The Tax Court recently ruled in Luna v. Commissioner (T.C. Summ. Op. 2022-18) that the executive director of a not-for-profit (NFP) was not entitled to deductions for unreimbursed business expenses for trips made to Brazil that were primarily incurred for the benefit of a second, unrelated organization for which the executive director served as a board member.
The court in Luna held that the executive director of the NFP did not provide sufficient evidence showing the connection between the trips and the trade or business of the NFP, and also held that the executive director did not demonstrate how trips to fulfill board member duties to the second organization were “helpful” to the executive director’s position with the NFP.
In addition, while the Tax Court held the executive director’s invoices, credit card statements, and receipts related to the executive director’s trips to Brazil satisfied the relevant substantiation requirements of Section 274(d) (and applicable regulations), the court found that the executive director failed to demonstrate how the trips were “ordinary and necessary” to his employment with the NFP. The court further opined that the connection between the executive director’s employment and the trips to Brazil was “blurred” by the executive director’s practice of regularly travelling to Brazil solely to fulfill his board member duties of the second organization long before his employment with the NFP began.
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