There are lots of ways of establishing a "business look" for your rally team. The easiest of these is to file the team's name as a fictitious business name with your county. The paperwork on that will let you open a checking account in the business name, separate from your personal account.
There are also the options of setting up your rally "business" as a corporation or a limited liability corporation (LLC). These are a little more expensive, but MAY (consult your attorney) protect your personal assets from liability. You don't need a lawyer to set up a corporation or an LLC. There are plenty of do-it-yourself books that will guide you through that process and through what you have to do to stay in good standing with the state.
Remember, though, that your greatest liability stems arises out of ownership of the car. If you think it's difficult getting liability insurance for a car registered to you personally, try getting it for a car registered to and owned by "Crashtime Racing, LLC".
As for the deductibility of rally expenses, your "rally business" has to look like a business, keep books like a business and BE RUN like a business. Then there's one little extra gotcha: Within some reasonable time frame (I think the standard is five years) your business has to show a profit or it is in jeopardy of being reclassified as a hobby, with all prior years' deductions disallowed -- with penalties and interest. That's the best you can hope for should you get reclassified. If there's no evidence that you really intended to make a profit and were just claiming false deductions for a hobby, you're at least exposed to a charge of tax fraud.
With that said, you have to get audited to get reclassified. Having a record of several years of business losses MAY increase your chances of an audit. It doesn't guarantee it.
Some taxpayers -- and some tax advisors -- adhere to the philosophy of "take the deductions now and apologize later if you have to." Others hew to a more conservative line. It's a judgement call. Get informed as to the consequences and odds and make your own judgement.
Oh, and if you figure out a way to actually MAKE money rallying, post it here. Everyone would like to know!
Dick Moser