AboutMike Wellman Expertise I was a former Manager with Price Waterhouse, now PricewaterhouseCoopers, the largest accounting firm in the world. I have had clients in almost every industry and of every size.
I will only answer questions dealing with IRS problems such as delinquent tax returns, Offers in Compromise (Tax Settlement), IRS collection matters including installment agreements, liens, levies, seizures, audits, appeals, innocent spouse claims and injured spouse claims. All other will be referred to the question pool.
Experience Over 25 years experience in taxation specializing in IRS collections, examinations and appeals.
Publications New York Times, Wall Street Journal, Your Money.
Education/Credentials BBA, Baylor University.
Awards and Honors IRSOS.com won the Knowledgeweb award for educational excellence for content.
Expert: Mike Wellman Date: 12/10/2007 Subject: Racing Sponsorship Tax Wrte-Off
Question QUESTION: Mr. Wellman,
If a company sponsors a race car driver, how much of that is tax-deductible? Thank you sir.
-KS
ANSWER: Theoretically, all the expenses can be deductible but they have to be considered thru the prism of reasonable and necessary. For example, if the expenses exceed revenue, then perhaps they are not reasonable. There also has to be a reasonable expectation that they will be beneficial. If your target market is a demographic that is anathema to racing, then you could have a problem.
Finally, if it is your uncle Zeke that you are sponsoring to make your mother happy, then, again, there could be a problem.
---------- FOLLOW-UP ----------
QUESTION: Mr. Wellman,
First, let me thank you for your answer; it was very good. however, your answer leads me to a follow-up question. Say Company X's target demographic is in line with the racing audience, so they agree to sponsor Racer Z for $60,000 to cover how much it will cost for Racer Z to race for the year. Is the entire amount deductible? The only reason I ask is because I have been told that the only amount deductible is the cost of the decals on the car and I wanted to make sure this was not the case. Thank you again sir, I appreciate it very much.
-KS
Answer The entire amount is deductible as advertising expense. Where companies get in trouble is when they own the car and it never breaks even or makes money. Then you get into hobby loss issues. But if you are sponsoring an unrelated party - it is all currently deductible. If it is a related party then more scrutiny will be shown by the IRS.
