U.S. Sues CPA Over Mariner Filings

The Justice Department is accusing an El Segundo tax accountant of claiming a deduction for his oceangoing clients that isn’t exactly seaworthy.

Martin A. Kapp specializes in handling tax returns for workers in the transportation industry, such as airline pilots and railroad engineers. But it’s his self-devised method for claiming meal deductions for merchant sailors and tugboat captains that prompted the government to sue him in U.S. District Court in Los Angeles.

Kapp uses his so-called mariner’s deduction to claim per diem meal and incidental expenses for each day his clients are at sea. Taxpayers who travel on business are allowed to deduct the cost of the trip using a standard per diem deduction instead of keeping track of their actual meal and incidental costs.

The government contends that Kapp’s clients can’t claim the deduction because they get free meals while at sea, and taxpayers can’t claim deductions if they don’t spend any money.

Kapp said he came up with the idea by combining the government’s rules on how it reimburses its own employees for travel expenses -- which allow them to claim per diem amounts even if they’ve received a free meal in transit -- with tax rules on handling meal deductions.

Kapp says government rules -- published in Internal Revenue Service booklets and on the agency’s website -- allow the deductions, regardless of whether the taxpayer actually spends money on meals.

“I am following both my court decisions and IRS’ stated policies on their website and in their revenue procedures,” said Kapp, a certified public accountant who has taught tax classes at Pepperdine University and Los Angeles City College.

The Justice Department, which claims that Kapp is misreading both IRS rules and court rulings, wouldn’t estimate how many of Kapp’s clients had claimed the mariner’s deduction or how much it had cost the government in uncollected taxes. The government is seeking an injunction barring him from claiming the deduction, although it isn’t trying to prevent him from preparing returns, according to court papers filed Tuesday.

The government also is seeking an order requiring Kapp to give tax officials a list of his clients who claimed the mariner’s deductions. No hearing date has been set.

Justice Department officials said they had won injunctions in similar cases in Louisiana and Alabama.