Flight Crew Deductions
Posted Fri, July 26, 2019
Some of this is moot, as fancy lawyers like to say, since the Tax Cuts and Jobs Act of 2017 basically killed most flight crew deductions. Some of this is still pertinent and some of it is just fun reading.
Here is a sampling of important US Tax Court cases involving pilot and flight attendant tax deductions. Some of these cases are Tax Court Memos while others are Tax Court Summary Opinions. Broadly speaking, summary opinions are issued from small cases (under $50,000) or cases not involving novel legal interpretations or clarifications. Furthermore, summary opinions generally apply known tax precedents to facts introduced in court.
The Tax Court is also quick to point out that pursuant to IRC Section 7463(b), summary opinions may not be treated as precedent for any other case. Having said that, the elements stated in summary opinions are used in good accounting and tax preparation practices, and are solid arguments during an IRS examination.
Continental FA Denied Everyday Deductions
This is a killer decision for flight crew deductions- Uniform items such as nylons, shoes, scarfs, hats, etc. were denied. Yes, they were only used at work yet since these items are easily convertible to everyday use the Court said No. Van driver tips were also denied since the Court considered them incidentals and included as part of the per diem deduction. Haircuts, make-up and manicures were denied since they are personal in nature. Internet expenses were also denied, but other court opinions allow them (see below). This opinion also has a great illustration of per diem calculation and deduction.
United Express Pilot Commuting Expenses Denied
Crashpads, lodging, travel and meals expenses associated with commuting are nondeductible personal expenses. Your domicile is your tax home, and expenses incurred traveling to or from your tax home are not deductible. Sorry, commuting expenses are not flight crew deductions.
Substantial Rest Needed For Per Diem Deduction
In a defining case from 2006, the Tax Court explains why locals, turns or day-trips that do not involve substantial rest cannot be afforded a per diem deduction. In this case, a ship boat Captain named Marc Bissonnett did day trips, but purchased a hotel at his expense for a six hour rest period between segments. He was allowed a per diem deduction. Sleeping in a crew lounge on a local or a turn is not substantial rest. Sorry.
Sierra Academy Grad Denied Education Deduction
An aerospace engineer who took flight training lessons at Sierra Academy was denied his deduction as education since it could lead to a new trade or business. You can deduct expenses you have for education, even if the education may lead to a degree, if the education meets at least ONE of the following two tests: a) it maintains or improves skills required in your current present work, or b) it is required by your employer or the law to keep your salary, status, or job, and the requirement serves a business purpose of your employer.
New Hire Expenses Allowed
A Continental Express aka ExpressJet pilot was allowed to deduct new hire training expenses since they were a requirement for his employment. Hopefully the days of paying for your new hire training are long gone.
United Airlines FA Denied Foreign Income Exclusion
A United Airlines flight attendant filing a US tax return yet living in France was denied her exclusion for her foreign income while working in international airspace under Section 911 foreign earned income exclusion.
Internet Expenses Allowed
Internet expense are an allowed deduction if their business purpose can be demonstrated, and they further do not require strict substantiation detailed connection involving date, amounts and business purpose similar to other utility expenses. This is not a flight crew related tax court case, but it demonstrates the Court’s perspective on internet expenses.
Flight Crew Deductions
We understand that some of these court cases don’t bode well for taking seemingly appropriate flight crew deductions. Since audit rates are low (about 1%), many taxpayers appear to be deducting these without getting in trouble. But please understand that as paid tax preparers we have to follow these Tax Court decisions and other IRS procedures. Sorry.