mikew968

I own a small business that could benefit from some name exposure. Because my company sponsoring my car is not a arms length transaction do I have to do anything special to legitimize the deal? Anybody with any first hand knowledge here would be great!!!

Thanks, Mike

mm86911

I would think it would classify as advertising - just keep the amount reasonable and be sure to check with your accountant.

JackOlsen

I hope someone with first-hand knowledge will clear it up, but I've heard about guys swapping sponsorship in order to make it appear legit. In other words, each guy is technically paying for work on the other guy's car. I doubt money actually changes hands, though.

Geo

Taxation is not exactly my specialty, but I would think that simply putting your company name/logo on the side of the car is simply not enough. I would think a good faith effort at using your racing/car in other ways as well to promote your business would legitimize the transaction.

You could consider other forms of advertizing that include your car/racing in some way. There are always ads in Panorama that do this. Perhaps you have clients you could entertain at the track or even take for rides at DEs or something like that.

clubrcr

I had spoken to my CPA sometime ago about doing advertising on my car as well as trying to deduct the costs if I had taken a client to track and took him for a ride in the car. I was told it wasn't legal, he gave me the analogy of a fishing boat. He said if I owned a fishing boat and took people fishing I could not write it off unless the fishing boat was a full time business and it wasn't just for enjoyment. That is my CPA, maybe someone else might feel differently.

Geo

It's certainly in the grey areas. But I don't think it's as simple as your CPA is making it out to be either. You could not deduct all of your expenses just by entertaining a few clients unless you use the car primarily for this purpose. Otherwise, it would be a HUGE tax dodge. But, people can and do use their racing activities to legitimately seek and hold clients.

I'd guess if you use your car for client entertainment 2 days a year, you could legitimately deduct those expenses (tires, fuel, oil, food, travel, etc.). If you make a good faith effort to seek out clients via racing you'd have a stronger case for some level of sponsorship (don't expect to write off the whole thing). Think of it in terms of what you would do/expect if you paid money from your business to sponsor someone else.

I'm an accountant, but not a CPA. Always run this by your CPA. But I wouldn't accept that first answer 100%. I'd probe further and explore various scenarios.

johnclay

I'm a CPA. Its been a while since I looked at this issue, so don't take this as a fully researched response. We only have one client that I know of that is deducting race car expenses (actually the only client we have that has a race car). They have a sprint car, and part of their business is fabricating parts for sprint cars which certainly helps show their race car costs as legitimate. I believe they went through an IRS audit several years back and, although it was an issue, the IRS allowed the race car expenses.

It all comes down to are the costs "reasonable and necessary" in running the business. My advice is to document in writing how you think the advertising will generate business and demonstrate that it is a reasonable business decesion. It will also be helpful if you can track the success of the advertising effort. I don't know what business you're in, but a "where did you here about us" type thing, with "race car" as one of the possible responses could work.

Good luck.

mikew968

I would agree with most of what has been said here...my cpa has said many of the same things!!! I would think a business plan like you would take to someone you wanted to get sponsorship from would be helpful. I would think that if you could get outside sponsorship as well and you company was paying for name exposure of a set fee per season that would be helpful as well.

I think to write off all the expenses as sponsorship would be pushing the issue into the grey and beyond. I am thinking of an amount like a couple grand per year

Thanks, Mike

GUMBALL

I have an accountant that specializes in motorsports. Email me and I will give her address.

M758

My wife has a small business. Naturally I have put the name of her business on the side of my race car. Now is it advertising? Well sure it is. It just like putting her company name on the side of a taxi cab. Of course to cover all racing expenses is not right. I do think that the "Level of sponsorshhip" should be some what close to the exposure.

Sure her products are bath salts, bath confetti and other femimine type products and will not appeal to racers in many cases, but It does help in getting the name out. People ask... What is Geez! for body? An we tell them and tell them about the website. Now I figure car sponsorship to be worth $500 to $1000 per year based on the 3 decals on the car (See white star in my avitar)and it being the Title sponsor of the "name of the car". I certainly could not deduct all expenses since the car is primarily a toy, but selling space on a race car is common to defray costs.

PS... I am not an accountant, CPA or tax professional. .... and no I did NOT stay at a Holiday Inn Express either.

Juan Lopez

I'm a CPA (and a Partner in a CPA firm) so I have some first hand knowledge on this.

Clubrcr, your CPA is technically right but he's referring to deducting the cost of the whole car/boat on his analogy. The question is not about deducting the complete thing but charging some expenses as advertising/marketing charges.

Give him this similar analogy; what about if you rent the boat for a day to take clients out? The whole thing is deductible. The IRS could contest part of it if you do it constantly (not business but friendship), if you take more family than business contacts, …

If you own the boat, just charge an amount similar to what a rental would have been.

You don't have to take clients to the track nor do client-marketing outings with clients (prospective or otherwise). If you can prove that the sticker on the car or trailer gives exposure to your business then its technically deductible.

Now, an example. You can't sell diamonds in a racetrack (well you can but...). However, club racing is a "luxury" thus, the most participants are reasonably wealthy thus, if you own a jewelry store and advertise it on your car at club events you are giving exposure to your business to potential clients. That makes it deductible.

The main consideration is applicability (who will see it and can you justify the exposure/business purpose) and second is reasonability. Don’t expect to charge more than what similar exposure would cost you somewhere else.

You might want to look at race team sponsorship materials and you’ll see tht the selling point is exposure. Nothing like an ugly Nascar car painted like a rolling Viagra….it’s a rolling billboard. They can deduct even more since, not only do they get exposure at the track, they get TV time.

This only hypothetical opinions, you must check with your tax accountant for applicability to your own particular circumstances. Give them the pointers I mention above and make them work for their fee

Keep in mind; the IRS always has the last word..... I'm Juan Lopez and I approve this message

Juan Lopez

Mike,

What business are you trying to advertise/deduct?

FYI, if you want to make it more legit, take some flyers or brochures of your business to the track and put them on the door of your trailer for people to take. It shows you are trying and heck, it might get you some business!

Juan Lopez

Hum, look at this (excerpt from the Tax Matters newsletter back in 2001 - must get current rulings; can any lawyers out there help?)

A CPA firm prepared tax returns for an S corporation and its shareholders. The firm allowed one shareholder to deduct race car expenses as advertising. The car and the driver's racing suit displayed the company name, and the shareholder mingled with existing and potential clients at the races.
The IRS claimed the expenses were unreasonable and sought a judgment against the CPA firm in district court. It said the firm deserved preparer penalties under IRC section 6694(b)(2) because of its reckless and intentional disregard of rules and regulations in filing a return.

The court disagreed with the IRS. It found no evidence that the CPA firm had intentionally disregarded a rule or regulation (Schneider & Co., Inc. v. Commissioner, DC Indiana, 6-24-99).

Geo

I think greater details would be required to draw any conclusion from this.

mitch236

Th motto is "don't be a pig and you won't get roasted". If you earn $100k a year and deduct $1k for your track car exposure and you can get any business from it then the IRS probably won't care. -I hope!!