Answer: In 1956, the IRS issued Revenue Ruling 56-11 barring any deduction for travel expenses when stockholders attend merely to get information that would help in making future investments. It makes no difference if the taxpayer's major sources of income are dividends and profits from stock sales.
However, the IRS has allowed travel and related expenses when attendance at the annual meeting was deemed necessary to protect the taxpayer's investment. In one ruling, the taxpayer was the leader of a stockholder revolt. In another ruling, a major stockholder was allowed his travel expenses when he introduced and maneuvered to pass a resolution requiring the company to halt the practice of issuing shares at below book value through dividend reinvestment and stock purchase plans.
Often, the courts interpret the law more liberally than the IRS. The Tax Court rejected the travel expenses claimed by William Kinney, who frequently bought and sold substantial blocks of stocks in several public companies. He based his investment decisions, in part, on on-site investigations of factories and retail outlets of these companies. The court sided with the IRS because of the large amount of time Kinney spent with relatives on some 15 trips for the year at issue and his failure to link the disputed trips with his investment activities.
But the court noted that Kinney might have prevailed had he produced evidence to satisfy these four requirements:
1. The trip is part of a rationally planned, systematic investigation of investment opportunities.
2. The costs are reasonable in relation to the size of the investment and value of the information the investor expects to derive from the trip.
3. Personal benefits are secondary. That is, the trip is not a disguised vacation.
4. The information gained on the trip is used in investment decisions.
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