Deducting race car expenses through a construction firm draws IRS scrutiny.
A father and son owned an S corporation that built houses and developed real estate. The son enjoyed car racing, so the company purchased a race car body and parts for the son to restore and race.
It deducted $121,000 on its return for these expenses. IRS nixed the write-off, and the Tax Court agreed.
The firm claimed the expenses were for advertising. But the racing activity wasn’t conducted under the firm’s name, no company logo was visible on the car, and the firm could not prove to the Court that the activity led to new business connections. Also, the firm buried the deduction among its construction expenses on its Form 1120-S.
Berry, TC Memo. 2021-42