Section 179 deduction – motocross motorhome

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section 179 deduction, IRS, tax, motocross

How does a motorhome with two beds suitable to accommodate two full grown adults qualify for the Section 179 deduction? Well, according to the IRS, it doesn’t. At least that was the initial verdict passed down to Dave Evans when he tried to claim the motorhome, along with his son’s motocross expenses, on his business return. The IRS disallowed the claim based on three points:

  1. The expense was not “ordinary and necessary” or normally claimed by the business
  2. The expenses were not reasonable
  3. Section 179 deduction was disallowed on the basis that the motorhome primarily served as lodging

However, Dave argued otherwise. One of Dave’s sons, Ben Evans, was the tremendously talented motocross racer who won the Amateur Motocross National Championship at the age of 17. With five kids, all of whom compete in motocross, Dave had plenty of expenses to take care of. With Ben being exceptionally popular and successful in the motocross world, Dave saw a sponsorship opportunity.

In the IRS’s decision to disallow Dave’s business to take the 179 deduction for the motorhome, it was emphasized that the expenses due to motocross were personal by nature, and that the motorhome was primarily used for lodging. In actuality, the motorhome had a modified back wall that would fold down to become a ramp to drive motorcycles up. Additionally, the motorhome was used as a mobile garage to make repairs to equipment and other necessary maintenance to the motorcycles. Being that it was a large structure, Dave found plenty of space to add his company’s logo on the motorhome, as well as on Ben’s equipment. Eventually, this led Dave to connect with a new investor and a new lender.

The fact that Dave was generating business, along with the fact the Ben was being sponsored by numerous other companies verified Dave’s claim that sponsoring Ben added business value. Also, the fact that the total expenses allocated to sponsoring Ben amounted to only 0.9% of Dave’s company’s annual revenue of $16 million persuaded the Tax Court that the expenses were indeed reasonable advertising expenses.

In conclusion, the Tax Court overruled the IRS and approved the Section 179 deduction and other motocross expenses to be deducted. The Tax Court made its decision based on the significance of the tangible and intangible benefits consequential to the advertising.