Investment Seminars: deductibility of travel expenses
By Julian Block
Investors cannot deduct costs they incur when attending conventions, seminars, or similar meetings at which they obtain information that helps them plot strategies. Disallowed expenses include air fares and other travel costs to the meeting site, attendance fees and meals, lodging and local travel while attending.
What prompted Congress to enact this prohibition? A key factor was the unhappiness of the IRS with the pro-taxpayer position taken by the Tax
Court in a dispute involving Lorraine Gustin of Brown Deer, Wis., a serious student of the stock market.
Lorraine's pursuit of profits took her to investment club conferences in Amsterdam, Netherlands; Cleveland; and San Diego, during the year selected for audit by the IRS. She devoted a considerable amount of time to managing her portfolio and held posts in the National Association of Investment Clubs, an organization that holds conventions where members can discuss investment strategies with stock market analysts and other experts and listen to presentations from executives about their companies.
Lorraine took a deduction for her expenses of attending the three meetings, but not for those of her husband or the cost of their post-convention side trips to places like the Greek Islands and San Francisco. The IRS argued that her expenditures of $2,400 for air fares, meals and hotel rooms were nondeductible personal expenses, since collecting investment information was not the main aim of her conventioneering.
But the court was convinced by Lorraine's testimony that "her attendance at the convention was part of a rationally organized investigation into investment opportunities and strategies. It was reasonable to spend $2,400 to protect and enhance a portfolio worth $98,000. Any personal benefits of the trip were secondary to the investment benefits." Moreover, the information that she obtained at the conventions from analysts and company representatives directly influenced her later decisions on what stocks to add to or remove from her portfolio.
Predictably, those spoilsports at the IRS persuaded an accommodating Congress that Lorraine's victory should be short-lived. Therefore, tucked into the Internal Revenue Code is a provision that wipes out any tax breaks for investment seminars -- a move that has caused such gatherings to be less alluring to investors.
TIP. The disallowance applies solely to outlays made for investment reasons, like those of an investor seeking to obtain information about whether to acquire or unload particular stocks. It does not apply to costs incurred for business reasons, like those of a financial adviser who meets with prospective clients as part of his or her job.
EXAMPLE. National Investors holds a convention at which stock market investors pay for the opportunity to discuss strategies with representatives of brokerage firms and listen to presentations from executives about their companies. Result: The seminar measure bars deductions of expenses by investors, but leaves unchanged the rules governing deductions of expenses by stock brokers and others who are at the convention for business reasons.