Auto Racing Tax Deductions
For many people, nothing surpasses the feeling of bombing down the racetrack at breakneck speed, passing a rival while the wind sweeps through your hair, engine grease sticks under your fingernails and a whiff of unburnt fossil fuel lingers about your nostrils. The only thing remotely comparable to winning the race might be claiming tax deductions for your efforts. Well, if your car has the right set-up, then the government may let you do just that.
Business vs. Hobby Activity
One approach to substantiating tax deductions for auto racing expenses involves characterizing the undertaking as a business rather than hobby activity under Treasury Regulation Section 1.183-2. For an example of how to do so, look to the case of Morrissey v. Commissioner, which concerned a banker who operated a competitive drag racing outfit. The taxpayer proved that he entered into racing with the actual and honest intent to earn a profit, and therefore, the court allowed him to claim deductions for racing-related expenses. Critical factors in this determination included that Morrissey had obtained sponsorship from a local casino, actively worked to make his car more competitive, enjoyed previous success in drag racing, prepared detailed business plans and maintained a separate bank account for racing transactions. (Morrissey v. Commissioner, T.C. Memo 2005-86)
Advertising Expense
Another way to claim deductions for racing costs rests upon the argument that the activity provides a direct benefit to your business as an advertising venture. For instance, in Ciaravella v. Commissioner, the owner of a company that sold and leased Learjets, also raced open-wheeled cars. Ciaravella’s company reimbursed him for his racing activities as an advertising expense. The IRS argued that such reimbursement actually constituted a disguised dividend rather than a deductible payment. However, the court allowed the company to claim the reimbursement as an advertising deduction, in part, because Ciaravella’s car bore the company’s logo and he used his status as a race car driver to develop relationships with wealthy race fans interested in purchasing Learjets from his company.