Please help - aviation tax question!?!?

oregonpilot

New member
Joined
Jun 25, 2002
Posts
1
Total Time
800
You may be wondering why I'm asking tax questions in June but it's because I found out that I've been audited for 2001! I'm still in shock! The audit has to do with the flight training costs (CFI costs in particular) that I deducted on my taxes. Here's my question: Can you deduct all of your flight training costs once you get your commecial certificate (i.e. all your CFI training can be deducted)? Or do you have to wait until you get your CFI first, and then get hired by an FBO, and then can only deduct your CFII and MEI training because it's training necessary for the job but is not paid for by the FBO. It's impossible to find any info in regular tax books and I'm not sure just "some tax accountant" at H&R Block knows the answer. Can anyone help me out?

Thanks in advance for your help..
 

reaperman

Active member
Joined
Nov 26, 2001
Posts
37
Total Time
n/a
Pardon me, but - You're asking tax questions after filing your return?

All the questions you have, and probably some you don't will be answered soon (when you have your audit).

For future reference: Usually, unless you're planning something illegal or shady, the best people to ask income tax questions of are the IRS, the proverbial Horse's Mouth.

Just a wildly un-authoritative guess about your situation: You're in a bit of hot water.
 

Timebuilder

Entrepreneur
Joined
Nov 25, 2001
Posts
4,625
Total Time
1634
You need to be represented by a good aviation tax attorney. Did you hire a preparer? I use a private preparer who is a tax attorney, so I start every year on firm ground.

That said, I was told that the granting of the initial CFI establishes you as a "professional instructor". To maintain that status, most of you income must come from instructing, or you must demonstrate that you intended to make most of your money from instructing. If you can pass that test of viability, you can likely deduct the II and MEI costs, or a reasonable portion.

As I usually advise, get a referral through you local bar asociation or through AOPA's legal folks, Yodice Associates.

IRS note: you can do everything to the letter of the law and STILL trigger an audit. Often, this means not deducting everything that you are permitted to deduct. I deduct about 60 to 80% of what I am entitled to each year to avoid being "flagged".
 

banned username 2

Banned
Banned User
Joined
Nov 25, 2001
Posts
3,254
oregonpilot said:
You may be wondering why I'm asking tax questions in June but it's because I found out that I've been audited for 2001! I'm still in shock! The audit has to do with the flight training costs (CFI costs in particular) that I deducted on my taxes. Here's my question: Can you deduct all of your flight training costs once you get your commecial certificate (i.e. all your CFI training can be deducted)? Or do you have to wait until you get your CFI first, and then get hired by an FBO, and then can only deduct your CFII and MEI training because it's training necessary for the job but is not paid for by the FBO. It's impossible to find any info in regular tax books and I'm not sure just "some tax accountant" at H&R Block knows the answer. Can anyone help me out?

Thanks in advance for your help..

I have NEVER heard of anyone deducting ANY of there initial flight training costs as a "non-reimbursed business expense"... I think that is quite a stretch...

I hate to say it, but I think the "Tax-Man" is gonna have a field day with this one.... I suggest you take the money you saved by deducting your training, multiply that amount by about 10 and give it to a darn good attorney... Your gonna need it...

Good Luck!
 

Dep676

My Glock is bigger!!!!!
Joined
Nov 25, 2001
Posts
1,003
Total Time
Enough
I think I deducted all my CFI, CFII and ATP. Some of my commercial and Multi-engine. My tax preparer said if I had to get those ratings for employment purposes I could deduct them. Never heard anything from Uncle Sam. Just have all your paperwork in order and Good Luck. I was audited for 1998 and all I had to send them was a copy of something. So it might be that bad and then again it could be hell.
 

Timebuilder

Entrepreneur
Joined
Nov 25, 2001
Posts
4,625
Total Time
1634
The advice I received centered on the theory that the IRS views"commercial pilot" and "flight instructor" as two different jobs.

If you are training for the initial CFI, then you are training for a different job, and therefore the initial wouldn't be deductible. After that, you are engaging in "professional training and seminars" which doctors and lawyers do all the time, which are deductible expenses. Don't deduct the full amount if your training costs approach your income. That WILL guarantee an audit.

Disclaimer: I am neither a lawyer or a tax professional. Seek the advice of one or both before putting these comments into action.
 

bobbysamd

Well-known member
Joined
Nov 26, 2001
Posts
5,710
Total Time
4565
Sorry........

I have a degree in Accounting and prepared my own tax returns for twenty-eight years, including all the years I was in aviation. Everything that qualifies as initial training to get in an industry or profession is not tax-deductable. In your case, that includes getting all your airplane CFI quals, from initial through MEI.

I realize that differs a little from what Timebuilder posted. It's a gray area. It's the IRS's call as to the point of impact when you are actually earning most of your income as a CFI versus your intention to earn your income as a CFI. Moreover, the IRS makes these decisions on a case-by-case basis. A good tax attorney will have access to IRS Private Letter Rulings on cases and will research cases that are like yours. Unfortunately, these rulings are not controlling for other, similar cases and can only provide guidance as to which way the IRS wind is blowing.

Several months ago, someone opined that you could use your lifetime education credit to pay for advanced CFI ratings. I don't believe that will wash. Nor can you deduct them as a business expense.

Thing that are tax-deductable would include type ratings. Things that would further you after you are established in your profession. I deducted my type and heard not a peep from the IRS. The IRS might argue that you need all your CFI ratings to establish yourself in your profession, and deny them as a deduction. However, once again, IRS rulings are made on a case-by-case basis.

PS-I just read Timebuilder's comment about deducting CFI training costs. Doctors and lawyers must attend continuing education every year as a condition of maintaining their licenses. They are not attending continuing education to obtain additional quals. Accordingly, they may deduct continuing education as a business expense. Compare continuing education to attending a CFI refresher every other year. A CFI refresher would be fully deductable because you need it to maintain/renew your CFI.
 
Last edited:

Timebuilder

Entrepreneur
Joined
Nov 25, 2001
Posts
4,625
Total Time
1634
He's right.

That's why you need to see a professional in your own area of jurisdiction. As you can see, legal opinions are as different as airplanes. In my district, my tax attorney knows from his experience how those "case by case" sessions go down.

As Bobby points out, 'offer may vary, void where prohibited by law'. There may be cases in my district where AOPA or NAFI filed an amicus brief showing the CFI is a professional, and the the II an MEI are not new jobs, any more than liposuction training is for a cosmetic surgeon. It is possible that such training is a business expense, and not a personal tax deduction. If you file a schedule "C", this training MIGHT be a business expense for you, too.

Just like different FSDO's have their own way of operating, auditors are the little kings in their kingdoms. A good tax lawyer will know what the king expects to see. That's why you should get his services BEFORE you file in a manner that is considered controversial. It's late, but get his advice on whether you need to file an ammended return now, as an act of good faith.

In any event, get good, local advice, and follow it.
 
Top