Federal Income Tax for CAP Members

[dogboy]

Does anyone know of an authoritative manual for CAP member's deductions on Federal Income Tax?

Is these someone on CAPTalk that can authoritatively answer some questions about deductions for a CAP member? Someone who is a tax lawyer, CPA, enrolled agent or something similar? Note I'm not asking for lay opinions. Eveyone's got opinions, I'm looking for someone who actually knows.

Unfortunately, the typical tax preparer is not familiar with CAP and cannot answer questions.

[Eclipse]

See KB answer #73.

Bottom line is what is in bold below.

The following is quoted from IRS Revenue Ruling 58-279 which is found at 1958-23 IRB 12 (this will have meaning to your tax advisor): "Held, since the organization [CAP] is a qualified donee under section 170(c) of the [Internal Revenue] Code, the taxpayer may, to the extent of the limitations prescribed in section 170, deduct the nonreimbursed, out-of-pocket expenses directly attributable to the performance of such volunteer services, such as those incurred by the taxpayer for the operation, maintenance, and repair of a personally owned aircraft, automobile, communication system, and telescope, as well as those similarly incurred for the purchase and maintenance of distinctive uniforms which the taxpayer is required to wear while engaged in the official Civil Air Patrol activities and is prohibited from wearing except on such occasions. Such expenses are deductible as contributions "for the use of" that organization. Only those expenditures incurred for operation, maintenance, and repair, which are directly attributable to the use of such aircraft, automobile, communication system, and telescope in performing gratuitous services for such organization are deductible. No deduction is allowed for a proportionate share of general maintenance or general repairs of such equipment.. Held further, the foregoing principle is not extended to allow a deduction either for the fair rental value of such use, or for the depreciation occasioned by such use, of the aircraft, automobile, communication systems, or telescope, in performing volunteer services for the organization. . . . Furthermore, since liability and property damage insurance carried on a motor vehicle is for the protection of the individual, the premiums paid on such insurance do not qualify as an expense attributable to the use of a vehicle and, consequently, cannot be considered a contribution or gift within the meaning of section 170 of the Code."

As always, your personal tax advisor should be contacted to determine how this ruling applies to your individual facts and circumstances. The deductibility of charitable contributions is discussed in detail in IRS Publication 526, Charitable Contributions

http://www.irs.gov/publications/p526/

If your tax guy isn't prepared to deal with this as indicated, and you believe it is enough money to make a difference, then it might be time
to find a new tax guy.  Since I joined I've had two different accountants and neither has had any issue deciphering the above.

[dogboy]

I know about the letter ruling you quote and, of course, that's a starting point. However, it's just a starting point as anyone who has every dealt with taxes on a sophisticated level knows.

For example: What about flying time to maintain proficiency? How about learning to fly to be a CAP pilot? What if an aircraft is exclusively used for CAP activities, is the cost and insurance deductible?

Do these count as "service to the organization" in the letter ruling.

In other words, any ruling by the IRS needs to be interpreted and I'm looking for someone who has experience actually interpreting this letter ruling.

You are quite right that any clerk at H&R Block can tell you to deduct simple expenses. I asking about marginal ones.

[Eclipse]

Proficiency time in a CAP aircraft on a B12?  Yes. 

Personal flight and instruction time would be hard to justify unless you were on "orders" from someone in CAP, which is not going to happen. And in the current state of the program there is no such thing as a private aircraft that is exclusive for CAP use, because using a POA for CAP these days is almost non-existent in most wings.

Flying a POA to a mission or other activity could certainly be deductible, though you'd have to investigate whether there is a standard charity rate
for aircraft travel, or if you just deduct the actual.

Unfortunately, no one here can really give you anything but personal experience, since at the end of the day it'll be a risk-tolerance issue between you and your tax guy, but only an "issue" if you're audited.

Things like uniforms, equipment that is CAP specific like a radio, or unreimbursed travel expenses for things like meetings and other activities are pretty much called out above, anything beyond that will need to be substantiated as CAP related, at a minimum.

[RRLE]

I am an Enrolled Agent. I am also a former member of the USCG Aux and have several Auxies as clients in my practice. The issues for Auxies and CAP members are similar.

The biggest issues for members of both organizations is if they attempt to take deductions related to the use of their facility (boat/aircraft). A key issue is proper documentation or substantiation as the IRS refers to it. Depending on your tax professionals practice he may or may not want to see this, but you need to have it in case of an audit. The IRS will expect to see a complete log of all use of the facility. It doesn't want to just see CAP/Auxie use. The reason all use must be logged is to determine the percentage of deductible use. If you don't log your personal use or don't log at all then don't expect a deduction in an audit. The log entry must be made at the time of use. The IRS and the Tax Court are known for tossing out logs made weeks or months after the events.

The IRS will be super suspicious of a log that shows a preponderence of charitable use.

What should be in the log? Some of these are suggestions. The more complete your log and the more professional it looks, the more likely the IRS will accept it during an audit.

Engine/Hobb's meter time on Jan 1. The difference of 2 year begin dates yields the total use for the year. Date, time and elapsed time of use per use. Type of use: personal or charitable. Who was on board. Mission numbers. Mission purpose.

From my Auxie experience, most members don't attempt to take a facility deduction. The biggest reason is that although they are required to submit mission reports, they almost never log their personal time. They also realize that the Auxie use of the facility is such a small percentage of total use that the deduction is not as big as first imagined. Other expenses, usually the biggest ones, are not deductible at all. For example - dockage is not a deductible expense. If the member never used the facility for a mission then he/she would have to pay the dockage anyway. The deduction is only for those costs directly attributable to the use of the facility. Therefore aircraft hanger cost is not a deductible expense.

Uniform deductions are always a dicey issue. The devil in the details is this sentence from the prior post: "purchase and maintenance of distinctive uniforms which the taxpayer is required to wear while engaged in the official Civil Air Patrol activities and is prohibited from wearing except on such occasions". The key word is distinctive. The IRS also uses the term 'everyday wear' to describe this situation. If you can wear a clothing item as everyday wear then it is not a uniform so far as the deduction is concerned. It doesn't matter if you would never wear the item except as part of the uniform, what matters is if you could.

I am more familiar with the Auxie uniform but items that members consider uniform items but fail the 'everyday wear' test include. Almost all shoes and pants. There is nothing uniform distinctive about them. Shirts with sewn on insignia are generally deductible as is the insignia. If the insignia can be removed then they are deductible but the shirt is not. Belts may or may not be depending on the presence/absence of identifying marks and whether a member is probhibited from wearing them except as part of the uniform. The Aux has a belt worn with the working uniform. It is sans any markings and is therefore everyday wear. Most hats are probably uniform items, unless the organization allows them to be worn without the uniform. As yet another example, the Aux has a sun/Tilley hat that is worn with some working uniforms. It has the Aux name embroidered on it. But it is also allowed to be worn with civilian wear and that means it is not deductible.

There have been cases, upheld in Tax Court, where the IRS denied a uniform claim because the taxpayer showed up at the audit wearing it. The taxpayer thought they would prove to the IRS that it was a uniform. The IRS ruled, and was upheld by the Tax Court, that if the taxpayer could and did wear the uniform to an audit then it was everyday wear.

Check your organization policy and see what it states regarding outer wear. Most Auxie outer wear, rain coats, winter coats etc are unmarked and hence civilian wear.

[RRLE]

For example: What about flying time to maintain proficiency?

If you have a mission number then you have a possible deduction. If you are just flying around on your own to maintain proficiency then no.

How about learning to fly to be a CAP pilot?

Not as a charitable contribution. However, if you learn to fly at a school that can accept federal student assistance  you might be able to use one of the several education credits.

What if an aircraft is exclusively used for CAP activities, is the cost and insurance deductible?

If the insurance covers the pilot/owner then no. It might be deductible if it covers the plane. I would have to do more research on that one and I don't do that level of research for free.

You are quite right that any clerk at H&R Block can tell you to deduct simple expenses. I asking about marginal ones.

You probably don't know it but more then 5,000 Enrolled Agents work at H&R Block. You can find them in almost any retail office.

[dogboy]

Proficiency time in a CAP aircraft on a B12?  Yes. 

Unfortunately, no one here can really give you anything but personal experience,

Do you have personal experience deducting the proficiancy time for CAP? Has it survived an audit?

It's not true that only "personal experience" is available here. Someone may have litigated these issues and received a ruling, in the form of written determination. That's what I'm looking for, as opposed to opinions.

[RRLE]

I checked the US Tax Court for written opinions related to both the Civil Air Patrol and the Coast Gaurd Auxiliary. Neither organization is mentioned within the text of any case that is on-line. TC and Memorandum Opinions start on 09/25/95 and Summary Opinions start on 01/01/01.

It is doubtful that any member of CAP or the Coast Guard Auxiliary would ask for a Private Letter Ruling related to the expenses since the cost of a PLR is quite high.

Most discussions about the deductiblity of uniform items is based on Tax Court opinions related to lawyers attempting to deduct their bespoke suits (can't do it), singers and muscians trying to deduct concert clothes (nope) and TV news anchors (nope again). The Tax Court made it pretty clear what is and is not a uniform item. A quick check on some CAP web sites finds that they often get this wrong. They either state or imply that all uniform items are deductible, which isn't true because of the everyday wear test.

[♠SARKID♠]

I already filed my taxes for the year, but I've wondered if I can deduct the fuel I burn going to and from meetings.  The super basic math says that I burn about $250 in gas a year, just on meeting drives.  Would it be worth pursuing a deduction next time around?

[Eclipse]

You can only deduct CAP expenses if you itemize, and you can't do that unless you have more expenses than the standard deduction, which generally requires you own you own home with a mortgage and/or work for yourself.

[SarDragon]

RRLE has it pretty well nailed. I worked for Block for a few years, and asked pretty much the same Qs of my more experienced co-workers when I was there.

As for Dan's Q, I claim all my CAP driving expenses, but only the mileage ($0.14/mi). The record keeping is, IMHO, too draconian to take the actual fuel and oil expense. (Yes, I know, 14 cents a mile is nowhere close to what it actually costs, particularly my 'Burb, but something is better than nothing.)

[SarDragon]

You can only deduct CAP expenses if you itemize, and you can't do that unless you have more expenses than the standard deduction, which generally requires you own you own home with a mortgage and/or work for yourself.

It also works if you pay a lot of state income tax.

[RRLE]

I've wondered if I can deduct the fuel I burn going to and from meetings.  The super basic math says that I burn about $250 in gas a year, just on meeting drives.

See page 5 "Car Expenses" of IRS Pub 526 Charitable Contributons. You can take the actual expenses of gas and oil but then you have a fairly strict substantiation and logging requirement to meet. As a practical matter, don't try and buy a tank of gas to drive 25 miles to a meeting and then try and write off the whole receipt. The same page 5 will point you to the Car Expenses Records to Keep section of the pub. Although it is not mentioned in the pub, during an audit the IRS will probably ask for an independent statement of your vehicle's gas mileage. A statement or published doc (including the web) should sufice. The IRS will require that since it will compare the cost of what you are claiming you used against a reasonable standard of use.

FWIW - I have never had a client claim actual expenses for charitable or medical miles. Most find the recordkeeping too onerous. All of my clients use the standard rate for both.

FWIW2 - medical deductions are subject to a 7.5% of AGI limitation. That is scheduled to rise to 10% next year.

Some people get confused by this but a dollar worth of deductions does not equal a dollar worth of tax reduction. Figure out you marginal tax rate from last years tax return. Then multiple that by the deduction.

Take the $250 in gas. This is what that deduction is worth given the marginal tax rates. You decide if the record keeping requirement justifies using actual vs the standard mileage rate.

10% = $25
15% = $37.50
25% = $62.50
28% = $70
33% = $82.50
35% = $87.50

[JeffDG]

So, am I reading that doc properly...

I can claim $0.14/mile for travel to/from CAP events?

[RRLE]

.14 per mile is correct.

Here is the IRS announcement for all the 2012 mileage rates.

[dogboy]

I

It is doubtful that any member of CAP or the Coast Guard Auxiliary would ask for a Private Letter Ruling related to the expenses since the cost of a PLR is quite high.

Most discussions about the deductiblity of uniform items

Uniform are a trivial in income tax deductions. Now that flying time is $120 an hour, it is proficiency flying and flying for training that I'm concerned about deducting.

Maybe National CAP could use some of the money the spend flying around the country obtaining Private Letter Rulings on these matters so that its due-paying members would know what are legitimate deductions.

[Rocketguy]

I'm going to file taxes for the first time this year. I didn't make enough to warrant using a tax service so if someone could explain this very simply it would be great.
Last year I spent $33 for membership dues, $175 to attend an Encampment, drove 74 miles to and from a SAR (148 miles total), and spent $23 (that I have the receipt for) on insignia from Vanguard.
Is all of this deductible?

[davidsinn]

I'm going to file taxes for the first time this year. I didn't make enough to warrant using a tax service so if someone could explain this very simply it would be great.
Last year I spent $33 for membership dues, $175 to attend an Encampment, drove 74 miles to and from a SAR (148 miles total), and spent $23 (that I have the receipt for) on insignia from Vanguard.
Is all of this deductible?

Should be but the standard deduction is so much larger it's not worth your time to figure it out.

Sent from my HTC Incredible 2 using Tapatalk

[RRLE]

Now that flying time is $120 an hour, it is proficiency flying and flying for training that I'm concerned about deducting.

If you have a mission number and/or orders, whatever CAP call them, you could probably deduct it. But if you are just flying around the big sky on your own, most likely not. Without a mission number/orders there is no proof that your flying had anything to do with CAP.

Auxies have the same issue with their boats (and planes). If a group of Auxies get orders, even if non-reimburseable and go out and train, they can deduct the non-reimbursed portion. I'm assuming that they can itemize and beat the standard deduction. However, if the same group of Auxies just go out for the day, with no orders, no uniform and practice the same skills then they are joy riding so far as the IRS is concerned and nothing is deductible.

To stand a chance at a deduction you have to be able to substantiate a direct link to the charitable activity.

[Eclipse]

Now that flying time is $120 an hour, it is proficiency flying and flying for training that I'm concerned about deducting.

Who's paying $120 an hour to fly a CAP plane?