Commit Tax Fraud in Mary Kay

 Another one of those “earn the right to pay your own way on a trip with nsd’s and directors” is happening. And here’s another reason to not take advice from your sales director: This director’s advice that your cruise with them will be tax deductible thanks to their “special class” on the ship is completely wrong.

The IRS allows a tax deduction for bona fide business expenses . Is a Caribbean cruise a business expense? NO. This trip is being taken for entertainment purposes, and we all know it. So the only deduction available to consultants is the cost of the trip related to the “special class.” Often something like that is determined by allocating your costs based up the days or hours traveling, and deducting only the days or hours related to the business activity.

Here’s the announcement for the trip:

You need to do 3 perfect starts between Sept. 1st – Feb. 28th!  That is putting the products on 15 faces in a 2 week period of time!

Yes – you can do 2 perfect starts in one month (that is a power start by the way) and then another perfect start the next!

NEW CONSULTANTS SINCE NOV. 1ST:  YOU CAN ATTEND BY DOING JUST 2 PERFECT STARTS BY FEB. 28TH!

You earn the right to cruise with all the TOP NSD’s and TOP Directors – there will be a special class on the ship so your trip will be a tax deduction!  You are responsible for payment for the cruise and for your own airfare/gas if you drive to get there!

Most consultants do one of the bottom 2 room rates.  PASSPORT COST IS ALSO A TAX DEDUCTION!

6 Comments

  1. Katy Williams

    Hi there! Can you explain this further, with quotes or something else to back up what you are stating? My CPA doesn’t agree with what this post says, so I’m wondering who is wrong, you or him.
    Thanks!
    Katy

    1. MLM Radar

      Tracy is a CPA and I am too. Both of us also investigate fraud cases (although we don’t work together).

      I second what she says. The link she provided is to IRS Publication 463, Travel, Entertainment, Gift and Car Expenses. If your CPA disagrees with this post (and with the IRS, incidentally) he or she needs to take a much closer look at it.

      And no, the passport is not deductible either, since the trip does not meet the requirements to be a deductible business trip.

    2. Michelle

      Not a CPA, but I work with a lot of business financials. One of my clients got audited for claiming a trip like that as being for “business purposes.” There are great CPAs out there, and ones that are not-so-great. The not-so-great ones get people audited. If your CPA is advising you that this kind of trip is considered “business travel,” do yourself a favor, and find another CPA.

  2. FraudCPA

    Another CPA here working in Tax & Fraud. I do not sell Mary Kay products but started looking into the company when a friend tried to recruit me and made a claim to me that something was “tax deductible”. You should never take tax advice from a cosmetic salesman, car salesman, or home depot employee. The tax laws are very complicated and it depends on the facts/circumstances surrounding the deduction if it is tax deductible.

    The cruise could be deductible up to $2,000 (maximum yearly amount) if there was a class on the ship every day for a business convention and (1) the ship is a U.S. flag ship, (2) the meeting is directly related to the active conduct of the taxpayer’s business, and (3) all ports of call are located in the U.S., its possessions, or Puerto Rico. Separate statements signed by the convention’s sponsor and the person attending must be attached to the tax return which the deduction is being claimed and give the cruise’s length, business activities schedules, hours spent on scheduled business activities by the person attending, and other information regulations may require. Deductions for cruises can’t exceed $2,000. Code Sec. 274(h)(2) – Code Sec. 274 (h)(5) [As an example, as CPAs we have required sign-in sheets for every convention that we travel to and attend that monitors the time we arrive and leave.]

    Additionally, IRS Rev. Rul 56-168 related to Code Sec 162 states, ” In those cases where a taxpayer makes a business trip such as attending a convention or other business meeting and, as an incident of such trip, engages in some personal activity such as sightseeing, social visiting or entertaining, or other recreation, that part of the total expense of the trip which is directly attributable to the taxpayer’s business will be treated as deductible notwithstanding the incidental personal activity. That part of the total expense which is properly allocable to such incidental personal activities will be treated as nondeductible personal or living expenses. Where the purposes of a trip are primarily personal, the entire expense involved will be treated as nondeductible personal or living expenses notwithstanding that the taxpayer engages or participates in some incidental activity related to his business.

    Where a taxpayer’s wife accompanies him on a business trip, those expenses attributable to her travel are not deductible unless it can be adequately shown that the wife’s presence on the trip has a bona fide business purpose. Rev. Rul. 55-57, C. B. 1955-1, 315. The wife’s performance of some incidental service does not cause her expenses to qualify as deductible business expenses. The same rules are applicable with respect to any other members of the taxpayer’s family who accompany him on such a trip.” Therefore a portion of the cruise or all of it could be nondeductible depending on the facts and circumstances for the trip.

    As a Schedule C taxpayer when selling Mary Kay products you have a slightly higher risk of being audited by the IRS. Additionally, a few Mary Kay consultants/directors have already gone through tax court. It may help to look up some of the cases since they are precedent.

    Mayme Carlee Jackson, TC Memo 1995-507, Code Sec(s). 61; 162; 170, 10/24/1995

    Frank E. Harris, TC Memo 1992-638., Code Sec(s). 183; 6653; 6661, 11/03/1992

    1. TRACY

      In this case, it is NOT a business trip. It is a personal trip, with a teeny tiny amount of business thrown in. It’s going to be hard to legitimately deduct any of it.

      And of course, the hobby loss rules are also in play.

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