Tax Rules For Foreign Conventions, Seminars, or Meetings
The IRS has specific rules for what expenses are tax deductible when workers travel outside of the United States for conventions, seminars, or meetings.
No deduction is allowed for expenses allocable to a work-related event or gathering which is held outside the North American area unless the taxpayer establishes:
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The meeting is directly related to the active conduct of the taxpayer’s trade or business, and
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It is “as reasonable” for the meeting to be held outside the North American area as within (Code Sec. 274(h)(1)).
Code Sec. 274(h)(3)(A) defines the term “North American area” to be the U.S., its possessions (Puerto Rico is considered a possession for this purpose), the Trust Territory of the Pacific Islands, Canada and Mexico. Rev Rul 82151, 1982-2 CB 75 says that U.S. Virgin Islands, Guam, and American Samoa are also part of the “North American area.”
The Jamaica Treaty, Article 25, permits a deduction for expenses of attending a convention in Jamaica. The expenses must be ordinary and necessary in order to be deductible. The “as reasonable” test does not apply to Jamaican conventions or seminars beginning after 1/01/82.
In 1983, legislation expanded the definition of “North American area” to include some Caribbean basin countries and Bermuda (designated “beneficiary countries” by presidential proclamation). To be eligible, the “beneficiary” country must have an agreement with the United States to exchange tax information. The agreement must be in effect at the time the convention begins. The “beneficiary” country cannot discriminate in its tax laws against conventions and similar meetings held in the United States or U.S. possessions.
Rev. Rul. 2011-26, I.R.B. 2011-48, as modified and superseded by Rev. Rul. 2016-16lists the following geographical areas as “North American area”:
(1) The 50 United States and the District of Columbia
(2) Possessions of American Samoa, Baker Island, Puerto Rico, Northern Mariana Islands, Guam, Howland Island, Jarvis Island, Johnston Island, Kingman Reef, Midway Islands, Palmyra Atoll, U.S. Virgin Islands, Wake Island, and “other U.S. islands, cays and reefs not part of the fifty states or District of Columbia”
(3) Canada
(4) Mexico
(5) Republic of the Marshall Islands
(6) Federated States of Micronesia
(7) Republic of Palau
(8) Antigua (after 2/9/03)
(9) Aruba (after 9/12/2004)
(10) Bahamas (after 12/31/2005)
(11) Barbados (after 11/2/84)
(12) Barbuda (after 2/9/03)
(13) Bermuda (after 12/1/88)
(14) Costa Rica (after 2/11/91)
(15) Curacao (after 12/22/13)
(16) Dominica (after 5/7/88)
(17) Dominican Republic (after 10/11/87)
(18) Grenada (after 7/12/87)
(19) Guyana (after 8/6/92)
(20) Honduras (after 10/10/91)
(21) Jamaica (after 12/17/86)
(22)Panama (after 4/18/2011)
(23) St Lucia (after May 5, 2014)
(24) Trinidad (after 2/8/90)
(25) Tobago (after 2/8/90)
The Rev Rul states that expenses for conventions in these areas may be deducted as provided in §274(h). The factors to be taken into account in determining whether the foreign convention meets the “as reasonable” test are:
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The purpose of and the activities taking place at the meeting;
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The purposes and activities of the sponsoring organization;
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The residences of the active members of the sponsoring organization and the places at which other meetings of the sponsoring organization or groups have been held or will be held; and
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Other relevant factors that the taxpayer may present.
The Senate Finance Committee explained: “The bill makes clear that the foreign convention provisions do not apply to normal business meetings for employees of a company” (Committee Report (P.L. 96-608, 12/28/86)). If the seminar is a reward for an employee, it must be included in income on the employee’s W-2 or Form 1099, even if less than $600.