As opposed to a decision earlier this month that was unfavorable to a prison guard (who was not allowed to deduct go-kart racing expenses) an ex-Boeing employee who started a glider training business prevailed:
In 2002, "Tom" was laid off from The Boeing Co. Subsequently, he believed there was an opportunity in the Pacific Northwest to offer high-performance glider training. He received his training in high-performance gliders in Arizona and learned that others seeking this training had also traveled away from the Pacific Northwest to Arizona, California, and Florida.
On August 1, 2003, he formed Northwest Eagle Soaring, L.L.C. (Northwest), in Washington. Northwest provides private glider flight instruction and glider plane rides.
He did not prepare a business plan for Northwest. During the years in issue, Northwest had no employees. In late 2003, he used money he inherited to complete his purchase of a DG-1000 high-performance glider plane for $180,000, and he placed it in service on November 22, 2003.
Northwest conducts its activities primarily on weekends from March through November. Glider flights are restricted to time of good visibility. For business promotion, Northwest maintains a Web site, distributes marketing flyers to locations such as airports and aviation-related businesses, and advertises in a flying publication. Petitioner maintained flight logs for the glider activities as required by the FAA.
Sounds impressive to me. As I was reading this for the first time,this summation of facts told me everything I needed to know — the Court would find in favor of Mr Weller as the judge was explaining how he was treating his "hobby" as an actual business.
The Court then runs down the standard test — the test I wish more people paid attention to:
"If the activity is not engaged in for profit, then no deduction attributable to that activity is allowed except to the extent provided by section 183(b). In pertinent part, section 183(b) allows those deductions that would have been allowable had the activity been engaged in for profit only to the extent of gross income derived from the activity (reduced by deductions attributable to the activity that are allowable without regard to whether the activity was engaged in for profit).
Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” An activity is engaged in for profit if the taxpayer’s “predominant, primary or principal objective” in engaging in the activity was to realize an economic profit independent of tax savings. Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir. 1993), affg. T.C. Memo. 1991-212. The expectation of making a profit need not be reasonable. Beck v. Commissioner, 85 T.C. 557, 569 (1985); Dreicer v. Commissioner, 78 T.C. 642, 644-645 (1982), affd. without published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs."
The Court does give important advice. Mr. Weller could have done more to conclusively demonstrate a profit motive., thus secure his ability to write-off his glider expenses. So anyone looking to write-off business expense, including those in aviation, would do well to the following:
- have a written business plan, including a marketing plan
- consulted with an Attorney or CPA.
Neither of the above is required, but it is better to be safer than sorry.
Final Notes: Mr. Weller represented himself well at the trial. I'm not entirely surprised that he was one of the few pro se litigants who was been successful. As a trained pilot, he knows how to follow a checklist, and pay attention to details. As unreasonable assumptions, failure to follow guidelines (such as those established in the mnemonic as IMSAFE) could potentially earn a nasty write-up in the FAA incident reports, or worse.
If you need assistance with tax preparation, planning, or resolution, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
