Tax Rules For Conventions on Cruise Ships
The IRS has specific tax rules regarding tax-deductible expenses for conventions held on cruise ships. This is a unique tax issue for U.S.-based workers, so don't hesitate to get help from a local tax professional if you need assistance.
Cruise ship convention expenses may be deductible (subject to the $2,000 limitation) if the following requirements are met:
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The taxpayer must establish that the meeting is directly related to the active conduct of his/her trade or business.
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The cruise ship is a U.S. flagship.
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All ports of call on the cruise are located in the U.S. or its possessions; and
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The taxpayer claiming the deduction must attach two written statements to the tax return (one signed by the taxpayer and the other signed by an officer of the cruise sponsor group).
Substantiation Statements
The taxpayer’s statement must spell out the total days of the trip, excluding days of transportation to and from the cruise ship port, and the number of hours each day of the trip which were devoted to scheduled business activities. A program of scheduled business activities needs to be included, as well as “such other information as may be required in regulations.” The second written statement (from the group’s officer) must include a meeting schedule, the number of hours the taxpayer attended meetings, and “such other information as required by regulations” (IRC Sec 274(h)).
Maximum Deduction
The maximum deduction of $2,000 applies even in the case of a married individual filing separately. If two married individuals filing a joint return each attended otherwise deductible cruise ship conventions at a cost of $2,000 or more each during a taxable year, they could deduct cruise ship convention expenses of $4,000 on their return for that year. If a married individual attended an otherwise deductible cruise ship convention at a cost of $3,000 (while his spouse attended no such convention), however, only $2,000 would be deductible for that year, whether a joint return or a separate return was filed for that year.
In Holswade, M.D., P.C., (1984) 83 TC No. 53, the court used five factors to determine whether a cruise seminar was primarily business or pleasure:
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Comparison of the lecture time to the length of the cruise;
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The features of the ship;
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The nature of the ports visited and the sightseeing activities of the taxpayers;
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Availability of similar lectures at less cost in settings more conducive to learning; and
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Amount of study or lecture preparation involved.