The Tax Court held that the owner of a construction company who paid to sponsor his son’s motocross racing activities could deduct the payments since he was able to show that this helped him bring in business.

His company, Dave Evans Construction, is a general contractor based in Boise, Idaho. DEC constructs both residential and commercial buildings. It had gross revenues of over $16.2 million in 2006 and $16.7 million in 2007. Motocross racing is especially popular in the Boise and surrounding Treasure Valley region, and is a major center for the sport.

While all of Evans’s five children participated in the sport, his son Ben had a special talent. As a teenager he won the Amateur Motocross National Championship at the Loretta Lynn Motocross Ranch in Nashville. Every year 25,000 entrants compete to qualify to race at Loretta Lynn, but only 40 actually make it to the championship.

Ben began to be featured in various motocross magazines, and sponsors, including American Honda, started “coming out of the woodwork” to support him. Evans’s CPA advised him that supporting his son Ben’s motocross racing could be a valid promotional activity for DEC.

In 2006 and 2007, DEC had motocross racing-related expenses totaling at least $86,619 and $74,579, respectively, consisting mostly of payments for motorcycles, parts, equipment, racing fees, membership fees, fuel and food. The IRS denied the deductions.

The Tax Court ultimate held in favor of DEC in Evans v. Commissioner, TC Memo 2014-237. In addition to improving DEC’s community relations and attracting more clients, Ben’s celebrity status also helped DEC attract investors and helped it secure a major source of financing.

The court agreed with the IRS that the expenses were not reasonable simply because they were small relative to the company’s gross receipts (0.9 percent in 2006 and 0.7 in 2007). Nevertheless, it said, in light of the significant tangible and intangible benefits that DEC obtained from the motocross racing activity, the amounts DEC spent on the racing activity during the years in issue were reasonable. DEC was entitled to deduct all expenses related to the motocross racing activity with the exception of expenses relating to a utility trailer.

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