Transportation Industry Tax Savings: Special Tax Benefits for Pilots and Mariners

By Kapp, Martin A. | The National Public Accountant, August 2002 | Go to article overview

Transportation Industry Tax Savings: Special Tax Benefits for Pilots and Mariners


Kapp, Martin A., The National Public Accountant


Editor's Note: Martin A. Kapp is a Los Angeles based CPA who specializes in working with taxpayers in the transportation industry, including mariners, airline pilots, locomotive engineers and others. In 2000, Kapp went to U.S. Tax Court in Washington, D.C on be half oftwo clients, Capt. Mann Johnson (International Container Ship) and Capt. Jim Wrestling (Alaska TugBoat) over the legal issues of mariners claiming automatic travel deductions without receipts while underway. The court agreed that these travel deductions have been legally available since 1927 when Congress first allowed travel incidental deductions.

In May 2000, the U.S. Tax court settled the legal issue of allowing mariners to claim an almost unlimited amount of travel deductions while working away from home, without having to produce any receipts, the same as for other transportation workers. Previously, conventional wisdom was that sailors could not claim travel expenses since meals and lodging are provided at no cost. We proved that the law allows a travel deduction for lodging, meals and/or incidental expenses.

Tax Break for Mariners

The Tax Court's decision left no room for doubt that every qualified mariner can claim incidental expenses by using the published incidental rates. They also can claim other legitimate travel deductions without having to keep any receipts for expenses under $75 per IRS Notice 95-5 0.

Does this mean that every mariner qualifies for additional travel deductions? First, we need to qualify the word "travel." Travel means being away from home long enough to be released from duty in order to obtain "necessary rest or sleep." Thus, someone working on a gambling boat on the Mississippi River that goes for an evening sail does not qualify because he goes home to sleep. For mariners who work aboard a vessel for 180 days, travel-related tax deductions now al lowed by the U.S. Tax Court and the IRS seem to range between $4,000 and $10,000, depending on the ports visited and other travel and incidental expenses incurred.

Tax laws allow four methods to compute incidental travel deductions: 1) add up actual receipts; 2) CONUS/OCONUS rates established by the federal government on a worldwide city-by-city basis; 3) transportation rates; and 4) high/low rates for cities located within the lower 48 states.

IRS Notice 95-50, issued in 1995, states that each recorded incident under $75 is also "deemed substantiated" without receipts, and it is possible to have several entries a day. "Although every element of each separate expenditure must generally be substantiated, documentary evidence is not required for separate expenditures of less than $75, except lodging while away from home. …

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