For 40 years, Townsend Industries, Inc., deducted the costs of fishing trips for some employees. Now the Internal Revenue Service says, this was for fun, and it demands social security taxes of $58,000 for the last two years. It said employees participating received their regular compensation and were not charged vacation time.

 

The company, founded and owned by Robert Townsend, manufacturers printing press attachments in Altoona , Iowa , which it distributes internationally.

 

Challenging the IRS , the company said the trips helped the business. It showed the agenda to prove it: Monday and Tuesday – sales meetings, Wednesday – travel to the fishing site , Thursday and Friday – fishing, Saturday – return to company headquarters. Salespeople and executives also attend, with boat and sleeping assignments arranged to promote work conversations. Evidence indicated business discussions with social conversations occurred.

 

At sales meetings, engineers discussed new models manufactured by the company. Friday, Townsend and chief officer, John Jorgensen, addresses the current and future state of the company.

 

The lower court said payments to employees were subject to social security taxes because the trips were voluntary. The higher court said trips were not altogether voluntary; the company pressured employees to attend. Anyway, it added, the voluntary or involuntary nature was not determinative. Often the meetings involved discussions of the company's competitors, customers' problems and complaints and afforded a unique opportunity for the national sales staff to interact with manufacturing employees. Further, the fishing trip didn't include everyone. Those in plastics, for example, didn't get an invitation.

 

The higher court reversed the IRS and the lower court saying the company did not owe social security taxes. These were business trips. The expenses qualified as a working condition fringe benefit.

 

The higher court cautioned other businesses: A company may not sponsor trips to vacation spots thinking it could avoid social security taxes by merely presenting testimony relating to business allegedly conducted during the trip.

 

PLANNING: To avoid the tax, the company must have a realistic expectation to gain concrete benefits from the trip that would not otherwise occur.

 

For more information, see Business at www.taxfables.com

 

THE MORAL: Deducting a fishing trip can be a whale of a problem.