Thursday, February 21, 2013

Tax Break for Whale Hunting

Internal Revenue Code section 170(n) allows certain whaling captains to deduct up to $10,000 a year for their expenses in whale hunting activities.  The $10,000 deduction is treated as a charitable contribution.   The provision was added by the American Jobs Creation Act of 2004, as one of the many new tax provisions that promote both jobs and charity.

Unlike most other "charitable" contributions, the deduction is allowed even if the expenses are not paid directly to any charity.  The expenses can include food and weapons for the crew, as well as costs incurred in storing and distributing the whale meat. 

The Alaska Eskimo Whaling Commission must give the whaling captain the responsibility of carrying out sanctioned whaling activities, so not everyone should go out and hunt whales all at once.

Section 170(n) is not the only instance where "whaling" appears in the Internal Revenue Code.  Section 6421 provides that gasoline is not subject to excise taxes (around 20 cents per gallon) if it is used for "off-highway business use."  Off-highway business use does not include the use of gasoline in boats, but it does include the use of gasoline by fisheries and whaling businesses.  As a result, whaling ships can save some money when they fill up at the gas station.

The lucrative tax breaks above should be of special interest to those interested in dating whaling captains

Section 170(n) Expenses paid by certain whaling captains in support of native Alaskan subsistence whaling.  
(1) In general.
In the case of an individual who is recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities and who engages in such activities during the taxable year, the amount described in paragraph (2) (to the extent such amount does not exceed $10,000 for the taxable year) shall be treated for purposes of this section as a charitable contribution.
(2) Amount described.
(A) In general. The amount described in this paragraph is the aggregate of the reasonable and necessary whaling expenses paid by the taxpayer during the taxable year in carrying out sanctioned whaling activities.
(B) Whaling expenses. For purposes of subparagraph (A) , the term “whaling expenses” includes expenses for—
(i) the acquisition and maintenance of whaling boats, weapons, and gear used in sanctioned whaling activities,
(ii) the supplying of food for the crew and other provisions for carrying out such activities, and
(iii) storage and distribution of the catch from such activities.
(3) Sanctioned whaling activities.
For purposes of this subsection , the term “sanctioned whaling activities” means subsistence bowhead whale hunting activities conducted pursuant to the management plan of the Alaska Eskimo Whaling Commission.
(4) Substantiation of expenses.
The Secretary shall issue guidance requiring that the taxpayer substantiate the whaling expenses for which a deduction is claimed under this subsection , including by maintaining appropriate written records with respect to the time, place, date, amount, and nature of the expense, as well as the taxpayer's eligibility for such deduction, and that (to the extent provided by the Secretary) such substantiation be provided as part of the taxpayer's return of tax.

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