 miles
round trip. 50% of entertainment -- essentially meals and
NOT extravagant -- associated with such meetings and treated
as if any other business meeting. And donations (claimed as
advertising) to the organization such as buying refreshments
for member meetings for which I wasn't reimbursed but I was
given public thanks at the meeting.

The reason for the disallowance was "who was the direct
beneficiary, myself or the association? If myself (such as
attending a general member educational program as an
attendee) it was deductible. If the association was the
direct beneficiary and I benefited indirectly then the
expense was not deductible.

- quote -

> Membership, including all costs of participation, in trade
> associations should be considered ordinary and necessary
> expenditures.

As a regular member, sure. But how do I get around the
auditor's direct vs. indirect benefit test? I gave what I
feel might be a good approach yesterday (based on all the
input I've received so far), suggesting that there are
overriding direct benefits to me in being a board member and
therefor associated expenses should be deductible. But I
remain haunted by Harlan's original reply.

Scott

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Everybody,

Thanks for all the input. Unfortunately I don't have time to
address all the great comments and suggestions tonight. So I
will leave you with this line of reasoning: These expenses
(connected with being a board member) are probably best
classified as advertising. You join a board for the unique
and direct business benefits you get. If all you got were
the same indirect benefits non board members got pulling
board duty would be an irrational waste of time. Amongst the
benefits you receive are:

1) Business intelligence, you learn a great deal about what
is going on in the industry and with the client base working
with the type of people who usually sit on association
boards.

2) Mutual support as you discuss issues and problems of your
own business and share ideas with other board members.

3) Credibility and visibility that come with being a board
member that raises your status in clients' eyes. This is
really significant, IMHO.

4) Etc. You get the idea....

In other words, board participation promises direct and
unique benefits to the board members and therefore
associated expenses should be deductible either as
advertising and/or travel and entertainment.

The auditor disallowed these expenses because, she said, the
association benefited directly and me only indirectly. I
would argue that these expenses are the price of being a
board member to gain the direct benefits to me. This is the
only reason a board member does it. Otherwise he/she would
logically sit back and just get the same indirect benefits
all other members get.

Anyway, thats my story... for now.

Scott

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'Scott Witte
<scott[at]nospam-scottwitte.com> wrote:

- quote -

> I am going through an audit for 2003 during which I was a
> volunteer chapter board member for a trade association for
> my industry. The association is properly registered as
> non-profit and tax exempt. It is not a charity.
> The auditor is disallowing any expenses connected to my
> duties as a board member saying they are only indirectly
> connected to my business. Expanding on that, expenses
> associated with attending educational meetings and seminars
> as part of the audience are deductible because the education
> directly benefits my business. But expenses connected with
> planning those meetings or running the organization are for
> the direct benefit of the organization, not my business and
> therefor not deductible. This is true, she says, even though
> the association benefits my business through educational and
> lobbying and promotional activities.
> Can this be true? Have I and every board member I know had
> it so wrong for so many years? If so, it would be a big
> disincentive for anybody volunteering for their trade
> organization.
> Similarly, she tells me that donations to the organization
> are not deductible even though dues, fees and meeting
> admissions are. So, if I attend an educational meeting the
> admission cost is deductible. But if I donate refreshments
> for the meeting that is not deductible. If I make a free
> will cash donation to help the association it would not be
> deductible.
> Can that be right?
> thanks in advance for any help!

I've never heard of this! And I can remember back longer
that some people on this newsgroup have been alive!

The question I have is how are you reporting the payments on
your tax return. If you are claiming the donations as
charitable deductions on Schedule A, the auditor is right.
If the organization is not a 501(c)(3) organization,
donations are not deductible.

Membership, including all costs of participation, in trade
associations should be considered ordinary and necessary
expenditures. They should be deductible as directly on
Schedule C or F (if you are a sole proprietor or farmer),
Schedule E (if you are a partner), or on Schedule A (as
employee business expenses, if not reimbursed by your
employer.)

I would not agree to any audit findings and go to appeals.
If the amount is large enough, I would even consider going
to tax court.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Scott Witte wrote:

- quote -

> ...I read the same guidelines she does
> and they seem less clear to me. We both look at
> the "Directly-Related Test" for instance and interpret
> it in different ways. Essentially, how "direct" a benefit
> is direct enough?

What such test? Is she referring to the exception in sec.
274(e)(6)? I believe "directly related" there means
directly related to the (c)(6) org's (e.g. trade assoc)
meeting itself, not directly related to your business. An
indirect relationship to an association meeting might be
something like a seminar in how to be more effective at
Board meetings.

Also, sec. 274 is a disallowance section, for things
initially deductible under sec 162. It does not, by any
implication, determine what's deductible under 162.

Fred F.

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Scott Witte wrote:

- quote -

> ...
> My own clumsy search of the ustaxcourt.gov
> found nothing but that may mean nothing.

If searching on trade association, no surprise. Broaden
your search to section 162 in general, and find no case
where IRS thought a business-motivated deduction was not
money well spent.

It could objectively be a waste, but it's only necessary you
thought it was helpful to your business. My Toyota dealer
spends good $$ for delicious, fresh coffee, fancy rolls and
cookies in the repair customer waiting area. I got news for
them. That ain't the reason I might buy from them again,
and is frankly insulting. My one-year old Toyota shouldn't
even need a dinky repair.

And how about that business jet they own? Which I helped
pay for. Actually, it's a local conglomerate of 17 dealers,
all different brands. 17 annual dealer meetings to go to,
for starters. Still, I think Section 162 should allow IRS
to attack this stuff. An auto dealer with a Learjet. Come
on! :-)

- quote -

> ...but it seems that if
> trade association dues are deductible then member
> donations to the association to help it achieve its
> goals. Yet the only reference I find to donations
> is to 501(c)(3) organizations, not 501(c)(6).
> I can't fathom why.

Donations in common parlance connotes charitable donations.
However, when any exempt org receives voluntary amounts,
solicited or not, and is large enough to file an IRS form,
it reports them on a line under the caption, "Contributions,
gifts, grants, and similar amounts received."

Fred F.

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- quote -

> I'm not sure if logic matters in tax law but it seems
> that if trade association dues are deductible then member
> donations to the association to help it achieve its goals
> must be deductible. Yet the only reference I find to
> donations is to 501(c)(3) organizations, not 501(c)(6). I
> can't fathom why. The auditor tells me it is the
> direct/indirect issue. Yet the only benefit you receive from
> your association dues may be indirect, such as industry
> and/or client education, especially if you don't go to
> meetings. So the direct/indirect distinction baffles me.

While donations to 501(c)(3) orgs are deductible on Sch A,
as charitible gifts, donations to certain other 501 orgs
might be deductible on Sch A as Employee Work Expenses or
Sch C or F as business expenses related to professional orgs
etc.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Scott Witte <scott[at]nospam-scottwitte.com> wrote:
- quote -

> TxSrv wrote:

> I'm not sure if logic matters in tax law but it seems
> that if trade association dues are deductible then member
> donations to the association to help it achieve its goals
> must be deductible. Yet the only reference I find to
> donations is to 501(c)(3) organizations, not 501(c)(6). I
> can't fathom why. The auditor tells me it is the
> direct/indirect issue. Yet the only benefit you receive from
> your association dues may be indirect, such as industry
> and/or client education, especially if you don't go to
> meetings. So the direct/indirect distinction baffles me.

Payments are deductible to non-(c)(3) nonprofits on the same
basis as any for-profit enterprise. If you get something
from it related to supporting your business, it should be
deductible. If it looks like a gift or voluntary
contribution, it won't be.

Do you get your name listed on some periodical for the other
payments you make? If so, perhaps it's an advertising
expense.

- quote -

> Further, admissions to an educational event put on by the
> association are deductible, even if most or all the
> admission is "profit" and goes to help the association in
> general, not just to defray the cost of putting on the
> meeting. How, then, are they effectively different than a
> donation?

You're thinking non-profit again. Forget it. That has
nothing to do with it. The organization just happens not to
have to pay taxes. It has no other implications as far as
you are concerned.

- quote -

> OK. So all the above seems perfectly reasonable to me. Then
> Harlan says the IRS position syncs with his understanding.
> If anyone would know how to make association board member
> expenses deductible it would be a board member of the
> California Society of Enrolled Agents, I should think. So,
> "logic" (IMHO) be damned when it comes to the IRS! <VBG
I'd charge the board members for being listed on letterhead,

etc., and take it as an advertising expense.

Stu

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- quote -

> I'm not sure if logic matters in tax law but it seems
> that if trade association dues are deductible then member
> donations to the association to help it achieve its goals
> must be deductible.

Why? Donations to the association to help you achieve your
(business) goals should be deductible. Are you
participating in order to become better known in your field,
to attract more or better business?

Seth

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TxSrv wrote:

- quote -

> I would ask the IRS examiner for a citation of authority --
> court case or ruling, specific to trade associations and
> this "indirect benefit" theory. If no such citation, don't
> agree to the disallowance. Further, drawing a distinction
> between dues (clearly deductible) and additional cash
> contributions in effect, as you say IRS is doing, can't
> possibly have any support in case law, etc.

I'm right there with you in principal and I have asked for
tax court cites. My own clumsy search of the ustaxcourt.gov
found nothing but that may mean nothing. And what if there
is no case law either way? The auditor seemed very sure
about her interpretation. I read the same guidelines she
does and they seem less clear to me. We both look at the
"Directly-Related Test" for instance and interpret it in
different ways. Essentially, how "direct" a benefit is
direct enough.

I'm not sure if logic matters in tax law but it seems
that if trade association dues are deductible then member
donations to the association to help it achieve its goals
must be deductible. Yet the only reference I find to
donations is to 501(c)(3) organizations, not 501(c)(6). I
can't fathom why. The auditor tells me it is the
direct/indirect issue. Yet the only benefit you receive from
your association dues may be indirect, such as industry
and/or client education, especially if you don't go to
meetings. So the direct/indirect distinction baffles me.

Further, admissions to an educational event put on by the
association are deductible, even if most or all the
admission is "profit" and goes to help the association in
general, not just to defray the cost of putting on the
meeting. How, then, are they effectively different than a
donation?

OK. So all the above seems perfectly reasonable to me. Then
Harlan says the IRS position syncs with his understanding.
If anyone would know how to make association board member
expenses deductible it would be a board member of the
California Society of Enrolled Agents, I should think. So,
"logic" (IMHO) be damned when it comes to the IRS! <VBG
Scott
www.scottwitte.com

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Bill Brown wrote:
- quote -

> Harlan Lunsford wrote:

> > that's the way I've always known it to be. If I make some
> > long distance phone calls or pay other expenses
> > (postage,stationery, etc) in connection with my being an
> > officer of our state society of Enrolled Agents, I cannot
> > deduct them as a business expense. So naturally I have

> Why not?

> > carte blanch prior approval from the board of directors to
> > reimburse myself for said expenses, up to a certain point of
> > course. Similarly any other officers/directors incurring
> > such expenses are reimbursed by me end of fiscal year. So
> > there's no problem.

> And, if you're correct that your out-of-pocket expenses are
> not deductible, do you have a cite that supports allowing a
> reimbursement of non-deductible expenses to be tax free?
> Just kicking up some dust.

Speaking of dust, there was a lot of it in Treasure of
Sierra Madre. So, with apologies to the bandido who said
"Badge? I don't NEED no stinking badge." I don't need no
stinking cite. (grin)

If I stop by Office Depot and pick up some software a client
needs, and take it by his place of business and he
reimburses me dollar for dollar, or check made out to me
personally, it has nothing to do with my business.

In other words, there's no "cite" that makes such taxable.
So I don't have to prove a negative.

ChEAr$,
Harlan

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Scott Witte wrote:

- quote -

> ...Now I have to break the news to our
> national and regional board members. I expect there will be
> quite a few praying they don't get audited for years they do
> volunteer service.

I wouldn't do that based upon opinions posted to the net,
mine included. Disallowance under section 162 requires
citation of authority. For starters, IRS' own Pub 17, "Your
Federal Income Tax," states to opposite effect:

"Trade association meetings. You can deduct entertainment
expenses that are directly related to, and necessary for,
attending business meetings or conventions of certain exempt
organizations if the expenses of your attendance are related
to your active trade or business."

Fred F.

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Arthur (with thanks to Harlan),

This is a 501(c)(6) "business League" in IRS terms (sounds
quaint). Specifically it is the Advertising Photographers of
America, a national trade association.

What you both have written so far isn't sounding good for
deductibility purposes. In my mind I could construct a great
argument for why expenses and other donations -- not just
dues and admissions -- should be deductible but I would
assume others have tried before and apparently this remains
the norm.

Thanks for your input. Now I have to break the news to our
national and regional board members. I expect there will be
quite a few praying they don't get audited for years they do
volunteer service.

Scott Witte
- WITTE ON LOCATION
414.345.9660
www.scottwitte.com

Member, APA | Midwest

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Harlan Lunsford wrote:

- quote -

> that's the way I've always known it to be. If I make some
> long distance phone calls or pay other expenses
> (postage,stationery, etc) in connection with my being an
> officer of our state society of Enrolled Agents, I cannot
> deduct them as a business expense. So naturally I have

Why not?

- quote -

> carte blanch prior approval from the board of directors to
> reimburse myself for said expenses, up to a certain point of
> course. Similarly any other officers/directors incurring
> such expenses are reimbursed by me end of fiscal year. So
> there's no problem.

And, if you're correct that your out-of-pocket expenses are
not deductible, do you have a cite that supports allowing a
reimbursement of non-deductible expenses to be tax free?

Just kicking up some dust.

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kamlet[at]panix.com (Arthur Kamlet) wrote:
- quote -

> Scott Witte <scott[at]nospam-scottwitte.com> wrote:

> > I am going through an audit for 2003 during which I was a
> > volunteer chapter board member for a trade association for
> > my industry. The association is properly registered as
> > non-profit and tax exempt. It is not a charity.

> So it is not a 501(c)(3)??

Sounds like 501(c) but not (3).

- quote -

> That means your expenses are not allowed n Schedule A -
> Gifts.

Right. The organization is tax exempt, but contributions to
it are not tax deductible. These are two different things,
though they both apply to 501(c)(3)'s.

Stu

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Scott Witte wrote:

- quote -

> ...
> The auditor is disallowing any expenses connected to my
> duties as a board member saying they are only indirectly
> connected to my business.
> ...

Trade associations don't exist unless a group of businesses
pay them money to operate and be effective. In contrast,
contributions to a civic league can be challenged as bearing
no relationship to business other than being a good
corporate citizen.

I would ask the IRS examiner for a citation of authority --
court case or ruling, specific to trade associations and
this "indirect benefit" theory. If no such citation, don't
agree to the disallowance. Further, drawing a distinction
between dues (clearly deductible) and additional cash
contributions in effect, as you say IRS is doing, can't
possibly have any support in case law, etc.

Fred F.

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Scott Witte <scott[at]nospam-scottwitte.com> wrote:

- quote -

> I am going through an audit for 2003 during which I was a
> volunteer chapter board member for a trade association for
> my industry. The association is properly registered as
> non-profit and tax exempt. It is not a charity.

So it is not a 501(c)(3)??

That means your expenses are not allowed n Schedule A -
Gifts.

- quote -

> The auditor is disallowing any expenses connected to my
> duties as a board member saying they are only indirectly
> connected to my business. Expanding on that, expenses

So it becomes your responsibility to establish the
reasonable, ordinary and necesary reasons why your expenses
should be business deductions for your business return.

Many people will take this as advertising expense, if that
seems applicable.

- quote -

> associated with attending educational meetings and seminars
> as part of the audience are deductible because the education
> directly benefits my business. But expenses connected with
> planning those meetings or running the organization are for
> the direct benefit of the organization, not my business and
> therefor not deductible. This is true, she says, even though
> the association benefits my business through educational and
> lobbying and promotional activities.
> Can this be true? Have I and every board member I know had
> it so wrong for so many years? If so, it would be a big
> disincentive for anybody volunteering for their trade
> organization.
> Similarly, she tells me that donations to the organization
> are not deductible even though dues, fees and meeting
> admissions are. So, if I attend an educational meeting the
> admission cost is deductible. But if I donate refreshments
> for the meeting that is not deductible. If I make a free
> will cash donation to help the association it would not be
> deductible.

Let's say you sponsor a little league teacm, not a 501(c)(3)
and buy uniforms which carry the name of your business.

Attending meeting to further the little league game
schedule, which helps advertise your business, as well as
the uniform costs, might qualify as advertising expense for
your business.

If it appears that I had to stretch a bit to get this
result, that's because it is a stretch.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Scott Witte wrote:

- quote -

> I am going through an audit for 2003 during which I was a
> volunteer chapter board member for a trade association for
> my industry. The association is properly registered as
> non-profit and tax exempt. It is not a charity.
> The auditor is disallowing any expenses connected to my
> duties as a board member saying they are only indirectly
> connected to my business. Expanding on that, expenses
> associated with attending educational meetings and seminars
> as part of the audience are deductible because the education
> directly benefits my business. But expenses connected with
> planning those meetings or running the organization are for
> the direct benefit of the organization, not my business and
> therefor not deductible. This is true, she says, even though
> the association benefits my business through educational and
> lobbying and promotional activities.
> Can this be true? Have I and every board member I know had
> it so wrong for so many years? If so, it would be a big
> disincentive for anybody volunteering for their trade
> organization.
> Similarly, she tells me that donations to the organization
> are not deductible even though dues, fees and meeting
> admissions are. So, if I attend an educational meeting the
> admission cost is deductible. But if I donate refreshments
> for the meeting that is not deductible. If I make a free
> will cash donation to help the association it would not be
> deductible.
> Can that be right?

that's the way I've always known it to be. If I make some
long distance phone calls or pay other expenses
(postage,stationery, etc) in connection with my being an
officer of our state society of Enrolled Agents, I cannot
deduct them as a business expense. So naturally I have
carte blanch prior approval from the board of directors to
reimburse myself for said expenses, up to a certain point of
course. Similarly any other officers/directors incurring
such expenses are reimbursed by me end of fiscal year. So
there's no problem.

So my recommendation for the future would be that your board
of directors adopt a reimbursement policy for reasonable
expenses of officers and directors.

ChEAr$,
Harlan Lunsford, EA n LA

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I am going through an audit for 2003 during which I was a
volunteer chapter board member for a trade association for
my industry. The association is properly registered as
non-profit and tax exempt. It is not a charity.

The auditor is disallowing any expenses connected to my
duties as a board member saying they are only indirectly
connected to my business. Expanding on that, expenses
associated with attending educational meetings and seminars
as part of the audience are deductible because the education
directly benefits my business. But expenses connected with
planning those meetings or running the organization are for
the direct benefit of the organization, not my business and
therefor not deductible. This is true, she says, even though
the association benefits my business through educational and
lobbying and promotional activities.

Can this be true? Have I and every board member I know had
it so wrong for so many years? If so, it would be a big
disincentive for anybody volunteering for their trade
organization.

Similarly, she tells me that donations to the organization
are not deductible even though dues, fees and meeting
admissions are. So, if I attend an educational meeting the
admission cost is deductible. But if I donate refreshments
for the meeting that is not deductible. If I make a free
will cash donation to help the association it would not be
deductible.

Can that be right?

thanks in advance for any help!

Scott

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >